Sales Slip but Inventories of Existing Homes for Sale Remain Tight
- New Home Sales decreased by 11.4 percent in April to a 569,000 unit annual rate.
- Existing Home Sales fell by 2.3 percent in April to a 5,570,000 unit annual rate.
After a strong March, both new and existing home sales fell in April. The good news is that inventories of existing homes for sale remain very tight, and since that represents about 90 percent of all homes for sale, it is supportive of both the existing home and new home markets. Tight inventories represent both a short term positive for the overall housing market and a near-term constraint on sales. Demographic demand remains strong as household formation increases relative to population growth as economic conditions improve. And consumer conditions are positive. Solid labor market conditions will help to give reluctant millennials the confidence they need to jump into the housing market. Home builders’ confidence remains high, consistent with tight inventories. So we are building a case for ongoing gains in the single-family housing market, especially for new home sales, even though April was weak. Where might headwinds develop? One headwind will likely come from rising mortgage rates. We expect the Federal Reserve to increase the fed funds rate range by 25 basis points on June 14. If they do that, and perhaps follow up with another 25 basis point increase in September, that will put upward pressure on mortgages rates, reducing affordability. Also, balance sheet reduction by the Fed, expected to start late this year or early next year, may also put slight additional upward pressure on mortgage rates. Another headwind to home sales may come from declining consumer confidence if the political climate in Washington continues to deteriorate.
New home sales fell by 11.4 percent, to a 569,000 unit rate in April, the weakest sales rate since last December. The months’ supply of new homes for sale increased to 5.7 months’ worth, which is the highest inventory number since September 2015. Existing home sales for April dipped by 2.3 percent, to a 5,570,000 unit annual rate. The inventory of existing homes for sale remains tight at 4.2 months’ worth. The median sales price of an existing home this April was $244,800, 6 percent higher than the previous April.
Market Reaction: U.S. equity markets opened with gains. The 10-year Treasury bond yield is up to 2.29 percent. NYMEX crude oil is down to $51.36/barrel. Natural gas futures are down to $3.30/mmbtu.
For a PDF version of this Comerica Economic Alert click here: New_Home_Sales_052417.