GDP Growth Surprises
Contrary to many economists’ expectations, which had forecasted low growth of 1.5% to 2% for the first quarter, GDP came in much stronger at 3.2%. This is also above the 2.8% average maintained over the last two years; moreover, GDP growth has exceeded the 3% mark in three of the latest four quarters.
Growth was driven by a surge in exports, which rose by 3.7% in the first quarter, while at the same time, imports declined by a similar percentage. Other factors driving growth were business investment, rising by 2.7%, and spending by state and local governments, which rose by 2.4% combined.
Even though the growth in business investment is not as strong as many observers would like to see, it should still be viewed favorably, since investment growth normally assures future productivity or output growth.
But the increase in government spending is not necessarily great news, since it is either financed by higher taxes or higher borrowing that will have to be repaid in the future.
Conflicting News From Housing Markets
As is often the case — in fact, most of the time — sales of new and existing homes moved in different directions in March. Sales of new homes increased 4.5% in the month to an annualized rate of 692,000 units; while at the same time, sales of existing homes fell 4.9% to an annualized rate of 5.21 million units.
Sales of both types of homes typically move in different directions. When sales of new homes increase in a month, more than likely than not, existing home sales fall, and vice-versa. In examining monthly home-sales data for the past 50 years, only 20% of the time did they move in the same direction.
On a quarterly basis, new-home sales in the first quarter were modestly higher than a year ago. The actual number of homes sold, 171,000, is 1.8% higher than sales in the first quarter of last year.
However, sales of high-end homes — that is homes sold at $500,000 or more — fell by 7% in the first quarter of this year. The total of 27,000 homes sold above that price is 2,000 fewer homes than in the first quarter of 2018.
High-end home sales also fell in the fourth quarter last year. In fact, there has been a gradual shift toward lower-priced homes for the three or four quarters.
No Improvement in Homeownership
The rate of homeownership in the U.S. remained unchanged in the first quarter at 64.2%. This is disappointing, given the increases in homeownership over the last two years. After hitting bottom in 2016, when the rate came down to 63.5% in the first quarter, it has increased by less than one percentage point (0.7%) in the last three years.
Incidentally, the current rate is still nearly one point below the long-term average of 65.1%. Economists expect that the rate could reach that average in the near future, although it’s extremely unlikely that the percentage of homeowners will achieve the levels seen right before the recession. Recall that the rate hit a high of 69.1% in 2005, boosted by subprime mortgage lending that proved to be unwise.
Regionally, the homeownership rate fell in only in the South, which was down 0.1% to 66.2%. The rate increased in the other three regions, with the largest gain in the Midwest, bringing the homeownership rate to 68.2%, up 0.3%.
Among the various age groups, homeownership fell only for 45 to 54 year-olds by 0.5% to 69.5%; those younger than 45 saw gains in ownership and older than 54 saw no change.
Mortgage Rates Inch Up
Once again, last week saw another increase in mortgage rates, with the 30-year fixed rate rising by two basis points to 4.2%. This modest increase is not sufficient to stymie any potential increases in housing starts or home sales, since mortgage rates are still relatively favorable.
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.
