– May 23, 2019

Sales of new single-family homes fell 6.9 percent in April to a seasonally adjusted annual rate of 673,000, down from a multiyear high of 723,000 in March. Sales had posted three monthly gains in a row after hitting a low of 564,000 in December (see top chart). Sales are up 7.0 percent from a year ago.

Sales fell in three of the four regions, with only the Northeast, the smallest region by volume, posting a gain. Sales rose 11.5 percent in the Northeast to a 29,000-home rate versus 26,000 in March. From a year ago, sales in the Northeast are still down 12.1 percent. In the South, the largest region by volume, sales were off 7.3 percent to 369,000, down from 398,000 in March. From a year ago, sales are up 5.1 percent. Sales dropped 8.3 percent to 188,000 in the West, the second-largest region, but are still up 16.8 percent from a year ago. Finally, sales in the Midwest were down 7.4 percent to an 87,000-home pace.

Total inventory of new single-family homes for sale fell 0.9 percent to 332,000 in April (11.0 percent above April 2018), pushing the months’ supply (inventory times 12 divided by the annual selling rate) to 5.9 months, up from 5.6 months in March (see middle chart).

Slowing sales and rising inventory are coinciding with slowing permit issuance. Permits for future construction continued their downward trend, falling 4.2 percent in April. From a year ago, single-family-home permits are down 9.4 percent and are at the lowest level since May 2017 (see bottom chart).

The sharp rise in mortgage rates from late 2016 through late 2018 weighed heavily on housing activity. However, since then, rates have retraced about half the upward move, providing a boost to affordability. Offsetting the recent drop in mortgage rates, home prices have continued to rise, though the pace of increase has slowed since mortgage rates first increased in 2016. Housing may get a bit of a temporary tailwind from the decline in mortgage rates. However, construction activity is unlikely to contribute significantly and persistently to growth in gross domestic product in coming quarters.

Also reported today were weekly initial claims for unemployment insurance. For the week ending May 18, claims fell 1,000 to 211,000. The four-week average came in at 220,250 versus 225,000 in the prior week. The four-week average has been below 230,000 since February 2018, a very strong performance. By historical comparison, claims remain near multidecade lows, and, measured as a percentage of employment, are just slightly above all-time lows.

Overall, despite weakness in housing, the economy continues to be supported by a tight labor market, rising incomes, solid balance sheets, and reasonably high levels of consumer confidence. The main risks on the horizon are fallout from escalating trade wars and uncertainty about global economic conditions.

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.

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