Sales of High-End New Homes Spike
Sales of high-end new homes, that is those sold for $500,000 or more, totaled 32,000 in the third quarter, up 14% from the same quarter last year. This is a sharp contrast to the previous three quarters, when high-end home sales had been below their corresponding quarter of the prior year.
Because the data are not seasonally adjusted, comparison to the previous quarter is misleading. A better barometer of the market, however, is examining the historical change in sales from second to third quarter, which offers a rough estimate of what sales changes are expected. This calculation, using data for the period 2002 through 2018, reveals that sales of new homes fell on average 7% in the third quarter each year. Thus, the latest third-quarter sales, which came in at the same level as the second quarter, suggest that the latest quarterly sales were unusually strong, compared to historic performance.
The majority of high-end new homes are sold in the South, which accounts for 61% of the nation’s total. However, this does not mean that high-end homes are more predominant in the South than other regions. In fact, the South has a lower proportion of new homes selling for more than $500,000 than other regions, except for the West (see the table below).
One-fifth of the new high-end homes are sold in the West region, while the other two regions jointly accounted for another 19% of home sales.
Year-to-date, the Northeast region has the highest proportion of home sales priced above $500,000 — 57% in fact.
The Midwest and the South have both roughly equal shares, with 45% for the Midwest and 44% for the South. But the West, where homes are more expensive than in the other regions, has just over one-quarter of its new homes falling in the “high-end” category.
Manufacturing Shipments Soften
Meanwhile, the latest reports from U.S. manufacturers are somewhat concerning, revealing that shipments as well as orders in most categories continue to weaken. This is obviously the result of the trade disputes with various countries, especially with China.
Advanced data on shipments and orders of durable goods from manufacturers fell in September. Durable-goods shipments fell by 0.4% in September to $253 billion. At the same time, orders for durable goods dropped by a more dramatic 1.1% to $248 billion.
September is the third consecutive month of shipments decline. They are currently 2.4% below the all-time high of $259 billion in durable goods shipped in December 2018.
Orders have taken a bigger hit, falling 5.4% from the peak value of $262 billion reached in September 2018. The declines in orders portend further declines in shipments in the near future.
Within the major categories of durable goods, both Transportation and Fabricated Metal Goods lead with the biggest declines in orders. Transportation Equipment, the biggest category, accounting for more than one-third of orders for durable goods, fell 2.7% in September; the transportation group includes automobiles, trucks, aircraft, ships, etc. Shipments for Transportation products fell 1.2% in September, but are 4.4% below last year.
The changes in orders and shipments for the top categories are shown in the table below.
Mortgage Rates Inch Higher
Mortgage rates rose again last week, with the 30-year fixed rate rising six basis points to 3.75%. All other mortgage rates rose accordingly: the 15-year fixed rate rose three basis points to 3.18%, and the 5-year adjustable rate mortgage (ARM) rose five basis points to 3.4%.
Higher rates potentially can take some homebuyers out of the running for a house they want to buy, making them buy a less-expensive home or not buy at all.
The current state of uncertainty regarding the future direction of monetary policy from the Federal Reserve Bank may be driving interest rates higher, but, as always, the Fed’s actions are not particularly predictable.
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.org if you would like to see further detail.
