- Employment market brightens with jobless claims at the lowest in 52 years.
- Home construction remained strong.
- Rising mortgage rates hamper existing home sales.
The job market continues to be one of the strongest parts of the economy as continuing jobless claims keep falling and are far lower than they were before the pandemic began.
New construction continues to be strong, with growth in multi-family, which is sorely needed, driving permits and starts higher in March. Existing home sales fell in March as low supply persists, and higher prices and higher mortgage rates are pushing up payments dramatically.
This week, consumer sentiment improved but is still down for April and down substantially from a year ago.
Strong home construction: In March, residential construction was stable despite increasing headwinds for single-family housing demand from higher mortgage rates. The seasonally adjusted annualized rate of starts increased 0.2% when a decline had been expected. Permits increased 0.4% when a decline had also been expected. Both increases were driven by multi-family.
After the March increase, starts were up 3.9% from a year ago and up 49% compared to March 2019. Permits were up 6.7% from a year ago and up 42.3% compared to 2019. Permits lead starts, so the permitting pace at 1.873 million units was higher than the 1.793 million starts pace, and that is an indication that starts should continue to increase in the coming months.
Material shortages and associated increases in costs as well as labor shortages held back activity in 2021 and continue to hold back activity in 2022. Single-family starts declined 1.7% in March, while multi-family increased 4.6%. In permits, single-family declined 4.8% while multi-family increased 10%. Compared to 2019, single-family permits were up 39%, while multi-family permits were up 48%. With the cost of housing jumping, the country needs more construction, and it is good to see the growth in multi-family.
Single-family construction is likely to see challenges, with average mortgage rates now above 5%. The total starts pace in March was the highest since June 2006. That strong starts number followed the highest permitting pace in January back to May 2006
Mortgage rates rise; home sales soften: Existing home sales declined less than expected in March, but February’s sales were revised down, so the actual sales volumes were in line with expectations. The market is starting to see the move’s impact in higher mortgage rates. Rates have moved more year to date than at any point since the early 1970s.
The pace of sales in March declined to the slowest pace since June 2020. The existing home sales SAAR declined 2.7% to 5.77 million from February’s downwardly revised 5.93 million. At the March rate, existing home sales were down 4.5% from a year ago but up 9.9% compared to March 2019. Inventory increased to 950,000 units, down 9.5% from a year ago and just 100,000 more than the record low set in January and repeated in February.
The National Association of Realtors reported that the housing market is expected to contract by 10% this year because of higher mortgage rates and higher prices, but that the rate of price gains should also slow.
Inventory is still moving quickly, as 87% of the homes sold in March were on the market for less than a month, and the typical time on the market was 17 days, which was a day less than February as well as March last year. The months’ supply of homes for sale increased to 2.0 months, up from a record low of 1.6 months in January. This supply level is still about a quarter of what is considered normal. The median sales price increased to $375,300, up 15.0% from a year ago.
Job picture brightens: As of April 9, 1.42 million people were on traditional unemployment benefits, which was 346,000 lower than the claims level before the pandemic began. The broadest measure of continuing claims was 1.62 million in the latest data from the week ending April 2.
The total number of people receiving some form of benefit is 481,000 lower than the 2.1 million level before the pandemic began. Initial claims declined by 2,000 last week to 184,000 from an upwardly revised 186,000 the prior week. Weekly initial claims were 13,000 lower than they were leading up to the pandemic in 2020 and are at levels that have not been lower in more than 52 years.
The index of consumer sentiment from Morning Consult increased in each of the last five days and is up 1.4% week-to-week as of last Friday. It ended March down 1.4% from February and is now down 1.4% in April. As of last Friday, the index was down 17.6% from a year ago and down 27.2% from February 29, 2020. Sentiment improved last week despite gas prices increasing slightly. The average price for unleaded was up 1.2% from the week earlier as of last Thursday but was down 4.8% from the peak in March.
Jonathan Smoke is the chief economist at Cox Automotive.