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Economic & Housing Weekly Note

Retail Sales Surprise to the Upside, While Existing Home Sales Hit Lowest Level Since 2010

October 20, 2023

Key Takeaways:

  • Retail sales and food services increased 0.7 percent in September following an upward revision of 0.8 percent in August, according to the Census Bureau. Motor vehicle and parts dealers were a strong contributor, rising 1.0 percent over the month. Other strong categories include nonstore retailers (which represent mostly online sales) rising 1.1 percent and sales at restaurants and bars increasing 0.9 percent. Control group retail sales rose 0.6 percent over the month.
  • Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, increased 0.3 percent to 103.6 in September, according to the Federal Reserve Board. Manufacturing output rose 0.4 percent to 99.8, its highest level since April. Mining output rose 0.5 percent to 121.2, its highest level since October 2019, while utilities output declined 0.4 percent to 107.0.
  • Existing home sales declined 2.0 percent to a seasonally adjusted annualized rate (SAAR) of 3.96 million in September, the first time the rate fell below 4 million since 2010, according to the National Association of REALTORS® (NAR). The number of homes available on the market rose 2.7 percent to 1.13 million, causing the months’ supply to tick up one-tenth to 3.4, the highest level since June 2020. NAR’s median sales price of existing homes, which does not adjust for the mix of homes sold, rose 2.5 percent compared to a year earlier.
  • Housing starts rose 7.0 percent to a SAAR of 1.36 million in September, partially reversing last month’s 12.5 percent drop, according to the Census Bureau. Single-family housing starts were up 3.2 percent to a SAAR of 963,000, while multifamily housing starts jumped 17.6 percent to a SAAR 395,000 following a 27 percent decline in August. Single-family permits increased 1.8 percent to a SAAR of 965,000, the eighth consecutive monthly increase, while multifamily permits fell 14.3 percent to a SAAR of 508,000.
  • The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index declined 4 points to 40 in October, its third consecutive monthly decline and 16 points below its recent peak in July. The index is now at its lowest level since January. All major subcomponents were down, with the indices for single-family sales in the present and next six months falling by 4 and 5 points to 46 and 44, respectively. The index for the foot traffic of prospect buyers declined 4 points to 26.
Forecast Impact:

Retail sales in September were stronger than we had expected and were more robust than high frequency card spending data would have suggested. Strength in control group retail sales, which feed directly into the personal consumption component of GDP, imply both higher consumption growth in Q3 and a likely upward revision to our forecast of Q4 consumption as the consumer enters the last quarter on a stronger footing than anticipated. Still, we continue to expect a slowdown in spending as the recent surge in consumption has not been accompanied by strong income growth, student loan repayments officially resumed in October, and higher interest rates will increasingly weigh on demand for big ticket items.

Despite hitting their lowest level since 2010, existing home sales in September were slightly better than we had predicted based on incoming mortgage application data. Still, we expect existing home sales will remain below the 4 million annualized mark over coming months as mortgage rates are expected to remain well above 7 percent, keeping affordability at an extremely constrained level. Single-family starts were also a bit stronger than expected, and the improvement in permits may also suggest an upward revision to our Q4 figure. However, with homebuilder confidence continuing to deteriorate and our expectation of a weakening macroeconomic backdrop, we continue to expect a decline in housing starts in coming quarters.

Nathaniel Drake
Economic and Strategic Research Group
October 20, 2023

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.