On Tuesday of this week, the National Association of Home Builders reported April 2022 new home sales were down for a fourth straight month, falling 16.6% to 591K. This is the lowest level of new home sales since April 2020 and a 159K miss from the April forecast of 750K.
The chart below illustrates a 10-year history of New Home Sales.
Many see the housing market as a leading indicator for the health of the U.S. economy. According to the National Association of Home Builders, housing's contribution to gross department product averages 15%-18%, which is the second-largest category behind the larger consumer spending category. Many see the latest 4-month trend in new home sales as adding to recession worries since the ripple effects of housing extend well beyond residential investment and consumption spending on housing services. The magnitude of the new home sales decline can be seen by observing a 1-year % change in new home sales. The combined effects of record-high home prices coupled with average 30-year mortgage rates rising from the low 3% range at the start of 2022 to upwards of 5.5% in May of 2022 have resulted in a 26% decline in new home sales from the year-ago month of April.
The chart below illustrates a 10-year history of a 1-year % change in new home sales.
The following summary is from our prior letters but is worth repeating. As we have been communicating all year, the need for patience and a diversified portfolio is being highlighted in these uncertain times. However, we also believe market conditions could improve once the market becomes comfortable with the Federal Reserve's course to tame inflation. Moreover, clarity with Ukraine and Russia would be welcomed by the market and would be expected to move the market higher. We are not out of the woods yet and less bullish than we were to start the year; however, there is hope.
While we wait for market conditions to normalize, you may want to consider the following:
Holding enough cash to make you feel comfortable.
Evaluate your investment time horizon, liquidity needs, risk tolerance, the required return on your investments, and other specifically unique factors to your situation. In general, update your investment policy statement if there have been material changes in your lifestyle.
Update your financial plan.
Update your risk profile.
From our portfolio management perspective, we are trying not to overmanage the uncertainty of the markets with excess portfolio adjustments. We aspire to adjust each portfolio per its strategy objective per our process and as data is presented. We will continue to monitor, adjust, and communicate with you the best we can. Although we cannot predict the future or time the markets, our goal is to provide you with reasonable risk-adjusted portfolios over reasonable periods of time.
At Carlton Wealth, these types of macro-level indicators continue to aid our fundamental and technical research as our guideposts for long-term asset allocation and security selection decisions.