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The sales of new single-family homes in the U.S. fell for the second month in a row in July — quite a disappointment after upbeat homebuilder confidence, housing starts and building permits figures announced last week.

Data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau on Monday, Aug 25 showed that new home sales dipped 2.4% to a seasonally adjusted annual rate of 412,000 units in July from a revised June number of 422,000. The decline was below market expectations, even though it improved 12.3% from the year-ago quarter.

New homes inventory for sale was 205,000 units in July. This is a 6-month supply at the current sales pace — the highest so far this year — which suggests that the supply picture is improving.

Data released last Tuesday Aug 19 showed that U.S. housing construction and building permits figures rebounded strongly in July. Housing starts surged to an 8-month high in July, growing 15.7% from the prior month to an annualized rate of 1.093 million units. The July increase was a relief from the decline in the past two months which also beat market expectations.

Building permits, a gauge of future construction, also bucked the previous trend. After declining in June, building permits grew 8.1% in July.

Saleof existing homes rose 2.4% in July, for the fourth consecutive month this year per data released on Aug 21.

Homebuilder confidence data for August released earlier this month hit its highest level since January clearly indicating that builders are upbeat about their prospects for future sales. Homebuilders’ confidence, as indicated by the National Association of Home Builders (NAHB)/Wells Fargo housing market index, rose 2 points to 55 in August.

The softer new home sales numbers came as a surprise, considering that other housing indicators are on the rise which buoyed hopes that the housing market recovery might finally be back on track. However, the continuous downtrend for new home sales raises questions on the sustainability of the construction gains.

Kevin Kelly, chairman of NAHB, resonated that new-home sales is a “volatile metric that can fluctuate significantly from month to month.”

According to Kelly, the higher inventory levels suggest that builders are improving their inventory anticipating improvement in new home sales through the balance of the year. Rising consumer confidence, stabilized mortgage rates this year and improving labor market bode well for increasing demand for new homes.

Homebuilder stocks declined slightly after the softer new home sales numbers were released. KB Home (KBH - Analyst Report), DR Horton, Inc. (DHI - Analyst Report), Hovnanian Enterprises Inc. (HOV - Snapshot Report), and Ryland Group, Inc. (RYL - Snapshot Report) were all down more than 1%. However, Toll Brothers, Inc. (TOL - Analyst Report), Lennar Corp. (LEN - Analyst Report) and PulteGroup Inc. (PHM - Analyst Report) witnessed less than 1% decline.

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