From Wells Fargo Economics Group

All year we have been making the case that 2016 would be a break-out year for homebuilding and, finally, the data is beginning to support our argument. The April reports on new home sales, pending home sales and new home construction all came in well ahead of market expectations, and data for previous months were also revised higher.

The leading indicators of housing demand also improved, including buying plans, mortgage applications and homebuilder sentiment. The string of better reports has reversed the news flow at the most critical time of the year for the housing market, and has led forecasters to boost their estimates for home sales and new home construction this year, even though interest rates now appear set to move modestly higher.

Our forecast remains essentially unchanged, with new home sales expected to climb 11.8 percent this year and housing starts projected to rise 9.7 percent to a 1.22 million-unit pace. Home prices are likely to moderate slightly, as more supply comes on line.

While we certainly welcome the better news, we continue to stress caution in interpreting the recent data. Seasonal adjustment has likely amplified recent gains. This past winter was one of the mildest on record and allowed for more sales and home construction during the winter months.

Moreover, Easter came exceptionally early this year, falling on the last weekend in March, marking the earliest Easter since 2008. This meant that April essentially had one more weekend available to sell homes than most other years. Easter will not fall this early again until 2035.

We suspect the impact of the early Easter was greatest on new home sales and pending home sales, both of which measure sales contracts. New home sales surged 16.6 percent in April, nearly seven times consensus’ expectations for a 2.4 percent rise. Pending home sales soared 5.1 percent in April, also more than seven times the consensus forecast of a 0.7 percent increase. Existing home sales, which measure closings, were less impacted by the timing of the holiday.