U.S. housing market leading indicator unexpectedly surged, with new home sales in July hitting a one-year high

The data released by the U.S. Department of Commerce on Friday showed that U.S. new home sales in July surged to the highest level since May 2023. Buyers took advantage of lower mortgage rates and more housing options, driving new home sales. In July, new home sales in the U.S. reached 739,000 units, exceeding expectations of 623,000 units and the previous value of 617,000 units in June. New home sales in July rose by 10.6% month-on-month, surpassing the expected 1% increase, while June saw a 0.6% decrease month-on-month. This new home data exceeded all economists' estimates from media surveys. Looking at different regions, new home sales in the four major regions of the U.S. all saw growth. The sales growth rate in the Western region was the fastest since February 2022, and the contract signing volume in the Midwest region was the strongest in three years. Due to the warming sales, builder inventories decreased, falling to the lowest level since the beginning of this year. However, there are still 462,000 homes for sale, close to the highest level since 2008. At the current sales pace, it would take 7.5 months to clear the market inventory, with the inventory-to-sales ratio at its lowest since September last year but still higher than pre-COVID-19 levels. The high inventory helps to suppress prices, with the median sales price of new homes in July down by 1.4% year-on-year to $429,800. This year, there has been only one month where new home prices did not record a year-on-year decline, contrasting with the continuously rising prices in the existing home market. Analysis indicates that the recovery in new home sales shows the combined effect of lower mortgage rates and generous sales incentives from home builders. With existing home supply still very limited, potential buyers have found more options in the new home market. Compared to the existing home market, new homes are more competitively priced. Currently, U.S. mortgage rates have dropped from a peak of nearly 7.3% in April to 6.5%, and with the Federal Reserve preparing to start cutting interest rates next month, mortgage rates are expected to further decline. Federal Reserve Chairman Powell hinted at a rate cut on Friday, signaling a policy adjustment is imminent. Despite overall softness in the real estate industry, the largest U.S. home builders have achieved strong profits by attracting buyers through price cuts and lowering customer mortgage rates. Earlier this week, luxury home builder Toll Brothers reported that deliveries would reach the high end of its full-year forecast, leading to a rise in its stock price. The entire home builder sector has performed well, with the SPDR S&P Homebuilders ETF outperforming the broader U.S. market