Sales of Existing Homes Fall Sharply
Sales of existing homes were expected to fall last month, but the steep decline was a surprise. Sales dove 6.4% to an annual pace of just under 5 million units sold. It is unusual to see such sharp swings in home sales. In fact, December’s fall is the largest since November 2015, when the annualized rate fell by 8.1%. That decline was somewhat of an anomaly, since around that time, home sales were on a rising trend, which picked up again the following month: December 2015 sales jumped by 12.1%.
Economists do not anticipate a similar rebound this time, however, since sales of existing homes have been falling for nearly two years. This negative trend is illustrated by the red line in the chart above, tracking the 3-month moving average of home sales for the last year.
At the same time, home prices rose in December by just 2.9%, the lowest increase for quite some time. At the beginning of last year, in January, home prices had increased by 6% over the preceding year. The chart below shows that the rate of home appreciation, i.e., the annual price increases, has been declining for a year. This trend, particularly last month’s much lower price increase, should encourage home sales by simply making home purchases more affordable.
Unemployment Claims Continue Their Downward Trend
The vast majority of economic statistics, if not all, are based on surveys or sampling of some sort upon which estimates are obtained. Even though in some instances they may be based upon large samples, such as the monthly employment and new jobs data that are estimated on a sample of more than 60,000 households, they are still estimates.
But, besides the decennial population census that reflects an actual count, there is another statistic that reflects actual events or data —the weekly unemployment claims data, which is released by the Bureau of Labor Statistics indicating the number of people who apply for unemployment insurance on a given week. The data represent the “actual” number of persons who lost their job recently and decided to apply for unemployment benefits (e.g., a weekly unemployment check).
The chart above displays the number of claims, that is the number of persons, who applied for unemployment benefits each week for the last 13 weeks. The number has hovered between 200,000 and 230,000, more or less. This is a remarkably low figure, one that matches the number we last saw back in the late 1960s. But a half-century ago, total U.S. employment was around 67 million persons, less than half of today’s employment of more than 150 million people. Of course, the population of the U.S. was under 200 million in 1965, compared to about 325 million today.
The weekly unemployment claims data is a statistic worth monitoring because it reveals the underlying current strength of the economy. But note that furloughed workers, such as the Federal government employees who went unpaid for a month, can’t collect unemployment and thus are not counted.
Mortgage Rates Remain Unchanged
The 30-year fixed mortgage rate remained stable at 4.45% last week. This marks the third consecutive week when the rate didn’t change. It would seem unusual for this to occur; that is, several weeks of stable interest rates. It has happened in the past, although not over the last few years.
What may be driving this stability? Unquestionably, one factor is the weak demand for housing that has been evident for the last few months. A second factor is the stance taken by the Federal Reserve Bank, which has implied that it might not increase rates aggressively in the near future.
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.
