June 23, 2020

New home sales jumped 16.6% in May to 676 thousand after having fallen 7.5% in February, 14.5% in March, and 5.2% in April.   Like virtually every economic indicator for May — payroll employment and retail sales in particular — sales have come roaring back in May as soon as the economy began to open up.

The NBER has said that the peak of the expansion was in February.  Therefore, the expansion began in March and continued into April.  But given the surge in employment, retail sales, and now home sales it is clear that the economy began to expand again in May.  Thus, the recession, while very deep in magnitude, lasted just two months which is the shortest recession on record.  The $2.5 trillion fiscal stimulus package is working its magic.

The stimulus money boosted real disposable income by 13.8% in May.

With a huge boost to income but the economy essentially locked down and nowhere to spend it, the savings rate surged to 33.0% in that month.  Surely that money will be spent during the next few months.

Meanwhile, mortgage rates are at a record low level of 3.25%.

With income surging, prices rising moderately, and interest rates falling, housing affordability has climbed to 171.7 which is the highest it has been since March 2016.

Look for new home sales to continue to climb as we  move into the summer months.

Stephen Slifer


Charleston, SC