New Home Sales in February rose for the first time in eight months as easing in monetary and fiscal policy on the part of the government appears to be having effect. Annual sales of new one family houses rose from 322,000 to 337,000 and gained 4.7% on a month-over-month basis. Adding to the upside, the previous months figure was revised higher from 309,000 to 322,000. Economists surveyed by Bloomberg had expected the figure to decline to 301,000 and for a further contraction of 2.8% on a monthly basis; the measure has fallen in the past six months and has accelerated to cap at a large 13.2% contraction in the previous month. The rise in sales is consistent with recent housing market data released over the past two weeks that have surprised downward expectations. Housing starts for February rose more than twenty per cent on an annual basis. Also, figures released early in the week add further support to the notion that the housing market may be bottoming. US Existing Home Sales rose 5.1% in February and the House Price Index for January showed a rise of 1.7%. Despite the bounce, it is still early in the process to confidently call the rising figures an indication of a bottoming. The housing market remains in a considerably difficult situation as inventory supply of existing homes remains high at a 9.7 month supply and median sales price continues to decline.
The US Government has taken swift actions in recent months to tackle the declining housing sector and rising foreclosures. Some of the actions taken include lowering the interest rate to the lowest on record and recapitalization of major financial firms as part of the Troubled Asset Relief Program. Last Thursday, the Federal Reserve announced its intention to purchase Treasury Bonds in a quantitative easing move that will lower yields. Also introduced recently, the Public-Private Investment Plan seeks to ultimately purchase up to one trillion dollars worth of toxic assets with the help of private investors. Such recent developments have yet to fully materialize but may add to pre-existing methods in place to increase lending and lower mortgage rates. While it remains questionable whether the rise is a temporary bounce or a sign of a long-term reversal, optimism and risk appetite will continue to rise on the strength of ongoing efforts to raise the housing market and with it the general economy of the United States.
Reacting to the release, US equity markets rose more than two percent early in the trading session and, in the foreign exchange market, the EURUSD pair continued its rise by well over one hundred pips. The pair reached 1.365 before pulling back for the moment.
