Single-Family-Housing Market Remains in a Flat Trend

By Robert Hughes

Sales of new single-family homes fell 12.8 percent in July to a 635,000 seasonally adjusted annual rate, reversing a 20.9 percent surge last month. From a year ago, total sales are up 4.3 percent. The July selling rate is about where it was in October 2017 and have been roughly flat between 550,000 and 725,000 since mid-2016 (see top chart).

Sales decreased in the three largest regions tallied: sales fell 16.1 percent in the South, the largest area by sales volume, leaving that region’s selling rate 3.2 percent above the year-ago pace; sales declined 14.2 percent in the West, the second-largest by volume, and were 8.4 percent above the year-ago level; and sales fell 11.1 percent in the Midwest, putting sales 18.8 percent below year-ago levels. On the upside, sales rose 50.0 percent for the month in the Northeast, the smallest region, and are 56.0 percent above the July 2018 rate. Sales of single-family homes overall are trending roughly flat (see bottom chart).

Total inventory of new single-family homes for sale increased 1.2 percent to 337,000 in July, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 6.4 versus 5.5 in June (see bottom chart). Total inventory is 7.3 percent above year-ago levels while the months’ supply is 3.2 percent ahead of last year. The months’ supply is about 60 percent above the average of about 4 from 1998 through 2005.

 

Sales in the market for existing single-family homes rose 2.8 percent in July, coming in at a 4.84-million seasonally adjusted annual rate (see top chart). From a year ago, sales are up 1.0 percent. Sales were up across three of the four regions: sales gained 8.3 percent in the West to 1.04 million from 960,000 in the prior month; sales increased 1.5 percent in the South to 2.03 million; and the Midwest posted a 1.7 percent gain. The Northeast was unchanged for the second month in a row, posting a 570,000 rate for the third month in a row and the seventh time in the past 11 months.

Total inventory of existing single-family homes for sale declined 1.8 percent to 1.67 million in July, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 4.1 versus 4.3 in the prior month. However, that is still well above the recent low of 3.1 months’ supply 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 bottom chart).

Rising home prices continue weighing on housing activity. 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 continues to grow, supported by a tight labor market, rising incomes, and strong balance sheets. The main risks on the horizon are fallout from erratic polices (trade, immigration, fiscal, and monetary), escalating trade wars, and ballooning federal deficits. Extreme uncertainty can impact business and consumer confidence and may significantly restrain economic growth.

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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.