New-home sales fell 9.4 percent in July to a 571,000 seasonally adjusted annual rate from 630,000 in June. The four major regions of the country had widely differing performances in July, with two regions posting sharp, double-digit declines, one posting a small decline, and one posting a gain. Specifically, the largest region, the South — which accounted for about 57 percent of total sales — had a mild 4.1 percent decline for the month. The West— which had a 25 percent share of sales in July — slumped 21.3 percent for the month while the Midwest — the third-largest segment, at 12 percent of sales — was up 6.2 percent for the month. The smallest share of sales in July came in the Northeast, where sales fell 23.8 percent for the month.
Inventories of new homes for sale rose 1.5 percent in the month, to 276,000 from 272,000 in June. The combination of slower sales and higher inventory pushed the months’ supply — inventory divided by monthly sales rate — to 5.8 months, up from 5.2 months in June.
Two key developments to watch if new-home sales continue to slow are the impact on home prices and the impact on future new-home construction. Home prices have been posting solid gains in recent quarters as tight supply has favored sellers and builders. If demand wanes, price increases are likely to slow. Softening demand for new single-family homes would likely mean builders may slow the pace of new construction. That development would first show up in permits for new construction, one of the AIER leading indicators. If that trend were to continue, expect to see a slower pace of hiring or eventually layoffs in the construction industry and lower profits for the home builders.
It’s too early to anticipate significant fallout, but the recent softening is worth monitoring.