There were two important reports on the U.S. economy released this morning. First, data from the National Association of Realtors (NAR) showed that total existing home sales in America, which account for a much larger portion of the overall U.S. housing market than new home sales, slid by 3.2 percent in July to a seasonally adjusted annual rate of 5.39 million units. This was the smallest monthly gain since February, significantly worse than economists had expected, and bad enough to result in the first year-over-year decline in existing home sales since November 2015. NAR chief economist Lawrence Yun added that “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month. ... Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.” Regionally, home sales in July rose in the West (+2.5 percent) but declined in the Midwest (-5.2 percent), the Northeast (-13.2 percent), and the South (-1.8 percent). Total housing inventory edged higher last month to 2.13 million existing homes available for sale but this was still 5.8 percent lower than in July of 2015. Further, months’ supply lifted to 4.7 at the current sales pace, and the median selling price was $244,100 in July, a 5.3 percent gain compared to this same period last year and therefore the 53rd consecutive month of annual growth.
Elsewhere, the U.S. Federal Housing Finance Agency’s (FHFA’s) national home price index (HPI) rose by 0.2 percent in June (lagged release), slightly below the 0.3 percent gain that economists had expected and therefore tied with the slowest pace of monthly growth since 2013. On a year-over-year basis, home prices rose by 5.6 percent in June, the softest pace of annual growth since August of last year. However, home prices still rose by 1.2 percent in the second quarter of 2016, the 20th consecutive quarterly rise in home prices in America and one of the longest such uptrends in U.S. history. Further, the annual rate of growth in home values continue to easily outpace both headline consumer inflation and wage growth in this country, largely due to supply constraints. Some economists like to compare the HPI to the owners' equivalent rent section of the monthly consumer price index (CPI) report from the U.S. Bureau of Labor Statistics to help spot price bubbles. As the last chart below shows, home values have increased significantly in recent years but remain below the extremes seen prior to the last recession. Regardless, low mortgage rates, tight supplies, and continued improvement in the labor market should all be supportive of higher home prices going forward.
Sources: Econoday, Twitter, Bloomberg, ZH, NAR, U.S. FHFA, FRBSLPost author: Charles Couch