Did Housing Hit a Bottom? June 19 – 23

The housing market stabilized during the spring. Here are the five things we learned from U.S. economic data released during the week ending June 23.

Existing home sales were stable in May. The National Association of Realtors reports that previously owned homes eked out a 0.2 percent sales gain to a seasonally adjusted annualized rate (SAAR) of 4.300 million units. Sales remained a whopping 20.4 percent below their year-ago pace. Sales improved in the West (+2.6 percent) and South (+1.5 percent) but declined in the Midwest (-2.9 percent) and Northeast (-2.0 percent). Inventories expanded 3.8 percent to 1.080 million homes (-6.1 percent versus May 2022), the equivalent of a still-tight 3.0 month supply. The median sales price of $396,100 was 3.1 percent below year-ago levels. The press release attributes the “consistent” home sales to “relatively steady [interest] rates.” 

Housing starts surged in May. Housing starts rose 21.7 percent to a seasonally adjusted annualized rate (SAAR) of 1.631 million units. The Census Bureau measure was 5.7 percent above year-ago levels. Starts of single-family and multi-family homes soared 18.5 percent and 28.1 percent, respectively. Looking towards the future, issued building permits jumped 5.2 percent to an annualized 1.491 million units. Even with the gain, permits remained 12.7 percent off their year-ago pace. Permits for single-family and multi-family homes gained 4.8 percent and 7.8 percent, respectively. Completions increased 9.5 percent to an annualized 1.518 million homes (+5.0 percent versus May 2022).

Homebuilders were going more optimistic in June. The National Association of Home Builders’ Housing Market Index (HMI) added five points to a seasonally adjusted 55. Readings over 50 mean more homebuilders see the housing market as “good” instead of “poor.” The HMI increased in all four Census regions: Northeast (up seven points to 52), Midwest (up six points to 48), South (up four points to 60), and West (up two points to 50). The present single-family home sales index grew by five points to 61, while the expected sales measure swelled by six points to 62. The index for prospective buyer traffic added four points to 37. The press release attributes the brighter sentiment to “low levels of existing home inventory and ongoing gradual improvements for supply chains.”

The U.S. economy expanded at a lukewarm rate in May. The Chicago Fed National Activity Index (CFNAI) shed 29 basis points to -0.15. A CFNAI below zero but above -0.70 signals a U.S. economy growing slower than its historical average. Only 39 of the 85 economic measures that comprise the CFNAI made positive contributions. Among the four major categories of measures, only personal consumption/housing measures made a positive contribution (adding two basis points to the CFNAI). Drags on the economy were production (subtracting nine basis points), sales/orders/inventories (-0.05), and employment (-0.03). The CFNAI’s three-month moving average improved by six basis points to a still lethargic -0.14. 

Forward-looking measures remained stubbornly sluggish in May. The Conference Board’s Leading Economic Index (LEI) dropped 0.7 percent to 106.7 (2016=100). The LEI has dropped 4.3 percent over the past six months. Four of the ten LEI components made positive contributions to the index, led by building permits and jobless claims. The Coincident Economic Index (CEI) added 0.2 percent to 110.2, leaving the measure 0.8 percent above its November 2022 mark. Three of the four CEI components made positive contributions, including personal income and nonfarm payrolls. The Lagging Economic Index inched up 0.1 percent to 118.4 (+0.6 percent versus November 2022), with the prime interest rate charged by banks as the only positive contributor. The Conference Board sees a recession during the second half of this year and into early 2024.

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending June 17, 2023, First-Time Claims, seasonally adjusted): 264,000, Unchanged vs. the previous week, +48,000 vs. the same week a year earlier). 4-week moving average: 255,750 (+19.5% vs. the same week a year earlier). 

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