LIVE MARKETS-That new home smell: Sales of new single-family homes beat expectations

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THAT NEW HOME SMELL: SALES OF NEW SINGLE-FAMILY HOMES BEAT EXPECTATIONS

The sales of freshly constructed single-family U.S. homes USHNS=ECI rose by 3.6% in December to 698,000 units at a seasonally adjusted annualized rate (SAAR), according to the Commerce Department.

That's 3.4% north of the 675,000 units SAAR that analysts expected and follows a blowout November, which was upwardly revised to 674,000 SAAR, or monthly increase of 9.6%.

As a result, inventory tightened a bit.

At December's rate of new home sales, it would take 8.5 months to sell every unit on the market, down from 8.7 months in November.

The Commerce Department's report adds one more piece to a growing stack of evidence despite mortgage rates bobbing along near the 7% level, the housing market is regaining some strength.

It supports the most recent print from the National Association of Homebuilders, which showed improved sentiment in the sector and increased traffic from prospective buyers.

Last week, data from the National Association of Realtors showed sales of pre-owned homes rose to a 10-month high in the last weeks of 2024, and on Jan. 17 a report showed housing single-family housing starts touched a 10-month high.

The sector does appear to be climbing out of a hole, but that doesn't negate the hole's existence.

"A lack of supply of existing homes continues to drive buyers to new home sales, but they are only a small slice of the market," writes Carl Weinberg, chief economist at High Frequency Economics. "High mortgage rates and prices continue to impact affordability."

And those high mortgage rates are seen lingering around for a while. When Powell & Co convenes later this week, they are widely seen leaving its key interest rate where it is, and many analysts aren't expecting another rate cut until the second half of the year.

With that in mind, the stock market has lost some enthusiasm for the sector. Over most of the last 12 months, the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX outperformed the broader S&P 500 .SPX.

That relationship inverted toward the end of 2024.

Over the past year, the SPCOMHOME and HGX are up 5.3% and 14.0%, respectively, well underperforming the SPX's 24.7% advance over the same time period.

(Stephen Culp)

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