New Home Sales Increased in January

The U.S. Census Bureau reported on Wednesday, after the opening bell, that new home sales in January increased a strong 7.9% month-over-month (+18.6% YoY) to a seasonally adjusted annual rate of 764,000. The reading topped expectations for a 718,250 seasonally adjusted unit rate. Compounding the solid reading, December's estimate was revised higher, to a 708,000 unit rate, from 964,000 previously.

Of the 764,000 new homes sold during the period, 218,000 have yet to begin construction, while 276,000 remain under construction. These two numbers are useful to understand, because the stage of construction can be helpful for two reasons. First, it can indicate additional work to come for labor forces tied to the home building market, and second, it can point to the potential for additional sales to come for those companies that supply building materials for new homes, such as our Home Depot (HD) holding.

Digging deeper, month over month, while sales fell 4.4% in the West (-2.4% YoY), this was more than offset by a 4.8% increase in the Northeast (+46.7% YoY), a 23.5% increase in the West (+49.1% YoY), and a 30.3% advance in the Midwest (+47.8% YoY).

As for costs, no doubt aiding the better than expected monthly increase in sales, the average selling price in December decreased to $373,300 from $384,800 in December. The median sales price also moved lower, decreasing to $24,100 from $328,000 in December.

Inventories, at the current rate of sales, currently sit at 5.1 months, on a seasonally adjusted basis, down slightly from the 5.5-month level seen in December and November.

Additionally, as members know, price tag is only one factor impacting affordability, the other major influence being mortgage rates as these directly impact the monthly burden of purchasing a home. On that note, while prices in addition to the monthly decline in rates, mortgage rates have also come down to help further increase affordability, currently sitting 3.49% for a 30-year fixed rate mortgage (as of 2/20/2020), according to Freddie Mac (here).

All in, as has been the case recently, we believe the overall trend (which can be seen in the graphic, above) continues to head in the right direction as the job market, and therefore the consumer, remains resilient. While the coronavirus does pose a very real risk, we believe that should it be contained domestically, the macroeconomic backdrop remains supportive of continued growth in the housing market, which as members know, we believe "punches above its weight".

For members interested in digging deeper, please see the official release, here.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long HD.