Home Sales Ride a Roller Coaster

One more month and another set of confusing, contradictory data. The good news is that sales of new homes bounced up by 7%, to reach an annual pace of 646,000 units. Sales in the previous two months had dropped, falling to a rate of 604,000 units by May.

But despite June’s rebound, sales of new homes for the month are the second-lowest in the last five months.

It should be noted, however, that the increase in new home sales is due to a phenomenal 50% sales spike in the West region. Both the Northeast and Midwest regions saw sales fall for June, and sales in the South region were virtually unchanged.

In contrast, sales of existing homes fell last month by 2%, to an annual rate of 5.27 million units. Further, two of the regions contributed to the decline in sales, the Northeast and the West, while the other two posted modest gains.

Compared to last year, sales of existing homes were also 2% lower in June.

But sales of both new and existing homes remain at surprisingly low levels, despite the continued expansion of employment rolls.


 GDP: Growth Slows in 2Q

Not unexpectedly, the economy grew at a slower pace in the second quarter. The 2.1% growth for the quarter was a full percentage point below that of the first quarter. Also, as can be seen in the chart below, Q2 growth lags the growth of the previous three years, when it averaged 2.4% (indicated by the red line).

While consumer spending growth of 4.3% boosted overall GDP, the most important components of investment and foreign trade came in negative. Also, GDP was given a boost from spending by government entities, which rose by 5% in the quarter; this is much faster than the preceding three years, when growth in government spending was running at just under 1%.

Overall investment fell 5.5% in the quarter, driven by a sharp 10.6% drop in investment in non-residential structures and a 0.5% decline in residential investment (i.e., new housing and remodeling). This decline in investment — particularly business investment — is a serious concern, since it is crucial for productivity growth. Growth in productivity is the way to improve people’s economic lives.

The foreign sector also contracted in the second quarter. The impasse on a trade deal with China has resulted in a sharp drop in exports, which fell 5.2% in Q2, while imports remained virtually flat compared to the first quarter.

 

Homeownership Rate Declines in Q2

Last week also saw the release of the latest data on homeownership, and the news for many design and construction-related businesses is not good. The rate fell in Q2 for the second consecutive quarter to 64.2%. This is only slightly — 0.4% — below the post-recession peak of 64.6% reached at the end of last year, but the trend is worrisome.

The decline, albeit small, translates into approximately 850,000 fewer homeowner households in the U.S. The number of renters increased by nearly the same amount — 829,000 more renters in Q2 than in the last quarter of 2018.

Compared to the second quarter of 2018, the number of U.S. households has increased by 1.2 million with virtually half of them, or 604,000, becoming homeowners. The number of renters increased by slightly: 609,000 households.

Since the turn of the century, over the last 19 years, the number of U.S. households has increased to 122.5 million, of which 78.5 million own the home in which they reside. Nearly 44 million live in a rental unit.

In percentage terms, the number of households has grown by 14.7% overall since 2000. But growth has occurred mostly among renters, that increased by just under 27% over this period, while homeowner households have increased by 8.9%.

Note that post-recession growth in homeowners began in late 2016.

Mortgage Rates Slip Again

The 30-year fixed mortgage rate fell by six basis points last week, down to 3.75%. This is the same level it was two years ago.

The Federal Reserve Bank will decide whether to move interest rates, and how much, this week, as its meeting to decide on monetary policy is scheduled for Jul 30-31. A drop of a quarter point may not do much to revive the housing market, since the factors that prevent housing from increasing are not related solely to financial constraints.


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 at Feedback@nkba.orgif you would like to see further detail.