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Sales figures for new U.S. homes were a brutal disappointment Friday, compounded by a downward revision for June's results. As someone who's been bullish on U.S. dollar assets lately, I'm growing concerned.
New home sales dropped 13.4 per cent in July to an annual rate of 394,000 units, the Commerce Department said, which is the lowest level in nine months. The returns fell about 90,000 homes short of the median expectation of economists surveyed by Bloomberg. June data, previously reported at 497,000 new homes, was revised lower by 42,000.
RBC economist David Onyett-Jeffries is correct to point out that new home sales are only 8 per cent of total residential transactions – the rest are existing homes. In that sense, the disappointment may not be that big a deal for the housing market as a whole.
But, existing home sales don't help the construction industry much. Even at much larger numbers, existing sales are not as big a benefit to overall U.S. gross domestic product.
Perhaps more disturbing, the inventory of unsold homes is increasing rapidly. CIBC's Andrew Grantham writes that "with the number of homes for sale rising and months' supply increasing to 5.2, from 4.3, the decline certainly seems to be more of a demand than a supply issue."
If there's no demand for housing, then we have a problem, to say the least. Rising mortgage rates are likely one big issue. Younger college graduates with debt loads large enough to prohibit the purchase of a Snickers bar, never mind a house, are another.
The solution to the housing demand problem, as it is with virtually every other element of U.S. economic malaise, is wage and employment growth. Until we get that, a U.S. economic recovery will remain a fragile proposition.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.