KEY DATA: Sales: +7.1%; Year-to-Date: +6.4%; Prices (Over-Year): +2.2%
IN A NUTSHELL: “The housing market is stabilizing, which is good news.”
WHAT IT MEANS: Housing has been a drag on the economy but that may be fading. We had already seen that existing home sales rose in August and the improvement in sales was more than matched by a jump in demand for new houses. The pick up in sales, though, was hardly universal. New home purchases fell in the Northeast and Midwest, rose strongly in the South and surged by over 16% in the West. When looking at sales for the first eight months of this year compared to 2018, we see a similar pattern. Overall demand was up solidly but there were double-digit declines in the Northeast and Midwest that were more than offset by strong gains in the rest of the country. As for prices, they increased modestly over the previous year. The share of sales that were priced at or above $400,000 jumped from 27% in July to 37% in August. That is pretty unusual and explains the nice gain in the median cost of a new home. However, prices have been largely flat or down for the past year, so I am not reading too much into the August gain. MARKETS AND FED POLICY IMPLICATIONS:It is not likely that anytime soon, housing will once again lead the economy forward. Rates are already incredibly low again and that really didn’t do much. Worse, the disappointing performance of the housing sector occurred when consumer confidence was extremely high. That is changing. Yesterday, the Conference Board reported that its Consumer Confidence Index posted its largest decline in nine months. The level is still high, but there has been clear deterioration in household views on both current conditions and the expectations of the future are faltering. That creates concern that the housing market may stagnate again going forward. We are close to completing the third quarter and there is little reason to believe that GDP growth will be significantly greater than 2%. The government may have wound up spending money like crazy to beat the end of the fiscal year, but it would be better if the private sector, led the way. As for the Fed, we will have to wait for Chair Powell to get out of his bunker and say something meaningful before we can determine when or if there will be another rate cut. I think that the employment data will be key. If we stay in the 150,000 to 175,000 range in job creation and the unemployment rate is largely stable, there would be little reason to do anything. But, of course, that has been the economy and the Fed did cut rates. So, if anyone knows what economic model Jay Powell uses to help him make his decisions, please tell me. I have no clue.