The new home sales data for July shocked Wall Street this morning by coming in much lower than expected at just 394,000 compared to expectations of 487,000.
June was also revised lower to 455,000 from 497,000.
It was the largest month over month drop since 2010 when the housing recovery was iffy, at best.
Inventory also rose by 4.3% to 5.2 months but this isn't anywhere near the danger zone as inventory under 6 months is still considered a sellers market. New home inventory reached an all time high of 12.1 months in January 2009.
But Existing Sales Still Strong
This report was in contrast to the great existing home sales report earlier this week.
Existing home sales in July rose 6.5% and were the best since 2009. Median existing home prices rose 13.7% year over year. This report was regarded as a sign that the housing recovery was for real.
But new mortgage applications have been falling since mortgage rates started rising in May. However, it wasn't until July 5 when the 10-year hit new 2-year highs, that mortgage rates really ticked sharply higher. 10-year yields have only continued to climb since early July. Mortgage rates recently hit 2-year highs.
Many existing home buyers in July most likely locked in rates 30 to 90 days before, when mortgage rates were lower. So the impact of rising rates wouldn't be as apparent on those buyers. Despite rising rates, they went ahead and purchased the house because they still had the lower rates.
But new home buyers are usually signing a contract with closing happening months later, especially if construction hasn't even started yet on the home. That means new home buyers are most likely only able to get the higher mortgage rates.
Does this report confirm that rising mortgage rates are starting to hamper the housing recovery?
And if housing is suddenly slowing, will this cast doubts on possible September tapering?