A number of key reports on housing data released in recent days are on a downward trend. Both existing and new home sales in the U.S. were down in June, and their previous month’s results were revised lowered. The lackluster sales data caused homebuilder confidence to plummet to its lowest level in 10 months Wednesday.
“The housing market has been losing momentum for several months,” said Stifel Chief Economist Lindsey Piegza, referring to a slump in housing starts, building permits, and sales during the second quarter. “Housing is a solid gauge of the overall health of the economy; weakness in housing raises a large red flag regarding the sustainability of domestic growth heading into the second half of the year.”
The U.S. Commerce Department said the sale of new U.S. single-family homes in June fell 5.3% to a seasonally adjusted rate of 631,000 — an eight-month low — and the previous month’s results were revised lower. While new home sales only account for 10% of the market, the latest existing home sales results weren’t any better.
Existing home sales fell for the third straight month in June. Existing home sales slipped 0.6% to a seasonally adjusted annual rate of 5.38 million units last month, down 2.2% from June 2017, according to the National Association of Realtors (NAR). May’s sales pace was revised down to 5.41 million units from 5.43 million units.
“Existing home sales help drive other sectors of the economy including consumer confidence and spending, as well as construction and lending activity,” Piegza said.
“Chronically low inventory is choking sales,” said Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal firm, adding that higher-cost housing markets such as New York City and San Francisco are seeing a slowdown in sales more so because of homebuyers’ uncertainty over the Trump administration’s federal tax reform.
Inventory levels have fallen for three consecutive years and for eight of the past 10 years, according to Lawrence Yun, NAR’s chief economist. At the current sales pace, it would take 4.3 months to exhaust the total inventory of homes for sale; six months is considered a balanced market.
“Throw in rising mortgage rates… that isn’t helpful in terms of sales activity,” Miller said. While the rate increases are currently nominal for Americans living paycheck to paycheck, it’s enough to sway a person’s decision to make that home purchase. On Thursday, the average rate on a 30-year, fixed-rate mortgage rose to 4.54% from 4.52%, a week earlier, according to mortgage buyer Freddie Mac, adding that long-term loan rates have been running at their highest levels in seven years.