Forex Signals: U.S.: Monthly home prices increase while new home sales unexpectedly decrease

Wednesday, July 27, 2011

U.S.: Monthly home prices increase while new home sales unexpectedly decrease

The Case-Shiller Home Price Indices increased in May for a second consecutive month, up 1.1% and 1.0% MoM for the 10- and 20-city composites, respectively
New home sales down 1.0% in June to 312K, lower than the expected 321K consensus

Data released today for the Case-Shiller Home Price Indices indicate that non-seasonally-adjusted prices increased in May for a second consecutive month, up 1.1% and 1.0% MoM for the 10- and 20-city composites, respectively. Positive monthly price changes were seen in 16 of the 20 Metropolitan Statistical Areas (MSAs), mostly due to a seasonal increase in demand. On a seasonally-adjusted basis, however, prices were effectively unchanged in May. Furthermore, YoY prices continued to decline, down 3.6% and 4.5% for the 10- and 20-city composites, respectively. Nineteen of the 20 MSAs posted price declines on an annual basis, with Washington DC showing the only increase at 1.3% YoY. Although the data suggests that the real estate market may be experiencing some seasonal price increases, it is not clear that the market is in recovery just yet.

Also, new single-family home sales fell 1.0% in June to 312K following a revised 319K in May, despite higher consensus expectations. The discouraging employment outlook and decreased consumer confidence most likely contributed to weaker demand for new homes in June. Supply of new homes decreased slightly to 6.3 months, with 3K fewer homes available for sale than in May. On a more positive note, average house prices rose 1.8% MoM, while YoY prices were up 4.8%, suggesting a stronger outlook for the housing market. However, the resiliency of a housing market recovery is yet to be determined.

In sum, monthly increases in the Case-Shiller Home Price Indices and rising prices of new homes may be signals that the real estate market is approaching a recovery. However, as indicated by a decrease in new home sales in June, demand for homes remains uncertain. The negative employment situation has impacted job stability, ultimately affecting consumer confidence and spending habits. In line with our baseline scenario for moderate labor market growth in 2H11, we expect that home prices and sales will respond accordingly.