Investors Cheer New Home Sales Blowout

May 25, 2016United Statesby EW News Desk Team

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Investors dived into the stock market after American home sales crushed expectations with double-digit gains.  New home sales in April soared to 16.6% more than sales in March and 23.8% from a year ago, according to a new report by the Census Bureau.

Analysts had expected just a 2% increase, so the actual figures are far beyond expectations. Economists had lowered their hopes for housing after weak economic data in the first quarter suggested a slowdown in home purchasing activity. This trend was also reinforced by rising home prices and near-flat real wages, making homes increasingly unaffordable for many Americans.

Americans, however, may be purchasing more new homes as credit becomes more readily available and new homes become more competitive with higher-priced existing homes. Recently, existing homes saw a modest boost to demand, with existing-home prices rising 5.7% on a year-over-year basis. That was partly due to lower inventory, which National Association of Realtors Chief Economist Lawrence Yun described as “unevenness in the rate of new listings coming onto the market."

That has bolstered new home sales to increase at a seasonally adjusted annual rate of 619,000. New home sale prices are also on the rise; in April, the median sale price of a new home was $321,000. The biggest gains in home sales were seen in middle-priced houses being sold for $300,000 to $399,999.

Investors Cheer

The news bolstered the stock price of homebuilders, which were also helped by strong results from Toll Brothers, a manufacturer largely focused on the upper end of the housing market. Toll Brothers reported that revenues rose 31.4% on a year-over-year basis in the fiscal second quarter, with net-signed contracts and units rising 3% in the quarter.

Toll Brothers expects to deliver between 5,800 and 6,300 homes to homebuyers in the 2016 fiscal year, with homes priced at an average $820,000-$850,000. Strong demand has also caused the homebuilder’s backlog to rise to 4,940 units, an increase of 13% from a year ago.

Toll Brothers CEO Douglas C. Yearley cited strength in west coast states as driving their business. "We believe the California market is still strong. Both Southern and Northern California were among our top 5 regions in contracts per community this quarter,” Yearley said, adding that the company has strategically lowered its available inventory in California to drive up prices. "Our drop in California contracts reflects a temporary lack of inventory for sale; strategic price increases we have implemented to meter out sales in communities with large backlogs,” he said.

Other homebuilders also posted big gains after Toll Brothers and the Census Bureau reported their findings. KB Home, Beazer, Lennar, Pulte, and D.R. Horton were the biggest winners, with one-day stock price gains of over 3%, and over 5% for Beazer.

Economists may change their perception of the housing market in light of the new data, and forward-expectations for an interest rate hike from the Federal Reserve are likely to rise. Yields on the 10-year Treasury rose after the news, while short-term Treasuries have still increased their yields by nearly half over the last month.

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