By Joshua Steiner, Hedgeye

FORTUNE -- The chart above shows the ratio of new home sales to total sales historically back to 1999. Currently, new home sales are running at 7.8% of total sales. From 1999 to 2005, new home sales averaged a fairly consistent 16% of total sales. The low watermark was 5.5% in May 2010.

The trend in new home sales as a share of total is encouraging, rising steadily since year-end 2010. If new home sales return to their 1999-2005 average of 16% of total sales, this would imply ~800k new home sales, or roughly double the current 417,000 run rate. This assumes no increase in the current 5 million existing home sales run rate, which we also expect to increase. This backs the trend in recent household formation that implies a need for roughly two million new housing units per year vs. the current construction rate of one million.

On a year-over-year basis, new home sales in March were up 18.5%. The inventory of new homes for sale rose slightly to 153,000 in March, up from 152,000 in February. This continues a trend of rising inventory, marking the seventh consecutive month in which inventory has grown, albeit off an all-time low base of 141k in August. When looking at inventory on a months supply basis, March stood at 4.4 months, which was flat with the prior month. For perspective, months supply floated between 4-5 months from 1997-2005 and has been in the mid-4 to low-5 months range this year.

We would expect to see inventory levels rise, as this reflects a strengthening market. This is counterintuitive, we realize, but in looking at the long history of price in relationship to inventory levels, they have a strong positive correlation. This should facilitate growth in sales volume.

The median price of new homes sold in March rose 5.3% vs the prior year, down slightly from the prior month's 5.6% increase.

Meanwhile, FHFA Home Price Increases Accelerated in February

February's FHFA home price data rose 0.7% month over month and 7.07% year over year. This compares with January's year-over-year change of +6.65% and represents the highest index value we've seen since November 2009. This acceleration in the FHFA data is consistent with our expectation that prices will continue to rise over the coming year.

We've also included a chart showing the trends at the state level through the end of 2012, the latest state-level data available. In the last chart of this note we show the 5-year HPI change by state on the x-axis and the 1-year change on the y-axis. The trend shows that those states hardest hit by the downturn are showing some of the best performance. This dynamic includes: NV, AZ, FL, CA, and ID. At the other end of the spectrum, ND, DC, and CO are all up over 10% in the past year and are up over the last five years. The New England and mid-atlantic states of NJ, CT, NH, NY, and MA have shown some of the weakest returns over the last year ranging from modestly negative to modestly positive in spite of having been mid-pack performers over the past five years.