Market Overview

New Home Sales Rise More than Expected, Hit 2-Year High

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The New Residential Sales report measures the number of new single-family homes that were sold during the prior month. Results from this report are somewhat correlated to those of the Existing Home Sales report.

Sales of new single-family houses in May 2012 reached a seasonally adjusted annual rate of 369,000, according to estimates released jointly Monday by the U.S. Census Bureau and the Department of Housing and Urban Development.

These results hit a two-year high and beat the 347 thousand expected by analysts. In addition, Monday's results were 7.6 percent above the revised April rate of 343,000 and 19.8 percent above the May 2011 estimate of 308,000. Investors might consider Monday's reading to be a bullish signal for the U.S. housing market.

U.S. equity markets saw an initial spike higher after new home sales rose 7.6 percent month-over-month to a two-year high. However, a few minutes after the release, investors sold risky assets on continued European debt worries and slowing global economic growth.

The median sales price of new houses sold in May 2012 was $234,500 and the average sales price was $273,500. The seasonally adjusted estimate of new houses for sale at the end of May was 145,000. This represents a supply of 4.7 months at the current sales rate.

An increase in new homes sold implies a healthy housing market. Moreover, housing has an impact on the rest of the economy. Increases in homes sold suggest increased household income and in turn an economic expansion.

Traders who believe that Monday's beat in Existing Home Sales is a leading indicator for the general housing market might want to consider the following trades:

  • Long building companies like PulteGroup (NYSE: PHM) because more new houses being sold might drive construction demand. This potential increase in construction demand may bolster home builders.
  • Long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
  • Short do-it-yourself stores like Lowes (NYSE: LOW) or Home Depot (NYSE: HD) because if new home sales increase, consumers might be less likely to fix up their existing homes.
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