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Posted June 24, 2025 at 12:00 pm
The real estate market has been sluggish as affordability remains constrained by elevated mortgage rates and lofty costs for existing homes and land. Other more specific elements weighing on price growth include high wages and material bills along with economic uncertainty. With that in mind, for tomorrow’s new home sales report, I like buying the “No” answer at the $435,000 level for the median price contract, since the publication hasn’t printed above that for 13-consecutive months and anecdotal evidence from builders and their respective earnings calls signal a lack of pricing power. Furthermore, I think values will be relatively flat at around the $400K area. I believe the “Nos” at $435k and $440K are undervalued at $0.89 and $0.96. I’m staying away from the “Yeses” here because it’s possible that we break the range to the downside in light of difficulties with pushing transactions.
I like a range trade for the transaction part of the report which is expected to come in at 690k according to the consensus estimate. But out of the 42 forecasters surveyed in a Reuters poll, no one reported a number north of 760k or south of 610k. My projection is 660k as I think we will see a downside surprise for the month of May. In light of my expectation and those of my economist colleagues, I find the risk-reward profiles of the “Yeses” at 585k and 610k attractive as well as the “Nos” at 760k and 785k. All four contracts cost between $0.95 and $0.96 at the moment. The reason why I believe sales will be supported and not fall of a cliff, is because builders have been disciplined with inventory growth and have generally maintained profitability even as they’ve offered concessions and discounts to prospective buyers.
Source for Images: ForecastEx
Note: Prices are highest bids as of the morning of June 24, 2025. Red circles around the thresholds were inserted by J. Torres to highlight his preferred “Yes” and “No” answers throughout different levels.
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This material is from IBKR Macroeconomics, an affiliate of Interactive Brokers LLC, and is being posted with its permission. The views expressed in this material are solely those of the author and/or IBKR Macroeconomics and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
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