Weekly Economic Update - Home Sales Update

Both new and existing home sales were disappointing in July. The numbers for new home sales fell for the second month and existing homes for the fourth time.  But while the latter has been lagging their 2017 monthly numbers for most of this year, new home sales are still performing much better.

Reports that price gains are slowing seem to depend on who is talking. We see two versions this month.

Finally, while the Great Recession is behind us, the Federal Reserve says its effects may never disappear.

Sometimes it doesn’t pay to put in an exceptional performance. It can be awfully hard to live up to it.

That is certainly the case with existing home sales. In November 2017 those sales jumped almost 6% and set an 11 year high of 5.81 million sales annualized.

And then…

Last month was the sixth out of the last eight (and the fourth month in a row) that existing home sales have declined and the fifth straight month they have run behind sales a year earlier. They sagged by another 0.7% in July to 5.34 million units and are now down 1.5% compared to July 2017.

Lawrence Yun, National Association of Realtors chief economist, said continued price increases are beginning to stifle demand. “Existing home sales trailed off again last month, sliding to their slowest pace since February 2016 at 5.21 million,” he said. “Too many would-be buyers are either being priced out or are deciding to postpone their search until more homes in their price range come onto the market.”

The numbers were worst in the Northeast, down 8.3%. The West posted the sole gain, an increase of 4.4%. However, sales in that region are still lagging by 4.0% year-over-year.

New home sales are also struggling. They posted their second straight monthly decline in July, 1.7% on top of a 5.3% loss in June. Sales are still much higher than last year though, up 12.8% from last July and 7.2% on a year-to-date basis.

The prices for new homes had looked promising for a while--median and average sales prices dropped from the previous year in both May and June. But it was just a tease. The median price in July was $328,700, up from $322,900 and the average rose from $372,400 to $394,300.

The index measuring purchase prices for homes financed by Fannie and Freddie did indicate some slowing. June prices increased 0.2% from May, following 0.3 and 0.4% gains in March and April. Prices in the Pacific division, which often records the strongest numbers in the country, only increased 0.6% in the second quarter, the slowest rate since 2011.

A Different Kind of Recovery

The San Francisco Federal Reserve published a weighty paper (lots of math and modeling) that shows the effects of the Great Recession linger on. That blip in the universe derailed economic growth from the patterns it was following beforehand. The economy has recovered but to a totally different and lower trajectory and may never get back to what might have been. The Fed says this diminished level of output could result in a lifetime present-value income loss of about $70,000 for every American.

Although this isn’t the cheeriest of news as we send the kids back to school, we should remember that interest rates are still in a range that is historically low and that data for appreciation and new home sales are still higher compared to last year, not lower.

08.24.2018

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