Tight Supply Takes the Spring Out of Existing Home Sales
Tight Supply Takes the Spring Out of Existing Home Sales
Recent data shows the impact that low supply is having on the housing market, while unemployment claims continue to reflect a slowdown in hiring. Don’t miss these stories:
Tight Supply Takes the Spring Out of Existing Home Sales
Home Builder Confidence Reaches Key Threshold
“Gradual Improvement” In Single-family Construction
Unemployment Claims Trending Higher Despite Weekly Decline
Weakness in Manufacturing, Retail Sales and Leading Indicators
Tight Supply Takes the Spring Out of Existing Home Sales
According to the National Association of Realtors (NAR), existing home sales decreased 3.4% from March to April to a 4.28 million unit yearly pace. Additionally, sales were down 23.2% from April of the previous year. This report tracks closings on existing properties, which account for 90% of the market and are therefore a crucial barometer for assessing the health of the housing market.
What’s the bottom line?
Tight supply is the key reason for the decline in sales around the country. While total housing inventory increased 7.2% from March to 1.04 million homes available at the end of April, it remains well below normal with just 2.9 months’ supply available at the current sales pace.
In addition, multiple data points suggest that demand remains strong. Homes stayed on the market on average for 22 days, down sharply from 29 days in March. Plus, 73% of homes sold in April were on the market for less than a month, which is up from 65% and shows homes are selling quickly when they’re priced correctly. Meanwhile, investors accounted for 17% of transactions last month, making up roughly one out of every six deals. Clearly investors are seeing the opportunity in housing right now.
Also of note, the median existing-home price fell 1.7% to $388,800 from a year earlier. However, this is not the same as a decline in home prices as some media reports implied. The median home price simply means half the homes sold were above that price and half were below it, and this figure can be skewed by the mix of sales among lower-priced and higher-priced homes. Actual appreciation numbers are higher, not lower, on a year-over-year basis and are showing acceleration according to key reports from Case-Shiller, CoreLogic and the Federal Housing Finance Agency.
Home Builder Confidence Reaches Key Threshold
Building industry optimism was measured by the National Association of Home Builders (NAHB) Housing Market Index, which increased five points to 50 in May.This indicator, which ranges from 0 to 100, indicates growth with readings over 50 and contraction with readings below 50. The figure for May represents the fifth consecutive month that this indicator has risen and the first time builder sentiment has reached this crucial midway since July 2022.
All three of the index’s components saw increases: buyer traffic increased two points to 33, sales forecasts for the next six months increased seven points to 57, and current sales circumstances increased five points to 56.
What’s the bottom line?
Home builder confidence overall has now risen 19 points since the low of 31 in December. The buyer traffic component has also made a big recovery since reaching a low of 20 last November. NAHB Chief Economist Robert Dietz noted the “lack of existing inventory continues to drive buyers to new construction.” Home builders are also continuing to use incentives to appeal to homebuyers.
“Gradual Improvement” In Single-family Construction
Housing Starts increased 2.2% from March in April, indicating a little increase in the building of new dwellings. However, the indicator of future supply, building permits, declined 1.5% for the month. While single-family house starts and permits increased from March to April, they were both much lower than in April of the previous year.
What’s the bottom line?
While NAHB Chair Alicia Huey noted that “single-family starts are showing gradual improvement from the beginning of the year,” the housing sector is undersupplied and not enough inventory is heading to the market. Starts for single-family homes have declined from a pace of 1.176 million units in April 2022 to 846,000 units this April. Single-family permits have followed the same pattern, declining from 1.085 million units to 855,000 over the same period.
With single-family homes remaining in high demand among buyers, the imbalance between supply and demand should continue to be supportive of prices.
What’s the bottom line?
Jobless Claims data can be volatile from week to week, so it’s important to look at the overall trend, which continues to reflect rising unemployment. For example, the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, reached the second highest level of the year at 244,250.
Meanwhile, Continuing Claims have risen by more than 500,000 since the low reached last September, and they’re also up 165,000 since the start of the year. This metric remains at some of the highest levels seen in some time and is a clear sign that hiring has slowed.
Weakness in Manufacturing, Retail Sales and Leading Indicators
May brought more negative readings (which signal contraction) reported for manufacturing in the New York and Philadelphia regions. The Empire State Index contracted sharply to -31.8, which was much worse than estimates, while the Philadelphia Fed Index remained in contraction territory for the ninth straight month. These reports suggest that the manufacturing sector is already experiencing recession-like conditions.
Meanwhile, Retail Sales rose 0.4% in April but this was just half of market estimates. Sales increased 0.5% over the last year, which is the lowest growth rate in three years and well below the historical average of 4.8%. After adjusting for inflation, however, the story is far worse. Real retail sales have fallen 4.2% over the last year, marking the sixth consecutive year-over-year decline.
The Conference Board also released their Leading Economic Index (LEI) for April, which was down 0.6%. This latest deterioration followed the 1.2% drop in March and marked the thirteenth consecutive month of declines. The LEI provides an early indication of turning points in the business cycle, reflecting where the economy is heading in the near term. Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, noted that “the Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”
