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9 Things More Important to Home Builders and Developers Than Friday’s New-home Sales Data
John McManus / BUILDER / August 26, 2013
From Friday’s Census Bureau release of new-home sales data, mainstream business media outlets and Wall Street analysts have drawn the conclusion that post-Fed quantitative easing interest rate spikes are killing the newborn housing rebound. Even within home building and development’s community, there are two distinct camps: one that says interest rates are sucking the mojo out of recovery; and one that says recovery’s taking on a life of its own that will trump interest rates. PULSE weighs in with 9 things home builders and their business, capital, and trade partners should focus on that are at least–if not more– important to surviving and thriving than the July new-home sales release last week.
First, let’s at least say hello to the 800 pound gorilla in the room. Interest rates started going up in May at the first hint of Fed “taper” plans, and immediately investment, funding, lending folks got set on edge. When capital sneezes, home building gets a cold.
Everyone knows interest rates are going up. How fast and by how much anyone can only guess. Also, when they do go up, it’s pure speculation right now as to what their ultimate impact on housing demand will be, because interest rate increases won’t happen in a housing vacuum. They’ll go up, eventually the second order of house price increases will start to stabilize, and then the market will re-find its equilibrium.
So, yes, interest rates very likely had an impact on the fact that on an not-annualized basis, new home sales fell to their lowest monthly total since December 2012 (but still were 7% higher on a not-annualized basis than in July 2012).
But as Calculated Risk’s Bill McBride notes:
1. This is just one month of data (I note this whenever we see a weak or strong sales report). There is plenty of month-to-month noise for new home sales and frequent large revisions.
2. The downward revisions to previous months were expected (In the weekly schedule I wrote: “Based on the homebuilder reports, there will probably be some downward revisions to sales for previous months.”). But these revisions do suggest the housing recovery was not as strong as previously thought.