Sales of US single-family homes have dropped for a second straight month, defying market expectations of an increase. Lower mortgage rates introduced earlier in the year may be failing to stimulate the embattled housing market.
- The Commerce Department stated on Tuesday that new home sales dropped -7.8% vs. the 1.8% rise expected.
- The seasonally adjusted annual rate of sales last month was 626,000, the lowest since December.
- April’s sales were revised up from 673,000 to 679,000.
Economists had expected a gain of approximately 1.8% in May, but single family homes, which account for over 10% of the housing market, saw a major drop in sales instead. New home sales tend to be volatile on a monthly basis, and the annual readings tend to be more reliable. The annual pace of sales dropped 3.7% last month. Median home prices are down -2.7% annually to $308,000, despite the drop in mortgage rates which tend to drive up prices. Second-hand homes are seeing price gains in major cities, although at a slower pace than before.
Sentiment among builders dropped in June, and single-family home starts dropped in May. Building permits, which indicate future growth, did see an increase after 5 consecutive months of decline. The 30-year fixed mortgage rate dropped from an 8-year high of 4.94% down to 3.84% in November, and further declines may be en route if the Federal Reserve approves interest rate cuts due to ongoing economic headwinds such as low inflation and a global economic slowdown.
The housing market has now been struggling for well over a year and has been a drag on economic growth for 5 straight quarters. New home sales in the South jumped 4.9% in May to above a 10-year high – the South accounts for the majority of sales. Sales in the Midwest rose also at 6.3% growth. However, the West and Northeast saw major decline at -35.9% and -17.6% respectively.
With 333,000 new homes on the market last month it would take 6.4 months to clear the current inventory at the pace of sales seen in May, up from 5.9 months in April.
Weakness looks like an inventory issue out West. South new home sales (62% of total) hit a new cycle high. pic.twitter.com/HIu914EMIu
— George Pearkes (@pearkes) June 25, 2019
Spot gold is currently trading at $1,423.98/oz, up .60%. Gold has seen strong upward momentum while the stock markets mostly did poorly overnight, likely due in part to the escalating tensions in the Persian Gulf between the US and Iran.