US: New home sales rebound implies hurricane recovery boost – Nomura

US new home sales jumped strongly by 18.9% m-o-m to an annual rate of 667k in September, well above expectations (Nomura: -0.9% to 555k, Consensus: -1.1% to 554k) while sales in August and July were revised up modestly, notes the research team at Nomura.

Key Quotes

“Among the four regions, the South showed a sharp 25.8% m-o-m increase, while sales excluding the South also rose strongly by 9.6% m-o-m. New home sales, which track new sales contracts signed on new homes, tend to be volatile. It appears that sales activity picked up in the South as many consumers in the hurricane-affected areas (e.g., the Greater Houston area and a large part of Florida) are seeking replacement housing. This acceleration suggests that the recovery is well underway in these regions. In the previous cases of major hurricanes, new home sales showed a tendency to drop in the landfall month but subsequently rebound.”

“Reflecting a sharp increase in demand for replacement homes, much of the increase in September new home sales was driven by new sales contracts signed on single-family houses that have not been started. By stage of construction, sales of houses not started accounted for most of the increase. This implies that there may be a boost to single-family residential construction as ground breaking for new houses takes place in the near term. Yet, we expect this boost to be gradual due to limited spare capacity in the construction industry.” 

“Looking through the noise caused by hurricanes, the underlying pace of new home sales appears to be an annual rate of 580k-600k. We think that higher prices due to supply constraints will continue to weigh on demand, making the pace of recovery very gradual.”