Housing Data Remain Soft

By Robert Hughes

Sales of new single-family homes came in at 629,000, a rise of 3.5 percent, in August versus the 608,000 pace in July. From a year ago, sales are up 12.7 percent; however, they are down 11.7 percent from a recent peak in November 2017 (see chart).

Across the four regions, sales in August surged 47.8 percent to 34,000 in the Northeast, the smallest region by sales volume. Sales were also higher in the Midwest (up 2.7 percent for the month and 13.2 percent from a year ago) and the West (up 9.1 percent for the month and 19.1 percent over the past year). Sales fell 1.7 percent in the South, the largest region by sales volume, but are still up 11.5 percent from a year ago.

Sales of existing homes were unchanged in August, at a 5.34 million seasonally adjusted annual rate. That is down 1.5 percent from a year ago and 6.6 percent below the recent peak of 5.72 million in November 2017. Sales declined in two of the four regions tallied: sales fell 5.9 percent for the month in the West and are 7.4 percent below the August 2017 rate; and sales dropped 0.4 percent in the South, leaving that region’s sales rate 1.8 percent above the year-ago pace. Sales rose 7.6 percent in the Northeast but are still down 2.7 percent from a year ago, while sales rose 2.4 percent in the Midwest but remain 0.8 percent below the year-ago level.

Sales in the market for existing single-family homes, which account for just under 90 percent of total existing-home sales, were also unchanged in August, coming in at a 4.75 million seasonally adjusted annual rate (see chart). From a year ago, sales are down 1.0 percent. Across the four regions, sales fell 4.8 percent in the West to 990,000 from 1.04 million in the prior month while sales fell 1.0 percent in the South to 1.95 million. However, sales were up 7.1 percent in the Northeast and up 2.5 percent in the West.

Total inventory of new single-family homes for sale rose 1.6 percent to 318,000 in August, the fourth increase in a row, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 6.1, down from 6.2 in July. However, that is still well above the 4.9 months’ supply in November 2017 (see chart). The inventory of existing single-family homes was unchanged in August at 1.70 million, resulting in a months’ supply of 4.3. That is unchanged from July but up 4.9 percent from a year ago and up 38.7 percent from the recent low of 3.1 months in December 2017. The sharp rise in months’ supply has brought the figure back from ultra-low levels of late 2017 to the range that prevailed during the early 2000s (see chart).

The combination of rising home prices and higher interest rates is likely weighing on housing activity. Home affordability overall has been trending lower after surging from 2009 to 2012 because at that time a combination of extraordinarily low interest rates and falling home prices made for a buyers’ market. For the housing market overall, affordability remains favorable, though the declining trend is likely to continue. Sales are unlikely to move significantly higher in the coming months, and new-home construction is unlikely to contribute significantly to growth in gross domestic product in coming quarters. Still, the economy overall remains very healthy, supported by a tight labor market, rising incomes, strong balance sheets, and high levels of consumer confidence. The main risks on the horizon are fallout from escalating trade wars and the ballooning federal deficits, which are likely to require significant funding in coming quarters and may drive long-term rates significantly higher.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.