Existing Home Sales jumped by 6.5% to an annual rate of 5.39M which was above my forecast for a rise to 5.10M. Sales are now at their highest point since November 2009 – when the impending expiration of the homebuyer tax credit pulled forward a large number of existing home purchases. ,Now! If we exclude the stimulus measures, the figure represents the most homes sold since March of 2007….
The big bump in sales was a surprise considering that both the Pending Home Sales Index and the Mortgage Bankers Association’s Mortgage Purchasing Index declined notably in July and mortgage rates are now at two-year highs. It is possible that the increase in sales came from buyers rushing into the market to lock in relatively low mortgage rates before they move even higher. However, our model of the relationship between mortgage rates and home sales does not show a temporary boost in demand as mortgage rates rise.
Low supplies of distressed properties continued to have a positive impact on prices. Only 15% of July sales came from distressed properties, which was the lowest share since data became available in October 2008. Last year at this time, distressed property sales made up 25.7% of all existing home sales. Without the weight from low-priced distressed properties, the median home price increased 13.7% y/y in July to $213,500. Prices have now increased at double-digit rates for eight consecutive months.
Initial Unemployment Claims rose to 336,000 (my forecast was for an increase to 337,000). The upward move in the initial claims level is likely just normal volatility. Over the past four weeks, moving average for initial claims has dropped to its lowest level since November 2007. That is a sure sign that labor market conditions have substantially improved over the previous month.
As I had anticipated, New Home Sales dropped but the decline was severe. Total sales fell by 13.4% to 394,000 and far below my forecast for a drop to 485,000. This report is another knock against the NAHB Housing Market Index, which is now at its highest level since 2006. This suggests to me that the index is not accurately representing conditions in the new home sector.
Inventories rose 4.3% to 171,000 in July from 164,000 in June. With sales down, inventories are now at a 5.2 months’ supply after languishing at around 4.0 months’ supply for most of the year. While we have been advocating for more speculative construction (in terms of new supply), I had expected it to come from stronger construction numbers, and not weakness in sales.
Median sale prices did increase 8.3% to $257,200, but i believe that strength in price growth may make it difficult to attract potential buyers as higher interest rates and lower employment growth keep affordability conditions down.
As affordability conditions worsen, growth in new home sales will be difficult to come by.
June Employment Data for all Washington State counties was released last week which showed King County surging by 5,900 jobs in July and having risen by 49,600 jobs y/y. This represents an impressive 4.2% annual growth rate. Other central Puget Sound counties grew, but at a more modest rate with Snohomish County adding 1,500 jobs in the month and 5,000 over the past year and Pierce County adding 900 jobs in the month and 5,500 y/y.
The unemployment rate (NSA) dropped by 0.1% in each of the counties mentioned above with King measured at 5.1%, Snohomish 5.6% and Pierce lagging at 8.3%.
What to Watch for This Week
The Case Shiller Index relative to home prices is likely to show the Composite-20 index still growing, but at a very slightly lower rate. Look for the annual growth to drop from 12.2% to 12.0%. The Seattle market should increase by 12.5% – up from the 11.9% annual growth rate that was seen in the May data.
Pending Home Sales in the US contracted by 0.4% in June but there should be a turnaround here. Look for an expansion of 0.2%.
Initial Unemployment Claims will come in at 336,000 – modestly higher than the prior week.
The second estimate of US GDP in the second quarter is announced on Thursday and I think that we will see a revision. Look for the growth rate in the quarter to be revised up from 1.7% to 2.1% as we are likely to see upward revisions to consumer spending and durable good orders.
Data on Incomes & Spending in July should show that we earned and spent more in the month but that the increase will be less than seen in June. Expect incomes to grow by 0.1% and spending to increase by 0.3% – down from the June numbers of 0.3% and 0.5% respectively.
The final reading on Consumer Sentiment in the US in August is announced on Friday and I think that we will see a drop from 80.0 to 79.0.