This week's "Pending Home Sales" report just got a whole lot more important.
There was nothing subtle about the drop in July new home sales as reported on Friday. New home sales fell a remarkable 13.4 percent off of negatively revised levels for June.
On a year-over-year basis, July new home sales were 8 percent higher, as compared to an average of +25 percent over the first half of the year.
Although on a nationwide basis, July was somewhat of a soggy month, and we should never put too much weight on one singular report, the data for July seem to clearly show a strong negative influence from the recent jump in interest rates.
Sure, inventories in the space are tight and prospective buyers didn't have a lot of properties to choose from in July, but this has been the case in the new home sector for many months -- with sales only showing constraint -- not big declines.
As we have noted on prior occasions, new home sales are recorded at the time of contract signing. This contrasts with the existing home market where a sale is not registered until the closing (typically two months after a sales contract is signed). As such, new home sales data typically reveal fundamental changes in the economic environment before existing home sales data.
This means that Wednesday's report on Pending Home Sales for the month of July (which are based on purchase contracts as opposed to closings on existing home sales) will be very closely watched to see if rising interest rates are indeed having such a strong negative impact on a sector that has been the strongest driver of the recovery.
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