What I Saw Last Week
U.S. Existing Home Sales in July fell 0.7% month-over-month to a seasonally adjusted annual rate of 5.34M units – I had forecast 5.4M. Notably, the median existing home price for all housing types rose 4.5% to $269,600, making for the 77th straight month of year-over-year gains. The median existing single-family home price came in at $272,300, up 4.6% from a year ago.
Regionally, sales rose in the West (+4.4%) but fell in the Northeast (-1.5%), Midwest (-1.6%), and South (-0.4%).
Single-family home sales declined 0.2% to a seasonally adjusted annual rate of 4.75M and were 1.2% below the year-ago pace.
The inventory of homes for sale at the end of July dropped 0.5% to 1.92M and was unchanged from a year ago. Unsold inventory remained at a 4.3-month supply, again unchanged from last July. This is below the 6.0-month supply typically associated with a more balanced market. 55% of homes sold in July were on the market less than a month, compared to 58% in June.
The takeaway from the report is that supply constraints continue acting as a drag on overall sales. The lower inventory — and high prices on available inventory — is crimping affordability, especially for first-time buyers. All prospective buyers are facing affordability pressures resulting from home prices increasing at a faster pace than income. Moreover, it is also possible that buyers may be postponing their home search until more homes in their price range come onto the market.
U.S. New Home Sales dropped 1.7% month-over-month in July to a seasonally adjusted annual rate of 627,000 units – I had forecast 645,000 – from an upwardly revised 638,000 (from 631,000) in June.
The July estimate was the lowest annual pace since August 2017, a reminder that builders must manage costs as affordability concerns rise. While affordability conditions remain positive and the labor market sees low unemployment, prospective home buyers face increased uncertainties as interest rates trend higher and trade war concerns continue to grow.
Despite the disappointing July estimate, total sales for the first seven months of 2018 (401,000) were 7.2% higher than the comparable total for 2017 (374,000). I continue to expect that the volume of new home sales will continue to expand at its current modest pace, subject to monthly volatility and supply-side cost concerns.
Inventory levels rose in July to 309,000 single-family homes and, at current sales pace, there is a healthy level of 5.9 months of inventory. Given tight existing home inventory, i believe that more new homes can be absorbed by the market.
The median sales price of a new home rose to $328,700 in July . I continue to contend that managing rising construction costs in the months ahead will be a key challenge for housing affordability, as input costs increase, although recent declines in lumber prices should help.
At a regional grain, for the first seven months of 2018 (relative to the first seven months of 2017), new home sales were up 14.2% in the Midwest, 8.6% in the South, 6.5% in the West, and down 14.5% in the Northeast, due to some tax reform related effects and affordability.
What to Watch for This Week
Case Shiller Index numbers for June will likely show the 20-City Index up by 6.4% year-over-year – marginally below the 6.5% annual rate seen in May.
Consumer Confidence in August is likely to drop from 127.4 to 126.5.
The second revision for GDP in the second quarter should show the economy grew by 4.0% – down from the initial figure of 4.2%.
The NAR Pending Home Sales Index for July is likely to disappoint with the Index level dropping from 106.9 to 106.3.
Income & Spending both rose by 0.4% in June and I expect to see the July data match the prior month with both up by 0.4%.
The final Consumer Sentiment number for August should be modestly higher. I’m looking for an increase to 95.5 from the initial figure of 95.3.