Quick Note on July New Homes Sales: It Is a Big Deal

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Friday, 23 August 2013 09:24

The Census Bureau reported a 13.4 percent drop in new home sales in July. This could be a really big deal.

House prices had been rising rapidly in many parts of the country and there was a real basis for concern about bubbles in many markets. While these bubbles were not driving the national economy, as they had been in the years 2002-2007, there was a real risk that many homebuyers would again buy into seriously over-valued markets and face large losses on their homes.

It appears that the interest rate hikes in May-June curbed the enthusiasm of investors for real estate, thereby taking the air out of the bubble. The reason why the July new home sales data is important information on this point is that it is giving us data on contracts signed in July. Most other data sources are about sales which reflect contracts that were typically signed 6-8 weeks earlier. The July sales data strongly reinforce realtor accounts of a weakening market in the last two months.