New-Home Sales Fall Again

Sales of new single-family homes came in at 553,000, a drop of 5.5 percent, in September versus the 585,000 pace in August. From a year ago, sales are off 13.2 percent; they are down 22.3 percent from a recent peak in November 2017 (see chart).

Across the four regions, sales in September rose in the Midwest, the second-smallest region by sales volume, gaining 6.9 percent to 77,000. From a year ago, sales in the Midwest were up 4.1 percent. However, sales were off 1.5 percent in the South, the largest region by sales volume, and were down 11.4 percent from a year ago; sales plunged 40.6 percent in the Northeast, the smallest region, to 19,000 from 32,000 in August, leaving the 12-month decline at 51.3 percent; and sales dropped 12.0 percent in the West, leaving the 12-month change down 15.8 percent.

As reported last week, sales in the market for existing single-family homes, which account for just under 90 percent of total existing-home sales, fell 3.4 percent in September, coming in at a 4.58 million seasonally adjusted annual rate (see chart). From a year ago, sales are down 4.0 percent. Sales were down across the four regions: sales fell 4.0 percent in the West to 950,000 from 990,000 in the prior month; sales dropped 4.6 percent in the South to 1.86 million; the Northeast saw a 3.4 percent decline; and the Midwest posted a 0.8 percent pullback.

Total inventory of new single-family homes rose 2.8 percent in September and is 16.8 percent above the year-ago level. That increase has pushed the months’ supply (inventory times 12 divided by the annual selling rate) to 7.1, the highest since March 2011 (see chart). The inventory of existing single-family homes for sale declined 1.8 percent to 1.66 million in September, the third decrease in a row, leaving the months’ supply at 4.3 for the fourth month in a row. However, that is still well above the recent low of 3.1 months in December 2017. The 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 buyer’s market. For the housing market overall, affordability remains marginally 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 interest 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.