Today's
release of New Home Sales figures for July were yet another indication
that this year's rise in interest rates has yet to impact the consumer's
desire to spend.
July New Home Sales came in at a much
stronger than expected 980,000, compared to the 920,000 consensus
estimate. The figures were the second highest ever, and occurred despite
rising mortgage rates and a Fed rate hike. June figures were also
revised up to 979,000 from 929,000.
The strongest gains in New Home sales occurred
in the Northeast and Midwest. The gains in the Midwestern rustbelt occurred
amidst the backdrop of a manufacturing sector that has recently begun to
show new signs of life, and with that new life has come a pickup in
consumer confidence in the region's industrialized areas.
The West was the only area to show a
decline, as new home sales fell to 249,000 from June's revised 286,000.
The region has been the hardest hit by the materials shortages and labor
market tightness that have developed in the home building industry, and
the decline in sales was more likely due to builders' supply constraints
than to an actual decline in demand.
The supply of new homes remained at a
low 3.8 months, a level which will likely produce a pickup in building
activity during the third and fourth quarters.
The strength of the housing market
despite a sharp runup in mortgage rates, and the ripple effect it has on
related sectors of the economy, points to an economy that is still going
full steam despite two Fed rate hikes and a 130 basis point rise in long
term yields from last year's lows.
The strong housing market, when coupled
with the pickup in manufacturing activity we expect this quarter as
inventories are replenished, and the corresponding rise in labor
shortages, indicates that the Fed's job is far from done.
With the consumer basking in the
psychologically beneficial glow of this year's sharp runup in equity
prices, it will take much more than two quarter point rate hikes to slow
the consumer. When you're looking at a 50% rise in the value of your
portfolio of Dow Industrials and NASDAQ stocks since last October's lows,
the 1/2% hike the Fed has thrown your way is unlikely to dim your desire
to spend.
