Home Sales Stumble as Economy Cools
- New Home Sales for June fell by 8.4 percent, to a 350,000 unit annual sales rate.
- Mortgage Applications for the week ending July 20 increased slightly, driven by refis.
- The Richmond Fed’s Manufacturing Activity Survey showed declines in the central Atlantic area.
Homes sales stumbled in June as new home sales fell by 8.4 percent and existing home sales (previously reported) fell by 5.4 percent. The decline in existing home sales was partially caused by a decrease in the number of distressed properties on the market, according to the National Association of Realtors. However, today’s report on new home sales may be an indication that more factors might be in play. Both new and existing home series have been on an upward trend, and are somewhat volatile, so a one month decline in either series should not be viewed as a trend breaker. But a coincident decline in both new and existing home sales, in the presence of other weakening economic data, does focus the attention and suggests that home buyer confidence is vulnerable to a cooler U.S. economy. That cooler U.S. economy will likely be revealed by the second quarter GDP data that will be released Friday morning. I expect Q2 real GDP growth to be in the neighborhood of 1.5 percent, a step down from the 1.9 percent growth rate of the first quarter. If the U.S. economy cools further in 2012H2, or, more likely, in 2013H1, home sales will feel the drag from weaker job growth and reduced buyer confidence. Even with increasing economic headwinds, home sales will likely not relapse to their 2010-early 2011 lows. Firming prices and improved credit availability will keep the floor for new and existing home sales higher in the absence of another hard recession.
Mortgage applications for the week ending July 20 are not encouraging for July home sales. Total applications increased by 0.9 percent, but purchase applications declined by 3.2 percent as refi apps increased by 1.8 percent. Purchase apps have been much flatter than refi apps since May. The Federal Reserve Bank of Richmond’s Manufacturing Activity Survey for July showed deteriorating manufacturing conditions in the region from Maryland through South Carolina.
Market Reaction: Equity prices are declining. Treasury yields are down. NYMEX crude oil is down to $87.30/barrel. The dollar is up against the yen and down versus the euro.