US: Underlying demand for homes remains strong

Data released on Friday showed New Home Sales rose in August by 1.5%, against expectations of a modest decline. According to analysts at Wells Fargo, sales have cooled down compared to the feverish pace seen in late 2020 and early 2021 but they argue that despite some moderation recently, the overall pace of sales is still very strong relative to before the pandemic.

Key Quotes:

“New home sales rose 1.5% to a 740,000-unit pace during August. The modest pick-up in sales continues to show that underlying demand for homes remains strong. The slight pull-back in sales experienced this spring and early summer likely had more to do with builders struggling to build enough homes to show prospective buyers. It is challenging to sell a home when you are unable to tell a buyer when that home will be completed.”

“Lumber prices have come down from the exorbitant levels seen this spring. Other key building materials, however, remain in short supply, which is delaying new starts and preventing projects from wrapping up. An uptick in the already lofty NAHB/Wells Fargo Housing Market Index (HMI) for the month of September, which was released separately this week, provides addition evidence that builders are still overwhelmingly optimistic, even with supply-side headwinds.”

“The 740,000 unit pace registered during the month is the fastest since April. Sales have cooled down compared to the feverish pace seen in late 2020 and early 2021. Despite some moderation recently, the overall pace of sales is still very strong relative to before the pandemic. For context, there were 683,000 new homes sold in 2019.”

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