Existing home sales rose for the second consecutive month in October, inching up by 2%. Despite the bump, the sales rate is still below this year’s highs, reached between January and April.
The red-dash line in the chart below displays the three-month moving average, showing sales running at roughly the same level as a year ago. In other words, they have not improved appreciably over the last 12 months.
The poor sales rate is attributed to low levels of inventory. Data collected by the National Association of Realtors indicates that there are currently 1.8 million homes for sale —the lowest level in over two years. Consequently, home prices continue to increase. In October, average home prices hit $247,000, or 5.5% ahead of last year. However, even though home prices are rising, the rate of those increases has moderated; in October 2016, prices were running 6.5% ahead of the previous year.
Consumers Remain Optimistic
Although consumer sentiment fell in November, to 98.5, from the 100.7 figure of the previous month, people remain confident about the near future. The consumer sentiment index, shown in the chart below, is very little changed since the start of the year.
The University of Michigan indicates that consumers have greater certainty about their futures. They are more confident about their job prospects, which we expect, given the low levels of unemployment recorded recently. In fact, the unemployment rate in October was 4.1%, the lowest since the turn of the 21st century.
Foreign Trade Deficit Doesn’t Budge
On the foreign trade front, the deficit hasn’t changed materially over the last year, despite being at the top of the current administration’s agenda. The trade deficit in September was $43.5 billion, about 1.7% worse than the prior month. The September deficit was the second lowest recorded in the last 12 months; nonetheless, the chart illustrates that the deficit hasn’t changed materially since November 2016.
The U.S. is importing more than it is exporting for a simple reason: Americans like to buy cheaper goods made in foreign countries.
Mortgage Rates Ease Up
Mortgage rates eased up slightly last week. There has been no major move by the Federal Reserve Bank that would move interest rates one way or another.
Even though the Fed has not increased rates appreciably, its policy of apparent tightening continues to put pressure on mortgage rates. However, the increases are not sufficiently high to dampen housing or remodeling activity significantly.
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 may be changing direction; “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. This 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 higher. 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 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 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.
