New Home Sales Plunge, Keeping Us on the Sidelines With This Bullpen Name

Sales of new single-family homes in the U.S. plunged 13.7% month over month to a seasonally-adjusted annualized rate of 623,000 units in May, well below the market forecast of 690,000 units and April’s 722,000 figure. That sequential drop marks the sharpest decline since June 2022, as higher mortgage rates and uncertain economic conditions drove households to wait before buying homes.

In the two charts above, we can see the upward move in 30-year fixed mortgage and 30-year fixed jumbo mortgage rates in May, which closed out the month at 6.89% and 7.02%, respectively, up from 6.76% and 6.8% at the end of April. While those are relatively modest increases, we view the corresponding drop in housing demand as another indication that consumers are being very cautious with their spending.

We heard that from General Mills GIS on Wednesday morning, and we see it in the data below from Circana. Those spending concerns keep us bullish on Amazon AMZN and Costco COST shares. With COST shares moving below their 100-day moving average at $992.75, we’ll keep a close watch on them and our current Two rating.

Because of those consumer spending findings and what we saw in the Flash June PMI report, we’ll stay on the sidelines with the shares of Builders FirstSource BLDR in the Portfolio’s Bullpen. As a reminder, the Flash June PMI report showed a month-over-month pickup in manufacturing activity, and improved job creation as “price pressures rose sharply across both manufacturing and service sectors during June, the former reporting an especially steep increase, and again commonly linked to tariffs.”

Should next week’s June ISM PMI data, ADP’s Employment Report and the June Employment report support those findings, the market will have to recognize diminishing odds of a July rate cut. When it comes to housing demand, especially for new single-family homes, the two factors to focus on are job creation and mortgage rates. The odds of mortgage rates improving will hinge on when the Fed is back in rate-cutting mode, something we’re not likely to see until at least September, but that will hinge on what we see in the June, July and August inflation data.

On job creation, we’ll continue to triangulate the monthly data, but we also recognize that the eventual roll off of DOGE-related severance packages will eventually impact federal employment figures. Could that rolling off tip overall job creation into the red? That will hinge on private sector job hiring as well as planned headcount reductions, a potential hot topic for the June quarter earnings season.

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At the time of publication, TheStreet Pro Portfolio was long AMZN and COST.