Mixed Results Show Vulnerabilities in Housing Market
- New Home Sales for July fell sharply by 13.4 percent to an annual rate of 394,000 units.
- The Months’ Supply of New Homes on the market jumped to 5.2 months’ worth in July.
- Existing Home Sales for July increased by 6.5 percent to a 5.39 million unit annual rate.
- The Months’ Supply of Existing Homes was unchanged at 5.1 months’ worth in July.
Home sales data for July show a bifurcated housing market with new home sales dropping while existing home sales gained momentum. Mortgage interest rates continue to increase. According to the Mortgage Bankers Association the rate for a 30-Year fixed rate mortgage was up to 4.68 percent as of August 16. The combination of higher mortgage rates and higher house prices is eating into affordability. While housing affordability remains very high by historical standards, the drop from all-time highs may be creating a headwind for those stretching to qualify for financing. The headwind may be greater in the new home market than in the existing home market, perhaps due to the elevated percentage of institutional sales in the existing home market.
New home sales for July fell sharply, by 13.4 percent, to hit an annual rate of 394,000. That is the weakest sales rate this year, roughly even with where we finished in 2012. Moreover, May and June sales numbers were revised down. July Sales fell across all four regions. The Northeast was down 5.7 percent. The Midwest was down 12.9 percent. The South was down 13.4 percent and the West was down 16.1 percent. The months’ supply of new homes for sale increased from a tight 4.3 months’ worth in June to 5.2 in July. The median sales price of a new house dipped slightly in July to $257,200. Over the previous 12 months, new home prices were up 8.3 percent in July. If the downturn in new home sales is sustained, residential construction will be impacted. The risk is that the chain of the virtuous economic cycle may develop a weak link in the new home market as mortgage rates continue to rise. This could be a factor in the Federal Reserve’s strategy to wind down QE3.
Existing home sales increased in July by 6.5 percent, reaching a 5.39 million unit rate. This is the strongest sales rate for existing homes since March 2007. Sales of existing homes increased in July in all four major regions. The Northeast gained 12.7 percent. The Midwest was up 5.8 percent. The South increased by 5.0 percent and the West gained 6.6 percent. The months’ supply of existing homes on the market was unchanged in July at 5.1 months’ worth. According to the National Association of Realtors, the median sales price of an existing home dipped slightly in July to $213,500, a 13.7 percent increase over the previous 12 months.
Market Reaction: U.S. equity markets are down. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $105.93/barrel. The dollar is up against the euro and down against the yen.
For a PDF version of this Comerica Economic Alert, click here: Home Sales 082313.