New Home Sales Climb Faster Than Forecast, Easing Rate Rise Fears

Following the strong Case-Shiller Home Price Index report for April and other strong data on the housing market, New Home Sales for May rose faster than expected, new data released Tuesday showed.

The flood of housing related data boosted homebuilder stocks in early Tuesday trade.

New Home Sales Rise

New Home Sales in April rose to 476 thousand, much better than the expected 470 thousand reading. Further, April's number was revised higher to 466 thousand from the previous estimate of 454 thousand.

On a percentage basis, New Home Sales rose 2.1 percent in May from April, much faster than the forecast rise of 1.3 percent. April's gain of 2.3 percent was revised a full percentage point higher to 3.3 percent also, rounding out a strong day of housing related data.

Rate Fears Persist

Despite the better than expected housing data from Tuesday morning, fears persisted over the recent run up in rates. Recent figures have shown that mortgage rates have climbed about 100 basis points or a full percent since May 22 as benchmark bind yields have risen as well. This "de facto monetary tightening" could weigh on the housing recovery that has gone into hyperdrive since late 2012.

Comments from the Chief Economist behind the Case-Shiller Home Price Index failed to reassure markets that rate rises will not negatively affect the housing market and yields pushed higher. After initially dropping on the record Case-Shiller report, the 10-year Treasury yield rose to session highs at 2.58 percent. Rates have risen nearly 100 basis points since May's low near 1.6 percent, a massive move for such a short time span.

Stocks Gain

U.S. stocks gained on the news as stronger than expected housing data propelled stocks higher. S&P 500 futures traded off of session highs but were still up 0.4 percent at 1,572.50 after trading as high as 1,582.50. Shares of homebuilders, measured by the SPDR S&P Homebuilders ETF XHB rose 1.79 percent, led by Lennar LEN after the homebuilder reported better than expected earnings.

On a positive note, the CBOE S&P 500 Volatility Index, known commonly as the VIX, declined 4.43 percent to 19.22 after climbing as high as 23.23 Monday.