March New Home Sales Reach Yearly High.
March New Home Sales Reach Yearly High
Inflation continues to trend lower while home prices continue to be supported by the ongoing dynamic of high demand and tight supply. Here are the takeaways:
Inflation Improving One Step at a Time
Lack of Existing Home Inventory a “Major Constraint”
March New Home Sales Reach Yearly High
Appreciation Data Turning Around
Jobless Claims Trend Higher Despite Weekly Drop
First Quarter GDP Well Below Estimates
Inflation Improving One Step at a Time
Personal Consumption Expenditures (PCE), the Fed’s preferred inflation indicator, revealed that headline inflation climbed by 0.1% in March while the year-over-year reading improved well from 5.1% to 4.2%. Core PCE, which excludes volatile prices for food and energy, increased by 0.3% as well, with the annual growth falling from 4.7% to 4.6%.
What’s the bottom line? Inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise like we saw throughout much of last year.
Inflation continues to trend lower in the right direction, though last month’s reading would have been even lower if the decelerating shelter costs seen in the real world were better reflected in the PCE report. Once this lagging shelter data catches up in the PCE report, it should cause additional downside pressure to inflation.
What’s the bottom line? Recent data showed that there were nearly 200,000 fewer active listings at the end of March than there were in November. Lawrence Yun, chief economist for the National Association of REALTORS�, confirmed, “The lack of housing inventory is a major constraint to rising sales. Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”
March New Home Sales Reach Yearly High
The number of contracts for new homes signed, known as new home sales, increased 9.6% in March to 683,000 units annuallyized. This was the best number in the previous twelve months and far stronger than forecasts of a 1% gain. Sales were also just 3.4% lower than they were in March of the previous year.
In March, the median sales price increased to $449,800 from $433,200 in February. This metric, which represents the mid-price and can be distorted by the mix of sales between lower- and higher-priced homes, should be understood to be distinct from appreciation.
What’s the bottom line? There were 432,000 new homes for sale at the end of March, which equates to a 7.6 months’ supply at the current sales rate. While this may sound like a large amount, a closer look shows that only 71,000 were actually completed, with the rest either not started or under construction. When comparing the pace of sales versus homes that were actually completed, there was only 1.2 months’ worth of available supply, which is well below a balanced market.
This disparity between the high demand for homes and tight supply of both existing and new homes will continue to be supportive of home prices.
These figures differ in part because FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans.
What’s the bottom line? S&P DJI Managing Director Craig J. Lazzara noted that, “The National Composite, which had declined for seven consecutive months, rose a modest 0.2% in February, and now stands 4.9% below its June 2022 peak.” This is a far cry from a housing crash of 20% that some in the media have been predicting.
In addition, February’s monthly increase signals an inflection point, as does the turnaround in some of the hardest hit cities which saw price gains after several months of declines, including among others San Diego (+1.5%), San Francisco (+1%) and Detroit (+0.8%).
What’s the bottom line? While these numbers can be volatile from week to week, the overall trend has been higher. Initial Jobless Claims have remained above 200,000 since early February while Continuing Claims have now risen by 569,000 since the low reached last September. These numbers are further evidence of workforce reductions, and the challenges people are subsequently facing as they search for new employment.
First Quarter GDP Well Below Estimates
The first reading of first quarter 2023 Gross Domestic Product (GDP) showed that the U.S. economy grew by 1.1%, which was much lower than estimates of 2% to 2.5%. Note that this is the first of three readings and there can be significant revisions when the second and final readings are released on May 25 and June 29, respectively. However, given that GDP functions as a scorecard for the country’s economic health, the disappointing reading is a further sign that the economy slowed faster than expected in the first three months of this year.
