US new home sales in March were 0.628M month on month. The expected figure was 0.668M.
The result was 0.040M below the forecast. This indicates sales were lower than anticipated for the month.
Fed Policy Impact
The miss in new home sales is the first concrete sign that the Federal Reserve’s restrictive policy is biting deeper than expected. We see this not as an isolated data point but as a leading indicator of a broader economic cooling. This weakness in a key sector will likely increase pressure on the Fed to soften its hawkish tone in the coming months.
This makes bearish positions on homebuilders and related industries look attractive for the next few weeks. We have already seen the SPDR S&P Homebuilders ETF (XHB) fall by over 2% on the news, and we anticipate further declines. We are looking at buying put options on major builders like Lennar and PulteGroup, targeting expirations in late June to capture this expected downturn.
This economic signal also changes the calculus for interest rates, suggesting the market may be underpricing the odds of a rate cut before year-end. We are therefore considering positions in derivatives tied to the SOFR, which would benefit from a more dovish pivot from the central bank. The market is currently pricing in just one 25-basis-point cut this year, but this data suggests the risks are skewed toward more aggressive action.
The underlying problem is affordability, which has worsened considerably since last year. With 30-year mortgage rates ticking back up to 7.2% in late April, according to Freddie Mac, demand is being choked off. This is a dynamic we remember well from the slowdown in 2023, when the housing market led a broader economic slump after rates first crossed that 7% threshold.
Positioning For Volatility
Given the uncertainty between sticky inflation reports and now weakening growth indicators, we expect market volatility to increase. The VIX index is currently trading below 16, which seems too complacent given the Fed is now caught between two conflicting problems. We believe buying call options on the VIX is a prudent way to hedge against the market chop we anticipate in the coming weeks.
