Sales of new as well as existing homes fell in July, by 9.4% and 1.3%, respectively. In both cases, the annual rate of sales in July was the worst since the end of last year. And in fact, the rate of sales of existing home is the lowest since August 2016.
A reduced inventory of existing homes is one reason often cited for the decline in sales. In fact, the National Association of Realtors pointed out that housing inventory declined 1% in July, noting inventory levels are lower than a year ago.
Additionally, home prices continue to rise and put pressures on housing demand. The table below shows that the increase in the average sale price for all homes is nearing the 5% level. These increases may in fact put home ownership out of the reach of some households.
Mortgage rates fell by another three basis points last week (0.03%). This is the most favorable level in mortgage rates so far this year, which should be encouraging to home purchases and remodeling — or at least it’s not a deterrent.
The Federal Reserve Bank’s posture on interest rates, which continues to signal no major changes in the near future, gives stability to mortgage rates.
Our economic indicators dashboard is sending mixed signals. We do not see green markers predominating, but neither do we see red ones. Rather, it’s a mixture of red, green and yellow markers reflecting the unclear status of the U.S. economy.
Broadly, we’ve seen solid results in several areas of the economy, such as the unemployment rate, which fell to 4.3% in July. Also, job growth has exceeded 200,000 in five of the last seven months. But wage growth has been tepid for quite a while now. Even though average hourly wages have risen 2.5% over the last 12 months, prices have increased 1.6% during the same period, eating most of the wage gains. Real wage gains over the last year are under 1% (roughly 0.9%), meaning that wage growth is barely higher than the 0.7% growth in the U.S. population.
Further, overall GDP growth hit 2.6% in the second quarter, an improvement over previous months. However, this rate is below the 3.4% annual growth the U.S. economy had enjoyed between 1960 and 2006.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal indicating that the latest value is improving; “Yellow,” as it’s commonly understood denotes caution because the variable might be changing direction; and “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of the prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
