Sales of new homes in the US jumped to 654K in July. This is a leap of 12.4% month over month in this volatile indicator. However, also in yearly terms, this is very impressive: 31.3%. A level of 580K was expected, similar to the updated figure for June: 582K.
In theory, this should be great news: a boost in sales of new homes implies much wider economic activity in the US: strong growth that should reverberate around the economy. Perhaps the Fed should raise rates soon to get ahead of the curve.
Not so fast.
Regarding the Fed’s decision, there are many other factors: economic indicators, uncertainty, global considerations and the upcoming US elections. Yellen and her colleagues are unlikely to move in September.
Yet also when looking at home sales, it would be wiser to curb this enthusiasm. Just three months ago, the US reported an advance to 619K for April. A month later, this was revised down to 586K. So, we would need a confirmation that the rise to 654K is indeed genuine. In addition, a similar level for the month of August would confirm this is a trend and not a one-off.
If these conditions are met, the figure we are seeing today would be confirmed as the highest since late 2007, just before the housing slump turned into an outright recession.