Single-Family Housing Activity Shows Some Life

By Robert Hughes

Sales of new single-family homes jumped 4.5 percent in March to a 692,000 seasonally adjusted annual rate, the third monthly rise in a row, resulting in a 3.0 percent gain from a year ago. Sales increased in three of the four regions tallied: sales gained 17.6 percent in the Midwest, putting sales 1.2 percent above year-ago levels; they were up 6.7 percent in the West but 4.3 percent below the year-ago level; and sales increased 3.6 percent in the South, leaving that region’s selling rate 9.3 percent above the year-ago pace. On the downside, sales fell 22.2 percent for the month in the Northeast and are 20.0 percent below the March 2018 rate. The string of gains in sales appears to have negated the recent downtrend (see top chart).

Total inventory of new single-family homes for sale dropped 0.3 percent to 344,000 in March, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 6.0 (see bottom chart). Total inventory is still 15.8 percent above year-ago levels while the months’ supply is 13.2 percent ahead of last year. The supply is about 50 percent above the average of about four months from 1998 through 2005.

Despite the recent improvement in new-home sales, housing construction activity remains tepid. Activity slowed in March as housing starts fell by 0.3 percent. Total starts dropped to a 1.139-million annual rate from a 1.142-million pace in February. The dominant single-family segment, which accounts for about three-fourths of new-home construction, fell 0.4 percent for the month to a rate of 785,000 units (see top chart). Starts of multifamily structures with five or more units fell 3.4 percent to 337,000. From a year ago, total starts are off 14.2 percent with single-family starts down 11.0 percent and multi-family starts off 21.8 percent.

Among the four regions in the report, total starts fell in three — the Northeast (−4.4 percent), the Midwest (−17.6 percent), and the South (−7.2 percent) — while the West rose 31.4 percent. For the single-family segment, starts were up in the Northeast and the West but down in the South and the Midwest.

Total housing permits fell 1.7 percent to 1.269 million from 1.291 million in February. Total permits are 7.8 percent below the March 2018 level. Single-family permits were off 1.1 percent to 808,000 in March (see top chart) while permits for two- to four-family units were off 2.7 percent and permits for five or more units were also down 2.7 percent, to 425,000 (see top chart). Permits for single-family structures are down 5.1 percent from a year ago while permits for two- to four-family structures are off 10.0 percent and permits for structures with five or more units are 12.6 percent below year-ago levels.

Housing construction has continued to weaken over the last several months. A similar softening in permits for new-home construction suggests further weakness in construction activity in coming months. Despite a pullback in mortgage rates in recent months, rising home prices have continued to pressure affordability. Despite the rebound in sales, there is little evidence to suggest a significant acceleration in housing activity in coming months and quarters; therefore, housing is unlikely to contribute significantly to gross domestic product in the near term.

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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.