Home Sales Continue Slide
In more disappointing news for our industry, last week sales of new and existing homes fell again in July, by nearly identical relative magnitudes: new homes fell 0.6% to an annualized rate of 627,000 units, while existing homes declined by 0.7% to rate or 5.34 million units.
For all practical purposes, sales of new homes have been somewhat stagnant since the end of last year. The virtually horizontal red line shown in the chart below illustrates this clearly. Sales of new homes were running at a rate or 636,000 units last December, just a shade higher than July’s sales rate.
In contrast, sales of existing homes, shown in the chart below, display a clearly declining trend since the beginning of the year. The last time the rate of sales was this low was more than two years ago, in February 2016, when it was 5.34 million units.
Moreover, sales of existing homes have fallen for five consecutive months, driven partly by continued increases in home prices. Although the rate of price increases so far this year moderated to an average of 5% — 1% lower than last year’s increase of 6% — higher home prices are keeping some potential buyers out of the market.
Manufacturer Shipments Ebb
Last month also saw the first decline in shipments of manufacturer durable goods in over a year. The drop of 0.2%, however, follows a 1.6% gain the prior month.
Excluding shipments of transportation goods, including large-ticket items such as airplanes, shipments actually increased by 0.6%.
But more significant is the decline in new orders, which fell by 1.7% to $246.9 billion in July. In fact, as shown by the red line in the chart above, new orders have been slowly easing down since March, when they reached $252.8 billion.
Mortgage Rates Soften
A good sign for potential home buyers is last week’s drop in mortgage rates, with the 30-year fixed rate falling to 4.51%. This is the lowest they’ve been since mid-April, when they were 4.47%.
However, the more favorable rates may not be sufficient to entice many potential buyers, since the drop in mortgage rates does not offset recent increases in home prices.
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 $500,000 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.
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.
