The housing sector revealed further decline today following the recent report on existing home sales. Today’s report on new single-family home sales shows a 5.5% decline in sales which are at the lowest in almost two years. New home sales represent 9.7% of the overall housing market.
- New home sales are down 5.5%, a two year low.
- Data for the previous three months was revised lower, along with June and July sales.
- June and July sales rates were revised lower.
- At the current pace it would take 7.1 months to sell all houses on the market, the most since March 2011.
Rising mortgage rates and higher home prices are likely undermining the housing market, with the most recent mortgage rate average being 4.87% according to BankRate.com, an increase of 80 basis points over last year. It is also likely that Hurricane Florence contributed to the decline in new home sales in affected areas in the South where sales decreased 1.5% last month to a yearly low.
Based on the decline which has now lasted four months in a row, economists were expecting to see a modest sales drop with Reuters economists expecting a drop of 1.4%. However, expectations were surpassed with the 5.5% decline from August’s revised sale of 585,000 units sold all the way down to 553,000 homes (seasonally adjusted annualized rate). This is a 13.2% decrease from the sales at this time last year when 637,000 units were sold.
Gold Market Response
While the gold market has arguably been bolstered following the housing report indicating a major decline, this may have been offset slightly by traders taking profits from the three-month high seen in the gold market on Tuesday.
Broader Economic Concerns
There are now concerns that the declining housing market may have a ripple effect on other areas of the US economy. Investment in residential property contracted in Q1 and Q2 2018 and is likely to have suffered further decline throughout Q3 given the current state of the housing market. While real estate shares are up 0.8% , builders are down 40% from last year.
"Anyone watching home builder stocks or watching the data all year should not be surprised but it's clear this important area of the US economy, highly sensitive to price and rates, has obviously slowed sharply," said Peter Boockvar, chief investment officer for the Bleakley Advisory Group.
“It is increasingly apparent that homes are getting too expensive to afford both on price and on financing costs,” said Chris Rupkey, chief economist at MUFG in New York. “One thing is for certain, the economy cannot grow at a sustainable 3 percent pace for long if new home sales continue to tumble.”
Another Housing Collapse?
The Federal Housing Finance Agency said the FHFA home price index rose 6.1% in a year. While housing inflation is slowing from a February height of 7.7%, it is still on course to overtake last year’s figures.
While the decline is concerning to some, economists do not believe that another housing collapse in in the making.
“I don’t see that happening. The market never did reach the bubble stage, at least as far as sales are concerned,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The problem is that demand has not been evenly distributed across the nation and prices have soared in some areas.”