New Home Sales Slide in July

Sales of new homes fell nearly 13% in July, to an annual rate of 635,000 units. This large drop follows a 21% increase in the previous month, when the Commerce Department revised home sales upwards to a surprisingly high 728,000 annualized rate. New home sales reports are usually revised in the following two months after their initial release, although the significant June revision was higher than is typical.

The three-month average might provide a better perspective of the direction in new home sales than the actual monthly figures because of these revisions. The red line in the chart below suggests that home sales have been relatively flat over the last five months.

The median price of a new home rose 2.2% last month to $312,800, but this is 4.5% below what it was a year ago. At the same time, the average (mean) price rose a robust 9.4% in the month, yet it is also 1.1% below July 2018. Further, average prices of new homes this year are roughly 2.6% lower than the 2018 average of $385,000.

As is often the case, however, the story for existing home sales is different. In contrast to sales of new homes, those of existing homes actually rose by 2.3% in July.

Further, as seen in the chart above, the three-month average of existing home sales has been rising since the beginning of the year, when they had fallen to an annual rate below 5 million units in four years.

Sales of new homes fell in three of four regions. The exception was the Northeast, where sales increased by 50%. An increase of this magnitude attracts attention, but that percentage increase represents much less than one-tenth of the total houses sold, thus putting the spike in perspective.

The situation for regional sales of existing homes is the opposite. Excluding the Northeast, sales of existing homes rose in the other three regions.


 

Pace of Home-Prices Increases Slows

Along with the relatively weak housing market —housing starts and home sales have each been below expectations for the last few months — the pace of home-price increases has also been slowing.

The Case-Shiller index rose in May of this year by 3.5% from a year before. This is the slowest pace since May 2018, when prices were rising above a 6% rate.

Overall, according to this index, home prices in the U.S. are currently 14%  higher than what they were at the pre-recession peak in 2006. For the top 20 metropolitan areas (MSAs in the chart below), the index is also highest since 1998, when the data series begins — it is higher by a more modest 5%.

For the top 10 MSAs, home prices have risen yet more modestly: they are up only 1% above the previous peak.

The price performance tends to vary significantly from one metro area to another — which is to be expected, since home sales are a local phenomenon. Home sales in one area reflect the economic conditions of that area, and for the most part may be impervious to the economics of another geographic area. This is highlighted in the chart below, which displays the change in the home-price index over the last 12 months.

Highest price gains are in Las Vegas, Phoenix and Tampa; three metro areas that incidentally had the highest number of home foreclosures during the 2007-2009 Great Recession. Despite these increases, home prices in these areas are still below their pre-recession peaks.

Las Vegas home prices are still 19% below their previous peak, Phoenix is 16% under and Tampa is 9% lower as well. At the other end, prices Seattle have actually declined by 1.2% over the last year — yet prices in this metro area are currently 31% above their previous peak.

 

Mortgage Rates Continue to Fall

The 30-year fixed mortgage rate fell a further five basis points last week to 3.55% average. The rate has fallen nearly 1.4% (139 basis points) since November, when it clocked at 4.94%. But, as seen in home sales performance, this decline has not been sufficient to boost residential transaction activity significantly.


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.