Home Sales at Their Highest Since Great Recession
In contrast to some other sectors of the U.S. economy, housing continues to bring forth positive and encouraging news. Last week’s report showed builders started construction of new homes at an accelerated pace, faster than even June’s hot market, compared to the experience over the last four years or so.
This week’s data shows that sales of new and existing homes each rose sharply in July. Sales of existing homes led with a 25% increase over June’s sales, to an annual rate of 5.86 million units. This is the highest annualized sales rate since the Great Recession of 2007 to 2009, and, as illustrated in the chart below, surpasses sales for any month last year (represented by the black line).
However, owing to sales lost during the shutdown months of April through June — the area in the sharp “V” shape below the black line — year-to-date through July, existing home sales lag last year’s volume over the same period. In fact, sales through July of this year total 2.92 million homes, which is 4.7% fewer than the 3.1 million existing homes sold last year over the same period.
The other side of the home sales market, new homes, also rose sharply in July, but by a more modest 14% over the previous month, to reach an annualized rate of 901,000 units. This is also a post-Great Recession record, which, as is the case with sales of existing homes, was set back in December 2006.
But low inventories continue to plague the housing markets and are likely preventing higher levels of home sales. There are currently just 1.5 million existing homes for sale, 3% less than the previous month and a whopping 26% less than last year. This amount of inventory is just sufficient to sustain sales for 3.1 months at the current sales pace.
The existing homes market can’t respond quickly to increases in demand; the supply is contingent on homeowners ‘or property owners’ willingness to move and sell their property. The supply of new homes, however, can adapt faster to changes in demand. Builders can accelerate home construction, depending of course, on availability of workers, land and materials.
Furthermore, builders have the advantage of being able to sell homes before construction has been started — for instance, selling houses from model home plans in subdivisions. Such has been the case recently when sales of homes not yet started jumped to 31% of all new homes sold, up from 20% in April. This increase also ensures that construction companies will be busy for the next few months delivering those homes.
The increased demand for homes, coupled with low inventories, usually results in price pressures in the home markets. The average price of new homes rose to $391,000 in July, up 4.8% from the prior year. For existing homes, the price increase was an even higher 6.5% over the last 12 months, to an average selling price of $338,000.
Mortgage Rates: Remaining Low…Forever?
The Chairman of the Federal Reserve Bank, Jerome Powell, announced last week that the Fed will loosen its inflation target. Up to now, the central bank has generally moved to increase interest rates when it appeared that inflation was approaching 2%. That is, over the past few decades, the bank has maintained a tightening policy whenever inflation began to bubble up.
In its new approach to monetary policy, it will not raise interest rates even if inflation is over the previous target of 2% for a period of time. The net result is that mortgage rates are likely to remain low for the near future.
Last week the 30-year, fixed mortgage rate fell by eight basis points to 2.91%. Similarly, the rate on 15-year, fixed-rate mortgages also fell by eight basis points to 2.46%. Adjustable Rate Mortgages. (ARMs), however, remained unchanged at 2.91%.
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 common understood denotes caution because the variable maybe changing direction; and “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. It 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.
Sales of Existing Homes. 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 over. 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 the 30-year conventional loan 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 the 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, for instance.
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 details.
