What I Saw Last Week

In a release that surprised all economists including myself, the National Association of Homebuilders Housing Market Index for July soured a little and dropped to 59 from 60.  I had anticipated it to rise to 61.


All three components of the index —current sales, future sales expectations, and buyer traffic — slipped in July with the greatest drop (3 points) coming in builders’ views toward future sales.

That said, builders in three out of four regions did have a positive outlook (50 points and higher) for the housing market. Builders in the West are most confident, posting a reading of 70 in July (the highest of any region), one point higher than a month earlier. The Midwest and Northeast saw their regional housing market index rise from 55 to 56, and from 39 to 42, respectively. Builders in the South reported a score of 60 in July, cutting four points from June, but still above the 50-point threshold.

For the past six months, builder confidence has remained in a relatively narrow positive range that is consistent with the ongoing gradual housing recovery that is underway.  However, builders are still reporting scattered softness in some markets, due largely to regulatory constraints and shortages of lots and labor.

U.S. Building Permits increased in June to a seasonally adjusted annual rate of 1.153 million (I had forecast an increase to 1.150 million) while the prior month saw a small downward revision to 1.136 million from 1.138 million.


The three-month moving average for permits rests at 1.140 million versus 1.184 million in February. Permits for single-family units increased 1.0% and were up 2.5% for multi-unit dwellings. The Northeast led the way, with permits up 13.7% for single-family units; however, the West was the only other region to show a gain in single-family permits (+0.6%). The Midwest was flat and the South was down 0.3%.

U.S. Housing Starts in June jumped 4.8% to a seasonally adjusted annual rate of 1.189 million units (I had forecast an increase to 1.164 million) on the heels of a downwardly revised 1.135 million (from 1.164 million) in May.


The improvement in starts in June was fueled by a 4.4% pickup in single-family starts and a 5.4% increase in multi-unit starts.

The Northeast was the main driver of the improvement in single-family starts, logging a 31.6% increase. Single-family starts, though, were up in all regions, including a 7.3% gain in the Midwest, a 3.1% increase in the West, and a 0.5% uptick in the South.

By and large, the starts and permits data for June were largely as expected when factoring for the downward revisions to May. The trouble there is that neither starts nor permits have exhibited any real growth in recent months.  With the latest report, the three-month moving average for starts stands at 1.160 million versus 1.167 million in February and, as mentioned earlier, the three-month moving average for permits rests at 1.140 million versus 1.184 million in February.

Contrary to my forecast for a modest contraction, U.S. Existing Home Sales increased 1.1% in June to a seasonally adjusted annual rate of 5.57 million (I had forecast 5.5 million units).  Existing home sales in May were revised from 5.53 million to 5.51 million.

Existing sales

Single-family home sales increased 0.8% in June to a seasonally adjusted annual rate of 4.92 million while existing condominium and co-op sales rose 3.2% to 650,000 units on the same basis.

On a regional basis, existing home sales declined 1.3% in the Northeast, increased 3.8% in the Midwest, remained unchanged in the South, and jumped 1.7% in the West.

The high-price obstacle didn’t go away in June, which produced a 4.8% increase in the median existing-home price for all housing types to $247,700. That is the 52nd straight month of year-over-year gains and tops May’s peak median sales price of $238,900. It goes to show, too, the importance of mortgage rates staying low to help affordability conditions.

Existing sales $

Price support continues to be underpinned by limited supply and it doesn’t sound as if there will be a meaningful break in the pricing trend on the near horizon. To that end, unsold inventory is at a 4.6-month supply at the current sales pace versus 4.7 months in May.

The most encouraging aspect of the June report was that first-time buyers accounted for 33% of home sales, which was up from 30% in May and marked the highest share since July 2012.First-time buyers are an essential part of the existing home sales mix because they bolster the capability of existing homeowners to sell their house.

What to Watch for This Week

The Case Shiller Index rose at an annual rate of 5.4% in April and data for May should show the annual rate of home price growth matching that seen the month before.  The Seattle region should see price growth up by 10.9% following the 10.7% increase seen in April.

Consumer Confidence rose to 98.0 in June and the July number will have likely dropped to 96.0 following the Brexit vote (regardless of how this has really been a non-issue).

U.S. New Home Sales dropped by 6% month-over-month in May and the June number will be better. I am anticipating an increase of 1.6% to an annual rate of 5606,000 units.

The NAR Pending Home Sales Index in May dropped by 3.7% and I am expecting to see the June number higher by 1.1%.

This week we will get our first view on US growth in the second quarter with the release of GDP data. As has been the case for many years, the second quarter tends to be the one that stands out and I anticipate that it will show the US expanding by 2.6% versus the 1.1% growth rate seen in Q1.

We get the final July number for Consumer Sentiment and I expect to see this retreat to 90.4 from the early July figure of 93.5.