New home sales surprised to the upside, coming in at 544K.
The spin by the real estate industry in the mainstream financial media is that this report bodes well for 2016 and future home sales. I disagree with that analysis.
We know from the Retail Sales report that consumers are broke and no one has any money as wages have been flat and rising healthcare costs have taken away any benefit that low oil and gas prices have provided to the consumer.
The other spin that real estate professionals are putting forth is that low supply is what is holding back sales. That’s an absurd point. Go back and take a macroeconomics course on supply and demand. It’s movement along the demand curve that primarily drives sales and supply, not the supply curve. In very unusual, external events that impact supply, ie supply shocks, yes, they do impact price but that’s not what we currently have happening.
So why are new home sales moving higher?
Professional investment groups and foreigners are the primary buyers of new homes and they are doing this because the Federal Reserve has put us into a rising rates environment. In other words, the price to finance a new home purchase is only going to rise from here and so you have this last push to purchase a home while finance costs are still this low.
What these investment groups are doing is that they know that most consumers don’t have any money so they will have to rent. They are purchasing new homes while the financing is cheap, then renting them out as demand for rentals explodes higher. They will use that rental home to generate cash-flow while they wait for home prices to rise in this rising rates environment. When home prices eventually do, they’ll sell the home and make a windfall.
Do not get me wrong, I’m not a perma-bear. This is just a theory of mine right now based on other economic reports I track for you each month. Think about it. Nobody has any money as evidenced by the drop in the price of oil not even helping retail sales, but boy they sure do have enough money to buy a new home? That doesn’t make any sense.
It is a grand-unified theory and view that is consistent with other economic reports that show the economy is drastically slowing. Remember folks, when you see monthly economic reports that seem to contradict each other, most often they really don’t. Instead, it’s your own interpretation that needs modifying. Zoom-out on your economic analysis and search for a theory that unifies all the reports, and your forecasting will improve. Now with that said, everything I just told you could be wrong. As you probably know, economic forecasting is a lot like weather forecasting. Enough said.
Here is an updated new home sales chart: