January home sales statistics gave conflicting signals on the state of the industry. While sales for existing homes started the year strong, reaching its highest volume in over a decade, sales for new homes remain at anemic levels.
Sales for existing homes came in at 5.69 million homes sold (annualized) hopefully marking the beginning of strong year. The gain over the previous month was a modest 3.3 percent and only 2 percent over the prior year. The chart below depicts the positive trend over the last year; this is particularly evident since the middle of 2016.
New home sales rose 4 percent in January, to a 555,000 unit annual rate. But January’s gain failed to match last year’s average monthly sales rate of 559,000 units by 1 percent.
The latest “high end” new home sales data fell in the fourth quarter of last year. Despite softening sales in the fourth quarter, however, we find that last year’s sales of high end homes were 17 percent above their 2015 level. In fact, as shown in the chart below, “high end” home sales have increased steadily over the last four years.
It could be argued that home sales are not stronger because of the low inventory levels. The inventory of existing homes for sale is 7 percent lower than it was a year ago. For new homes, the inventory is 11 percent higher than it was in January 2016.
It’s important to note that existing homes face different sales obstacles than new homes. The existing homes inventory rises when people move to a newly-built home or when vacant homes are put on the market. There are currently more than 5 million vacant homes that are neither for sale nor being used by their owners. These are homes that may be off the market for a variety of reasons, such as the death of the occupant, which take time for the new owners to figure out how to dispose of the property. But those homes may come on the market if circumstances change or prices rise to attractive levels.
For new homes, labor constraints remain the most significant hurdle. A report from Bloomberg last month suggests that the construction industry in general faces a tighter labor market this year.
The release of the latest Fed meeting results pointed toward an interest rate increase in the near future. Thus mortgage rates have remained virtually unchanged over the last few weeks. Last week they rose by only one basis point to 4.16 percent.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator. Note that all the data, except for “mortgage rate” and “appliance store sales” is seasonally adjusted and is represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately-owned homes (excludes rentals, etc.). The data is in billions of dollars and is issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data is in thousands of houses and is issued monthly by the U.S. Department of Commerce.
Existing Home Sales. This data is issued monthly by the National Association of Realtors, and captures the number of existing homes that were sold in the previous month.
High-End Home Sales. This series represents sales of new homes priced at $750,000 and over. The data is released quarterly by the U.S. Department of Commerce, and is not seasonally adjusted. Thus a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. This data, released monthly by the Department of Commerce, captures the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data is stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
