It would be a lie to say the market wasn’t surprised the significant drop in new home sales, but most believe this isn’t the sign the recovery has ended.
In fact, most believe the housing transition to the 'new' normal has just begun.
Members of the Federal Open Market Committee meeting minutes this week revealed that the housing sector will continue to be resilient in the face of ongoing market challenges. Since the release, the market has taken the same approach to remain cautiously optimistic on housing.
"While the Fed outlined reasons why they believe housing will moved forward, we need to be very cautious and this is why, the back up in rates," explained BNP Paribas U.S. economist Yelena Shulyatyeva.
She explained further: "Rates are still very low by historical standards, but everything is different now by historical standards in this cycle."
Although new home sales dropped in July, plummeting to 394,000 completed transactions, declining 13.4%, the data also revealed that new home sales are up nearly 7% from year-ago levels.
"Even though there’s an uptick in interest rates, the majority of the country continues to be affordable," stated Freddie Mac chief economist Frank Nothaft.
He added, "I'd like to see another month’s worth of data and it’s down then, then I’d be a bit more concerned. However, building permanents, builder optimism and existing sales are all up so I feel like we’re moving in the right direction. This could be a bit of an anomaly."
On a similar note, Fannie Mae chief economist Doug Duncan pointed out that the new home sales data was a response to the rise in rates and it’s "too early to panic about it."
The biggest challenge is when the rate rise occurs, households have to adjust their income to the higher interest rate and most are not in a steady position to accommodate the rapid rate market, Duncan noted.
"We don’t really know how the market will react, so people will be watching over the next few months to see if this is a pattern or if it’s a short-term adjustment to the sector," the Fannie Mae chief economist concluded.
