Sales of New Homes Dip
Last week’s report revealed that January sales of existing homes were 3.2% below their December level — the annualized sales rate for January was 5.38 million units.
This week shows sales of new homes for January were also down, by a sharper 7.8%, compared to sales in December. For the month of January, new home sales fell to an annual rate of 593,000 units.
January’s sales were below the average rate maintained over the preceding 12 months, shown by the dashed red line in the chart above.
Two of the four U.S. regions drove the sales decline. Sales in the Northeast fell 33% to a rate of 24,000 units. But the sharp decline had little impact, since the Northeast accounts for only 4% of the nation’s home sales.
Sales in the South region fell by 14% to a rate of 301,000 units. This is significant since this region contributes more than half the total sales. As the South goes, there goes the nation.
New Homes Sales by Region – Thousands of Houses
The deterioration of home sales, both new and existing, can be attributed partly to the higher and rising mortgage rates. Most likely, there will not be a marked improvement in home sales this year, given the path that mortgage rates have taken over the past six months, and further expected increases in interest rates should put a damper on home sales in the coming months.
Thus, the best projection is for new home sales to continue hovering around the average they’ve maintained over the last year.
Overall Construction Markets Rise in Select Sectors
Although many of our members do not participate in the non-residential sector, it is still interesting to review developments in this market segment.
Latest data on construction of non-residential buildings reveals that only a few sectors are improving. In fact, the picture that emerges is mixed with about half of them showing improvement, while the others are actually falling back.
For instance, construction of hotels and motels is up nearly 7% compared to last year. Amusement buildings, such as theaters, are up a robust 14%, and transportation buildings are running 37% above last year.
Construction of health facilities, such as hospitals or clinics, is also positive, since the value of construction is 4% higher than a year ago, although there has been a modest 2% retrenchment since September of last year.
The table below displays recent activity for several of the most important sectors.
Mortgage Rates Still Climbing
The average 30-year fixed mortgage rate rose another three basis points last week, to hit 4.43% for its highest level in four years. Since the beginning of September, just six months ago, mortgage rates have risen 65 basis points — nearly two-thirds of a percentage point.
The new Chairman of the Federal Reserve Bank, Jerome Powell, has signaled that we should expect further increases in interest rates to prevent the economy from “overheating.” The key variables to watch are inflation and job growth, especially inflation as revealed by the consumer price index (CPI).
If inflation accelerates from its current pace of roughly 2%, the Fed will likely make a move to increase interest rates. This naturally will impact home sales negatively.
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 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.
