New Single-Family Home Sales Declined 6.9% in January to a 607,000 Annual Rate

 
Implications:  New home sales stumbled to start 2019, after finishing last year on a strong note.  And despite the pessimistic news that has plagued housing reports of late, remember that 2018 had the highest annual average pace of sales since 2007.  It is also important to note that December's reading was revised higher in today's report, from a 621,000 annual rate to 652,000.  The slowdown in the pace of sales in January came as a jump in home sales in the West was offset by a plunge in sales in the South.  As a result of the slower sale pace, the month's supply of new homes rose to 6.6 months, even though the number of homes for sale fell by 5,000 units.  The Census Bureau is still catching up on reports delayed by the government shutdown, and their reporting has shown potential measurement issues, as we've pointed out for recent releases on retail sales, durable goods, and housing starts.  That said, the slowdown in home sales began before the shutdown, suggesting, if nothing else, that housing demand has waned modestly since early-2018.  This could be the result of higher interest rates since the start of 2018, unusual weather trends, or concerns (unjustified, in our opinion) surrounding an economic slowdown.  It's still too early to say if we are seeing a reversal in the trend higher that started in early 2011, or temporary weakness.  We continue to believe that the fundamentals for the housing market remain solid.  First, relative to population, the number of new home sales remains well below where it should be according to history.  Using the ratio of sales to the US population from 1995 for example - well before the beginning of the housing bubble - shows new home sales should be at a pace of around 820,000 units annualized.  So even a partial climb back to demographic averages bodes well for sales over the coming years.  Second, the labor market continues to strengthen, and rising wages should underpin demand.  This is especially true now that both median and average sales prices for new homes are falling on a year-over-year basis.  Finally, mortgage rates peaked in November and have since retreated, boosting affordability.  Bottom line, we expect sales in 2019 to outpace 2018 and continue the upward trend.  In other news this morning, new claims for unemployment benefits increased 6,000 last week to 229,000.  Continuing claims rose 18,000 to 1.776 million.  These figures are consistent with solid payroll growth in March, which should see a jump from February's employment report. On the inflation front, both import and export prices rose 0.6% in February. In the past year, import prices are down 1.3%, while export prices are up 0.3%.  Expect higher year ago comparisons later in 2019 due to the rebound in energy prices. 

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Posted on Thursday, March 14, 2019 @ 1:35 PM

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