• New home sales rose in line with expectations in July, to 507,000 units (SAAR).
• Strengthening sales in the West and weakening sales in the Midwest are driving changes in the headline trend.
• The median sales price of new homes edged up from June, but the pace of growth in new home sales prices has slowed substantially over the past two years.

New home sales rebounded in July after a disappointing June, rising 5.4 percent to 507,000 units at seasonally adjusted annual rate (SAAR), according to the U.S. Census Bureau. The increase erased roughly two-thirds of last month’s surprising drop in sales and slightly beat our expectation of a 4.2 percent jump (figure 1).

The market has experienced somewhat of a reversal in the regional drivers of new home sales growth over the past year (figure 2). In July 2014, new home sales were growing 12 percent per year, on average, in the Midwest. But over the past six months, sales have been essentially flat in the Midwest. In the West, new home sales were contracting at an 8 percent average annual rate a year ago, but are now growing at a 33 percent average annual rate. New home sales have been consistently weak in the Northeast and consistently strong in the South over the past year.

Since the West accounts for a much larger share of total sales than the Midwest, this reversal of regional growth patterns has been an important driver of the growth in aggregate sales nationwide.

The median, seasonally adjusted price of new homes sold in July was up 3.1 percent from June, to $288,300, close to our expectation of $289,300. Prices are now growing at a 5.8 percent annual pace, on average (12-month trailing moving average), the lowest average rate of growth since October 2012 and down sharply from a 13 percent average annual growth rate in July 2013.