Inventories and Prices Impair Home Sales: August 21 – 25

Tight inventories were hampering home sales in July. Here are the five things we learned from U.S. economic data released during the week ending August 25.

#1Existing home sales slipped in July as inventories remained tight. The National Association of Realtors tells us that existing home sales slowed 1.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.44 million units. This was 2.1 percent above the annualized sales rate of a year earlier. Sales grew during July in two Census regions—West (+5.0 percent) and South (+2.2 percent)—but fell in both the Northeast (-14.5 percent) and Midwest (-5.3 percent). Two regions also have positive 12-month sales comparables: West (+5.0 percent) and South (+3.6 percent). Inventories of unsold homes remained very tight, with only 1.92 million homes available for sale at the end of July. This was down 1.0 percent from June, 9.0 percent from a year earlier, and the equivalent to a mere 4.2 month supply. NAR’s press release notes that “the negative effect of not enough inventory to choose from and its pressure on overall affordability [have] put the brakes on what should’ve been a higher sales pace.”Existing and New Home Sales July17-082517.png

#2New home sales also dropped during July. Per the Census Bureau, sales of new single-family homes were at a seasonally adjusted annualized rate (SAAR) of 571,000 units. This was down 9.4 percent from June and off 8.9 percent from the same month a year earlier. Sales fell in three in four Census regions: Northeast (-23.8 percent), West (-21.3 percent), and South (-4.1 percent). New home sales increased 6.2 percent in the Midwest. Similarly, three of four Census regions have experienced year-to-year sales declines, including the Northeast (-13.5 percent), Midwest (-12.7 percent), and South (-11.7 percent). New home sales were 1.7 percent above their July 2016 rate. Inventories of new homes grew 1.5 percent to a seasonally adjusted 276,000 units. This translated into a 5.8 month supply of new homes on the market. As a result, the median sales price of new homes sold during the month—$313,700—was 6.3 percent above that of a year earlier.

#3The pace of economic expansion slowed during July. The Chicago Fed National Activity Index (CFNAI) shed 17-basis points during the month to slip to a negative -0.01 reading. This was the third time over the past five months in which the CFNAI was negative, indicative of the U.S. economy growing slower than its historical average. The CFNAI is a weighted average of 85 economic measures. During July, 42 of the measures made a positive contribution to the CFNAI during July. Among the four broad categories of economic measures, only those related to employment made a positive contribution (adding nine basis points to the index). Weighing on the index were components associated with consumption/housing (costing six basis points), production (costing two basis points), and sales/orders/inventories (costing a basis point). The CFNAI’s three-month moving average, with smooths some of the month-to-month volatility in the index, lost 14-basis points during the month to -0.05. This was the moving average’s lowest reading since March.

#4A sharp decline in airplane orders weighed heavily on durable goods orders in July. New orders for manufactured durable goods slumped 6.8 percent to a seasonally adjusted $229.2 billion, according to the Census Bureau. This was the largest decline in durable goods orders in almost three years. The drop was partially the product of new orders for civilian aircraft tumbling 70.7 percent (note that aircraft order data tend to be very volatile month-to-month), contributing to 19.0 percent decrease in transportation goods orders (also not helping was a 1.2 percent fall in new orders for motor vehicles). Net of transportation goods, new durable goods orders gained 0.5 percent to $154.8 billion. Rising during the month were orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). New orders fell, however, for machinery (-1.4 percent). A proxy for core business investment—civilian non-aircraft capital goods orders—gained 0.4 percent. Shipments grew for a third straight month (+0.4 percent), unfilled order lost ground for the third time in four months (-0.3 percent), and inventories expanded for the 12th time in 13 months (+0.3 percent).

#5Home prices continue to rise far more quickly than the general rate of inflation. The Federal Housing Finance Agency’s purchase-only Home Price Index edged up 0.1 percent during June and has risen by 6.5 percent over the past year. The measure of prices of homes that have been purchased at least twice (hence a repeat purchase index) gained in five of nine Census regions during the month, led by the East South Central (+1.3 percent) and Pacific (+0.7 percent) regions. Prices held firm in the Middle Atlantic but fell in three regions: West South Central (-0.5 percent), South Atlantic (-0.2 percent), and East North Central (-0.1 percent). All nine Census regions have positive 12-month comparables, with prices growing by the largest percentage over the past year in the Pacific (+9.8 percent), Mountain (+7.9 percent), East South Central (+7.1 percent) regions.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 19, 2017, First-Time Claims, seasonally adjusted): 234,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-9.4% vs. the same week a year earlier).
Mortgage Delinquencies (2017 Q2, Delinquency Rate of Outstanding Mortgages, seasonally adjusted): 4.24% (vs. 2017Q1: 4.71%, vs. 2016Q2: 4.66%).
Temporary and Contract Workers (2017Q2, Average Number of Temporary and Contract Workers per week): 3.13 million workers (+1.9% vs. 2017Q1, -1.4% vs. 2016Q2).

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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