New Home Sales (AUG)

Previous       515 Thousand
Forecast        510 Thousand

Definition     

Is an economic indicator in the United States released by the US Department of Commerce's Census Bureau, it's published on a monthly basis for the prior month, including both prices and quantity statistics. It is an indicator that reports sales to newly constructed residences in the US.
It is looked at as a lagging indicator for demand on the market, and in definition to New Homes it is considered the deal done in the year the house was built or the year after that.

The data is provided monthly on the Census Bureau's website they are reported in unadjusted monthly rates and seasonally adjusted on the year. The importance for this indicator steams from the ripple effect is has on sales, especially durables, and that it is very sensitive to changes in economic conditions and income levels.

None the less, this indicator is criticized for important limitations in contrast to others measuring the housing market. Mainly accounted are that the index excludes new home sales that were not constructed for immediate sales unlike building permits and housing starts, and it is reported only as the buyer signs the contract and the builder accepts the deposit discarding the stage of construction it's in.

General Effect     

New Home sales is an economic indicator which records sales of newly constructed residences in the United States. Because New Home sales trigger consumption, they have significant market impact upon release. New Home Sales also serve as a good indicator of economic turning points due to its consumer income sensitivity. Generally, when economic conditions slow down, New Home sales serve as the first indicator of such a depression.

New home sales are leading indicators for the economic activity. First of all, this shows that there is confidence in the economy as it is expanding and that is why people are purchasing new or existing homes. In addition to that, when it comes to new homes, employment in the construction sector will also increase. There will be more spending in the economy by new labor so demand for products will increase causing an overall boost in the currency value.
 
But what will affect the reading are interest rates. If the interest rates are high, then cost of borrowing money will also be high decreasing the amount of people that actually have the ability to borrow. This will cause the reading to go down.
 
Furthermore, another reading that could be tied to home sales is the purchase of durable goods. Durable goods are goods that last longer than a year. When purchasing a new house, the consumer will also have to purchase several durable goods for that new house. This will lead to more production of these goods therefore needing more labor. So as we can see, we can say that there is a directly proportional relationship between home sales and the purchasing of durable goods.
 
Now back to the increase in production. This increase will also have an affect on the stock market. As the production increases, companies stock will also increase. But due to interest rates hiking, it will have a negative affect on the stocks and cause them to decline again.

As for the impact of home sales on the currency's exchange rates a healthy robust housing market will definitely be translated into a stronger currency; that is merely a reflection to a production wheel that is on the run, strong consumers' sentiment, and finally robust economic growth, all factors combined will push forward economic growth rate strengthening employment in return and reigniting production levels and higher capacity utilization. In the longer run other that the positive effect of strong growth on the currency as well inflationary pressures that might arise in the economy and further monetary tightening policies makes the currency tempting for investors to buy, and by that appreciation for that currency against majors.
 
Best Case     An improvement in the new homes sales shows that consumers have started to regain confidence as they purchase houses knowing that the reason behind the credit crisis was the housing sector. As a result, the bottoming out of the sector will help revive growth in the economy as it could spur spending and the Feds won't be pressured to cut rates any further to salvage the remains of the world's largest economy

Worst Case     A further decline in the reading will add more downside pressures to the economy that is already feared to experience a deepened and worse recession due to the credit crisis that has slowed the global economy prompting the Feds to take desperate measures to stop the already spread contagion from further damages.