KEY DATA: New Sales: +0.8%/ Existing Sales: -1.8%
IN A NUTSHELL: “Home sales need to pick up further if construction is to add much to economic growth.”
WHAT IT MEANS: The housing market has been wandering around for most of 2017 and it isn’t clear if that pattern will change anytime soon. Today, June new home sales were released and the results were good but not great. Yes, there was rise in total demand, but the level is nothing spectacular. Indeed, it is probably still at least twenty percent below what might be considered normal, let alone strong. At least the trend is up, especially when compared to 2016 levels. Looking across the nation, weakness in the South offset strength in the West and Midwest. Sales were flat in the Northeast. Median prices were actually off from June 2016 as there were a lot more lower-priced houses sold. While that is likely a one-month wonder, the trend in price gains has been down.
On Monday, the National Association of Realtors reported that existing home sales fell in June. It seems that there is one month were demand rises followed by one where sales falls. This saw tooth pattern has led to only a relatively small increase in sales since December 2016. Regionally, demand rose only in the Midwest. There just aren’t a lot of homes for sale and prices are rising, though at a decelerating pace.
MARKETS AND FED POLICY IMPLICATIONS: We need the housing market to be strong if the economy is to accelerate. The sector has been adding to growth, but not by much. That is happening despite low mortgage rates. We also saw that the National Association of Home Builders confidence index slipped in July, pointing to only modest gains in construction. Housing starts should increase, as permit requests are outstripping starts, but if demand doesn’t pick up, that rise in construction is not likely to be significant. When you add the housing data to the consumer information, they point to only a minimal increase in growth. The Fed will be ending their meeting soon and we will know what the members think about the economy. It is clear that the FOMC members feel further increases in interest rates are needed and the Fed must start shrinking its balance sheet. To do that, though, inflation has to stay close to the target. It hasn’t done that lately. A better housing market would help and that is happening only slowly. That said, investors are focusing on earnings and that will be the case since they cannot use expectations of major tax cuts and spending increases to power the economy. It just seems that when one reason to take the markets up dissipates, a new one is created. Around and ‘round the markets go, where they stop no one knows.