New home sales continued to crater in July, as its annual rate of 511K units was far lower than economists’ expectations of 575K. Sales of new homes have now declined for six of the last seven months, as sky-high home prices and mortgage rates of over 5% have weighed heavily on demand. As shown by the graph below, when sales have fallen to this level historically, it has invariably coincided with a recession for the U.S. economy.
With housing demand collapsing as builders continue to churn out new homes, the months’ supply of new homes for sale has reached a historically worrisome level. We warned that a hard landing was in store for the housing market in the April issue of InvesTech Research (see graph below), and that is exactly what has transpired since then. Consequently, there is now a growing probability that the U.S. economy is also headed for a hard landing…
Eli Petropoulos, CFA – Sr. Market Analyst