New home sales spike higher

The market is primed for a turnaround

New homes sales jumped 11.0% in June to a seasonally-adjusted annual rate of 384,000, easily beating the Bloomberg forecast of 350,000. Sales remain 21.3% below one year ago but are now 17% off the January low and are at the highest level since November 2008.

Moreover, June's impressive increase - the largest in eight years - brought the supply of houses on the market from 10.2 months to 8.8 months, the lowest reading in almost two years per Bloomberg. And that's excellent news because falling inventories should help put a floor under prices.

A number of factors likely conspired to jump-start sales, including the $8,000 first-time home buyers tax credit, historically low interest rates, and steep discounting by home builders.

Today's report, coupled with indications of a bottom in existing home sales and the jump in builder confidence off extremely depressed levels, are probably signaling the worst is over for home sales.

Housing prices remain problematic, however, but the drop may finally be attracting reluctant consumers who have been sitting on the fence. I'm not yet predicting a quick recovery in sales, but pent up demand following three years of weakness could be a powerful tailwind that may support a new upward cycle in the market.