Housing Activity is Positive to Start the Fourth Quarter
- In the minutes of the Federal Open Market Committee’s (FOMC) October 29-30 meeting, participants noted that trade uncertainty and global risks “had eased somewhat, though they remain elevated.” While participants regarded the labor market and household sector as strong, they also expected trade tensions and global growth concerns to continue to weigh on business fixed investment. Despite the economy’s strengths, many members believed the October rate cut to be justified by “the level of inflation or inflation expectations.” In terms of future policy actions, most participants believed that following the October rate cut, “[policy] would be well calibrated to support the outlook of moderate growth” and that it would take a “material reassessment of the economic outlook” to prompt further rate cuts.
- Existing home sales improved in October for the third time in four months. The gain was driven by single-family sales, which have trended up this year after hitting a three-year low in January. Condo/co-op sales, however, were flat. On an annual basis, sales rose for the fourth straight month, though year-to-date sales continue to be more than a percentage point below the same period a year ago. Inventories of existing homes continued to tighten as the number of homes available for sale fell on a year-over-year basis and have been in decline since June.
- Total housing starts increased in October, partially recovering from a drop in September, driven primarily by single-family starts rising for the fifth straight month to the fastest pace since January. Construction remains particularly strong in the South, making up 58 percent of all single-family building. The outlook for homebuilding seemed encouraging, as total permits rose to the highest level of the expansion, with single-family permits rising at the fastest pace since August 2007.
Despite the apparent pause from further policy decisions, we are maintaining our expectation of a 25-basis point rate cut in early 2020 due to the persistent downside risks that remain. This week, for example, the violent Hong Kong protests seemed to cast a shadow over U.S.-China trade talks, and many believe a trade deal will now be postponed to 2020. The potential for a breakdown in talks between the two nations remains a key downside risk to our forecast, and uncertainties will continue to weigh on business sentiment and investment. Housing news was largely positive this week with increases in housing starts and existing home sales consistent with our view of modest growth in the fourth quarter and another quarter of positive residential fixed investment. However, supply constraints of existing homes showed no signs of abating, and while home building is positive, it cannot fully make up for the dearth of existing homes for sale; thus we maintain our lackluster view of home sales growth over our forecast horizon.
Details on Key Takeaways and Other Releases
- Existing home sales rose 1.9 percent in October to a seasonally adjusted annualized rate (SAAR) of 5.46 million, according to the National Association of REALTORS®. Single-family sales improved 2.1 percent to 4.87 million, while condo/co-op sales were flat at 590,000. The median sales price, which is not adjusted for the mix of sales, increased 6.2 percent from the prior year. The months’ supply was 3.9 months, compared to 4.3 months a year ago, and for-sale inventories fell on a year-over-year basis for the fifth consecutive month. Year to date, existing home sales were 1.2 percent below the same period during the prior year.
- Housing starts increased 3.8 percent in October to 1.31 million annualized units, according to the Census Bureau. Both single-family and multifamily starts improved, rising 2.0 percent to 936,000 and 8.6 percent to 378,000, respectively. Year-to-date single-family starts were 1.3 percent below the same period a year ago, and multifamily starts were 1.1 percent above. Single-family permits rose 3.2 percent to 909,000, and multifamily permits jumped 8.2 percent to 552,000.
Ricky Goyette and Rebecca Meeker
Economic and Strategic Research Group
November 22, 2019
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