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27 June 2024 | FXGT.com

US Housing Market Faces Struggles: New Home Sales Down 11.3% in May

  • US New Home Sales Sharp Decline: New home sales fell 11.3% to a seasonally adjusted annual rate of 619,000 in May, down from 698,000 in April. This significant drop highlights ongoing challenges in the US housing market, adding pressure on the Fed to cut rates sooner amid broader economic concerns.
  • Prior Sales Revision: April’s new home sales were revised upward from 634,000 to 698,000. The large upward revision of the prior month’s data significantly contributes to the apparent 11.3% decline in May.
  • Weak Sales Figures: Despite the revision, the new home sales numbers remain weak. Falling lumber prices and rising interest rates are heavily impacting the housing sector. With higher mortgage rates and increased availability of existing homes, the market is expected to remain constrained amid slower economic growth.
  • Supply Increase: The supply of new homes increased to 9.3 months in May, up from 8.1 months in April. This rise in supply reflects a slowing market as higher mortgage rates deter buyers. The growing inventory of new and existing homes suggests a shift in market dynamics, where buyers may gain more negotiating power.
  • Impact of High Interest Rates: Rising interest rates have significantly impacted the housing market, making mortgages more expensive and reducing affordability for potential homebuyers, which contributes to the decline in new home sales.
  • US Dollar Strength: The US Dollar continues to outperform other currencies, supported by recent hawkish comments from US Federal Reserve officials. The US Dollar Index (DXY) continues to strengthen, breaking out of its recent sideways pattern and trading just below its three-month high. Financial markets anticipate potential rate cuts by the Federal Reserve starting in September, which could boost home sales in the second half of the year if they materialize.
  • Upcoming Economic Data: Traders are focused on key upcoming economic reports, including the final estimate of GDP later today, and the PCE Price Index released tomorrow. These reports, along with the Fed’s Bank Stress Test results, will provide further insights into the economic outlook.
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