US New Home Sales Post 8 year High

Data released for new US single-family home sales surprisingly soared in July, as it reached its highest level in almost 9 years surrounded by a very healthy demand, this was a major uptick for the housing market outlook as it also promoted the idea that there will be an upswing in economic growth in the third quarter.

The new found strength of the housing market should ward off some of the shortcomings of the earlier released US Manufacturing PMI, as its data revealed a shrinkage in production at factories due to weak orders.

"A very rosy picture is beginning to emerge on the housing market, pointing to sustained buoyancy in the sector's recovery, which remains one of the few bright spots for the U.S. economy," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The US Commerce Department reported a 12.4% rise in new home sales to a seasonally adjusted annual rate of 654,000 units last month, this is the highest level since October 2007. It was also the fifth consecutive monthly gain in new home sales. The growth seen in July was most likely exaggerated the strength of the housing market as it has not yet been matched by housing demand. But sales remain 31.3% higher when compared with the same period a year ago.

“New home sales soared again,” said Ralph McLaughlin, economist at real estate website Trulia. “This is a continued sign that demand for new homes remains solid in a low interest rate, low unemployment environment.”

In a survey conducted by the Wall Street Journal, economists were shown to have expected home sales in July to slow to a pace of 580,000. Sales in June were revised down to a pace of 582,000 from the initially estimated value of 592,000. Through the first seven months of the year, new home have also grown by 12.4%, compared to the same period in 2015.

The Construction of single-family homes have gained some momentum this year and investors share the opinion that the trend has come to stay. The Shares of building companies such as Toll Brother and Lennar Corp have soared for the last few quarters as they were both more than 1% higher in early trading hours on Tuesday.

"We see tremendous growth potential in new home sales as housing demand continues to grow and the continued supply shortage of newer vintage homes," said Tian Liu, chief economist at Genworth Mortgage Insurance.

The data will most likely spur confidence in the US housing sector, although concerns over signs of a further tightening in market conditions given the decline in supply will remain on the minds of investors. A lack of supply will also raise the pressure for construction starts to be scaled up.