August Residential Construction, Existing Home Sales, Sept. Mortgage Apps

Housing Continues to Strengthen, Small Counterweight to Global Gloom

  • Housing Starts for August increased by 2.3 percent to a 750,000 unit annual rate, despite bad weather.
  • August Permits for new residential construction decreased by 1.0 percent to an 803,000 unit rate.
  • Existing Home Sales for August surged by 7.8 percent to a 4.82 million unit annual rate.
  • The Median Sales Price of an Existing Home was up 9.5 percent in August from a year earlier.
  • The MBA’s Mortgage Application Index ticked down by 0.2 percent for the week ending September 14.

The U.S. housing market continues to build on success, as construction activity, sales and prices improve. However, a key difference between now and 2005 is that housing is a smaller part of the economy, and so recent improvements, while very positive, have less leverage in the overall economy. New home construction now accounts for 0.9 percent of GDP, well down from the peak of 3.9 percent in 2005. Still the gains in housing, plus stronger third quarter consumer spending, reinforce the feeling that the U.S. economy is going in two directions at once. We see clear signals that cooling macroeconomic conditions in Europe and Asia are weighing on export-oriented U.S. manufacturers in a “coupled” global economy. Today, the Bank of Japan announced an increase in the scale of its ongoing program of quantitative easing, citing a pause in Japan’s economic growth. Fortunately, we also see a “decoupled” U.S. household sector showing some resilience. Housing starts for August increased by 2.3 percent to hit a 750,000 unit rate. This was below market expectations, possibly held back by the heavy rains spawned by Hurricane Isaac. Permits for new construction remained firm in August settling slightly to an 803,000 unit rate after a surge in July.

Existing home sales in August were not dampened by Isaac; they gained a strong 7.8 percent to hit a 4.82 million unit annual rate. One month does not make a trend, but the August data point is a clear break out from what has been a visible stall in existing home sales through most of this year. The median sales price of existing homes continues to improve, up 9.5 percent in August from a year ago. Inventories of existing homes for sale continue to tighten, now down to 6.1 months’ worth, which is in the range of a “normal” housing market. The Mortgage Bankers Association’s composite application index ticked down by 0.2 percent for the week ending September 14, after increasing strongly the week before. It looks like September will be another good month for U.S. housing markets.

Market Reaction: Equity markets are up. Treasury yields are down at the long end of the yield curve. Oil is down to $92.92/barrel. The dollar is down against the yen and up versus the euro.

Click here for a PDF version of the Comerica Economic Alert: Housing Starts 091912.

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