New home sales for August came in at a seasonally adjusted annual rate (SAAR) of 1,011,000 units. This was above expectations depending on who you were asking. The August figures from Census put U.S. new home sales up 4.8 percent from July, and up a whopping 43.2 percent from August 2019. New home sales were at the highest levels since 2006. Previous months were also revised higher.

The median price of a new home in August was $312,800. The average price came in at $369,000. Both figures are lower than prices for July and down from August last year. The inventory of new homes dropped to 3.4 months of supply according to unadjusted numbers. That compares with 5.7 months of supply last year.

In a normal market in a normal economy, this would be a spectacular report. Unfortunately, the latest figures from Census are just a reflection of the 2020 pandemic and the Fed’s massive interventions to levitate the markets. Low inventory, record low rates and a big rebound in the stock market helped drive new home sales higher this summer. This happened despite fewer people actually being employed. I mentioned this earlier in the existing home sales report for August.

Average mortgage interest rates were below 3 percent for the month of August and the stock market was rebounding to new highs until it hit a wall recently. That wall is of course the end of artificial stimulus coming from the central bank or Congress to push up asset prices further. It is worth noting both median and average prices for new homes fell in August. It would appear the economic recovery is stalling without new stimulus. This should not be surprising. The housing market is now extremely dependent on artificial stimulus to keep sales and prices levitated. Did I mention it’s an election year?

The Census counts new home sales at the time of contract signing. The closest comparison we have for North Texas new home sales would be pending sales of new construction. Updated figures show pending new home sales in the DFW area up 37 percent from August of last year.

To understand the ramp in new home sales, it helps to view them in the context of the Fed’s balance sheet. Up, up and away!

Fed Balance Sheet September 23 2020