According to the Census Bureau, new home sales jumped 9.6% from June to July to a seasonally adjusted annual rate of 433,000.
This is the highest rate of home sales since August of 2008. However, new home sales are still down -13.4% from last July.
The inventory of unsold new homes fell -3.2% from last month to 271,000 and is down -35.3% from last year. This is a massive improvement and as a result, the month's supply of housing fell to a 7.5 month supply.
There are all positive indicators for the new home market. As new homes are built, jobs are created, supplies and materials are purchased, and local municipalities benefit from new sources of tax revenue.
The question that remains, as it does with the broader economy, is whether or not the housing market will be able to sustain these improvements once the Fed begins to tighten the monetary policy and raise rates.
The Fed has committed to purchase $1.25 trillion in mortgage backed securities and has kept the federal funds rate at near zero. And yet despite this funny money policy, the new home market is still off -13.4% from the pace last year. What happens when the Fed removes this stimulus?