Incoming reports on the U.S. housing market remain encouraging. For example, existing home sales rose by 3.6 percent in December to a seasonally adjusted annual rate of 5.54 million units, according to the National Association of Realtors. That was much better than expected and the highest monthly sales pace recorded since February 2018. Further, on an annual basis existing home sales were up 10.8 percent in December, the largest 12-month increase since 2016. Year-ago sales comparisons could continue to surprise to the upside in the near-term since the Federal Reserve’s dovish policy shift did not really intensify until the second half of 2019. Affordability, though, should remain a challenge for many homebuyers because the median selling price in December rose at the fastest annual rate in three years and resulted in the 94th consecutive month of year-over-year growth.
A lack of supply is a part of the problem because inventory was low in December even after accounting for typical holiday-related volatility. However, more sellers could begin entering the market due to the favorable conditions, and demographic trends will generate even more supply in the years ahead. Additional help may come from the recent uptick in home construction. Indeed, housing starts surged by 16.9 percent in December, and the NAHB’s homebuilder confidence index just posted its best back-to-back readings since 1999. Sales of new single‐family homes have also strengthened considerably after the Fed began cutting interest rates, and in the September through November period sales rose at an average 720,000-unit pace, comfortably above 2018’s mean 615,000-unit pace. When the December data is released next week a continuation of this upward trend would be another positive sign for the longevity of the economic expansion in America because new home sales are often viewed as a leading indicator that weakens sharply ahead of a recession.
Sources: Econoday, NAR, U.S. DoC, NAHB, FRBSL