Tight Inventory Chokes the Housing Market: February 19 – 23

Existing home sales slowed for a second straight month, but overall business activity remains stout. Here are the five things we learned from U.S. economic data released during the week ending February 23. (OK, there are only four things, as it was a slow week)

#1A lack of homes for sale depressed the real estate market in January. The National Association of Realtors reports that sales of previously owned homes declined 3.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.38 million units. This left the sales pace 4.8 percent below that of January 2017, the largest year-to-year decline in existing home sales since the summer of 2014. Sales slowed in all four Census regions on both a month-to-month and year-to-year basis. Sales were down for the month by 6.0 percent in the Midwest, 5.0 percent in the West, 1.4 percent in the Northeast, and 1.3 percent in the South. Inventories, while growing a bit during the month, remained very tight. There were 1.52 million homes available for sale at the end of January (representing a mere 3.4 month supply of homes), up 4.1 percent for the month but still 9.5 percent smaller than year ago inventories levels. As a result, the median sales price of $240,500 was 5.8 percent above that of a year earlier. The press release lays blame on the “utter lack of sufficient housing supply and its influence on higher home prices” for the decrease in sales activity.

#2Forward-looking economic indicators suggest healthy economic growth during (at least) the first half of 2018. The Conference Board’s Leading Economic Index (LEI) grew by 1.1 points during January to a seasonally adjusted 108.1 (2016=100). The LEI has grown by 6.2 percent over the past year. Eight of the ten LEI components made a positive contribution to the index, led by building permits, new orders for manufactured goods and stock prices. The coincident index inched up by 1/10th of a point to 103.0 and up 2.2 percent over the past year. Three of the four coincident index components made positive contributions: nonfarm payrolls, personal income net of transfer payments, and manufacturing/trade sales. The lagging index also added 1/10th of a point to 104.0 (+2.5 percent versus January 2017), with three of seven components making positive contributions: prices for services, consumer debt as a percentage of personal income, and the prime rate charged by banks. The press release noted that LEI data point to “with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.”

#3Jobless claims decades remained near multi-decade lows. First-time claims made for unemployment insurance benefits dropped by 7,000 during the week ending February 17 to a seasonally adjusted 222,000, down 25,000 from the same week a year ago. The Department of Labor reports four-week moving average declined by 2,250 during the week to 226,000, down 7.9 percent from a year earlier. Except for the reading two weeks earlier, this was the lowest point for the moving average of first-time jobless claims since March 1973. 2,360,760 people were receiving some form of unemployment insurance benefits during the week ending February 3, 5.9 percent below the count during the same week a year earlier.Jobless Claims 1970-2018 022318

#4Inventories of crude oil, gasoline, and distillates are much smaller than they were a year ago. The Energy Information Administration finds commercial crude oil inventories, which does not include the oil held in the Strategic Petroleum Reserve, declined by 1.6 million barrels during the week of February 16 to 420.5 billion barrels. This was 18.9 percent smaller than crude oil inventories during the same week a year earlier. Gasoline inventories grew slightly (300,000 barrels) during the same week 249.3 million barrels (-2.8 percent versus the week of February 17, 2017). Inventories of distillate fuel oil shrank by 2.4 million barrels to 138.9 million barrels, 15.9 percent below year-ago inventories. 

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

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