What I Saw Last Week
U.S. Existing Home Sales rose 1.1% month-over-month in March to a seasonally adjusted annual rate of 5.60M units – I had forecast sales rising to an annual rate of 5.57M units – from an upwardly revised 5.54M (from 5.38M) in February. That said, total sales were 1.2% lower than the same period a year ago.
The median existing home price for all housing types increased 5.8% to $250,400, which was the 73rd straight month of year-over-year gains. The median existing single-family home price was $252,100 – up 5.9% from a year ago.
Existing home sales activity was mixed by region with the Northeast up by 6.3%; the Midwest 5.7% higher; the South dropped 0.4% and sales in the West were 3.1% lower than a year ago.
The inventory of homes for sale at the end of March rose 5.7% to 1.67M units, but this is still 7.2% lower than the same period a year ago. Notably, the inventory of existing homes for sale has now fallen year-over-year for 34 consecutive months.
The takeaway from the report remains the same – notable supply constraints continue to act as a drag on overall sales. The limited inventory, and the high prices on available inventory, continues to crimp affordability, particularly for first-time buyers; moreover, all prospective buyers are going to feel added affordability pressures from rising mortgage rates as we move through this year.
The Case Shiller Index for US home prices outperformed my forecast of a 6.4% rise in the 20-City index with an increase of 6.8%.
Clearly, the critical shortage of homes for sale is driving home prices higher.
Local leaders continue to be Seattle (+12.7%), Las Vegas (+ 11.6%) and San Francisco (+10.1%). Thirteen of the top 20 cities saw bigger annual price increases in February than in January.
Year-over-year prices measured by the National index have increased continuously for the past 70 months. Over that time, the price increases averaged 6% per year. With expectations for continued economic growth and further employment gains, I anticipate that the current run of rising prices is going to continue.
U.S. New Home Sales in March rose by 4.0% month-over-month to a seasonally adjusted annual rate of 694,000 units. I had forecast a more modest increase to 631,000 units.
The median sales price increased 4.8% year-over-year to $337,200 but the average sales price dropped 3.8% to $369,900.
Based on the current sales pace, the inventory of new homes for sale dipped to a 5.2-months’ supply, versus 5.4 months in February and 5.0 months in the year-ago period.
Homes priced at $399,999, or less, accounted for 67% of new homes sold in March versus 72% in February. The decrease in the percentage of lower-priced homes that were sold fits with the strength in sales activity in the West region where prices are notably higher.
The takeaway from the report is that new home sales activity was the strongest in the South and West regions, which represent the nation’s biggest markets, suggesting there is solid underlying demand.
Consumer Confidence rose to 128.7 in April – I had forecast a drop to 126.1 – from a downwardly revised 127.0 (from 127.7) in March, leaving it in close proximity to the February reading, which was the highest level since 2000.
The takeaway from the report is that the percent of consumers expecting their income to decline over the coming months reached its lowest level (6%) since December 2000. That view could be a good portent for a pickup in consumer spending since income expectations are typically driven by feelings of job security.
The advanced estimate for US GDP in Q-1 showed the economy expanding at an annual rate of 2.3% – slightly above my forecast for growth of 2.1%.
The takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%. The “surge” that the administration believed would come following it tax cuts have yet to appear.
The final Consumer Sentiment number for April rose from the initially reported 97.8 to 98.8 – I had forecast an increase to 98.0 – but still below the March level of 101.4.
The takeaway here is that consumer sentiment is strong at a time when the economy is growing soundly and the job market is getting tighter. A recent report on labor costs showed the biggest uptick in compensation in a decade; however, persistent lagging expectations regarding the future suggests to me that there is still reticence about just how much faster the economy can grow.
The rate of homeownership was unchanged from the fourth quarter of 2017, but it did improve slightly year-over-year. The U.S. Census Bureau said the rate in each of the last two quarters was 64.2%, but that was 0.6% higher than in the first quarter of last year. The rate hit an all-time low of 62.9% in the second quarter of 2016.
The rate was highest in the Midwest at 67.9% and the South at 66.3%. The Northeast and the West had rates of 60.5% and 59.7% respectively. Rates for each of the regions were up slightly from a year earlier except for a slight dip in the Northeast. The West posted the greatest gain, rising 0.7%.
The takeaway here is that homeownership rates continue to trend back to their historic averages.
What to Watch for This Week
Income & Spending rose by 0.4% and 0.2% respectively in February. I expect that the March data will show incomes up by 0.4% and spending 0.4% higher.
The NAR Pending Home Sales Index for March is probably going to disappoint. The February Index was measured at up by 3.1% and March should show a more modest 2.0% increase.
US. Construction Spending rose by a paltry 0.1% in February but the March numbers are
US Non-Farm Payrolls are likely to have risen by 200,000 in April following the 103,000 new jobs that were added in March.
The Unemployment Rate in April will show a drop from 4.1% to 4.0%.