Single-Family Housing Activity Is Trending Flat

By Robert Hughes

Sales of new single-family homes jumped 7.0 percent in June to a 646,000 seasonally adjusted annual rate, resulting in a 4.5 percent gain from a year ago. Sales increased in the two largest regions tallied: sales increased 0.3 percent in the South, leaving that region’s selling rate 9.5 percent above the year-ago pace; and sales gained 50.4 percent in the West and were 19.4 percent above the year-ago level. On the downside, sales fell 4.2 percent for the month in the Northeast and are 50.0 percent below the June 2018 rate while sales fell 26.3 percent in the Midwest, putting sales 17.6 percent below year-ago levels. Sales of single-family homes overall are trending roughly flat (see bottom chart).

Total inventory of new single-family homes for sale increased 0.6 percent to 338,000 in June, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 6.3 (see bottom chart). Total inventory is still 9.4 percent above year-ago levels while the months’ supply is 5.0 percent ahead of last year. The months’ supply is about 50 percent above the average of about 4 from 1998 through 2005.

With inventory and months’ supply drifting higher, housing construction activity remains tepid. Activity slowed in June as housing starts fell by 0.9 percent. Total starts dropped to a 1.253-million annual rate from a 1.265-million pace in May. The dominant single-family segment, which accounts for about three-fourths of new-home construction, rose 3.5 percent for the month to a rate of 847,000 units (see top chart). Starts of multifamily structures with five or more units fell 9.4 percent to 396,000. From a year ago, total starts are up 6.2 percent, with single-family starts down 0.8 percent but multifamily starts up 25.3 percent.

Among the four regions in the report, total starts fell in two: the West fell 4.9 percent, and the South declined by 9.2 percent. Starts were up in the Northeast (31.3 percent) and the Midwest (27.1 percent), but these two regions are much smaller by volume compared to the South and the West. For the single-family segment, starts were down in the Northeast but up in the South, the Midwest, and the West.

Total housing permits fell 6.1 percent to 1.220 million from 1.299 million in May. Total permits are 6.6 percent below the June 2018 level. Single-family permits were up 0.4 percent to 813,000 in June (see top chart) while permits for two- to four-family units were up 34.3 percent and permits for five or more units were down 20.7 percent, to 360,000 (see top chart). Permits for single-family structures are down 4.7 percent from a year ago while permits for two- to four-family structures are up 23.7 percent and permits for structures with five or more units are 13.3 percent below year-ago levels. Overall, single-family starts and permits are trending flat to down at a level well below the prior two economic expansions while multifamily starts and permits are trending flat near peak levels.

Housing construction has continued to be restrained over the last several months. A softening in permits for new-home construction, sluggish sales, and rising inventory and months’ supply suggest 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 and sustained acceleration in housing activity in coming months and quarters. Therefore, housing is unlikely to contribute significantly to gross domestic product over the next few quarters.

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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.