- The job market shows signs of cooling.
- Housing has suffered from rising mortgage rates.
- Consumer sentiment rises as gas prices fall.
The job market is starting to show signs of cooling as new initial claims have risen for seven straight weeks and are now at a level higher than they were before the pandemic began. However, continuing claims continue to remain below pre-pandemic levels.
The housing market has suffered the most from the dramatic increase in mortgage rates experienced so far this year. Existing home sales declined for the fifth month in a row in June. New construction is slowing, driven by declines in single-family homes in both permits and starts.
Consumer sentiment is up so far in July as gas prices continue to fall.
Home construction slows: Residential construction slowed again in June as the substantial increase in mortgage rates is causing a drop in demand for new single-family homes.
The seasonally adjusted annualized rate of starts declined 2.0% when an increase of 2.0% had been expected. However, permits declined only 0.6% when a larger decline of 2.7% had been expected. The new housing starts decline was driven by an 8.1% decline in single-family homes while multifamily starts grew 10.3%. After the June aggregate decline, starts were down 6.3% from a year ago but still up 26.2% compared to June 2019.
Permits were up 1.4% from a year ago and up 29.3% compared to 2019. Permits lead housing starts, so the permitting pace at 1.685 million units was higher than the 1.559 million starts pace, which usually indicates that starts should continue to increase in the coming months. In permits, single-family declined 8.0% in June while multifamily increased by 11.5%. Compared to 2019, single-family permits were up 13%, while multifamily permits increased 60%. With rents rapidly rising, the country needs more multifamily construction.
However, if we see declines in new home sales, which are reported this week, we could see starts failing to materialize on already permitted homes in the coming months.
Home sales fall: Existing home sales fell more than expected in June and extended the decline streak to five straight months. The market continues to see the impact of a substantial increase in mortgage rates that rivals any other period of change in modern history. The sales pace in June declined to the slowest since June 2020.
The existing home sales seasonally adjusted annual rate declined 5.4% to 5.12 million from 5.41 million in May. At the June rate, existing home sales were down 14.2% from a year ago and down 5.0% compared to June 2019. With the pace of sales now lower than in 2019, the spring of 2022 clearly marked the end of the pandemic era housing boom. Inventory increased to 1.26 million units, up 2.4% from a year ago.
The National Association of Realtors is seeing a bifurcated market in which “…homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers.”
Inventory is still moving quickly, as 88% of the homes sold in June were on the market for less than a month, and the typical time on the market was 14 days, which was two days less than May and three days less than June last year. The months’ supply of homes for sale increased to 3.0 months from 2.6 months in May, but that supply level is still half what is considered normal. The median sales price rose to $416,000, up 13.4% from a year ago.
Initial jobless claims up: Seasonally adjusted initial jobless claims increased by 7,000 to 251,000 for the week ending July 16. Non-seasonally adjusted claims increased by a similar amount. Both measures had increased over the last seven weeks and are now higher than they were at the beginning of 2020 before the pandemic began.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation, increased by 51,000 week-over-week, bringing the total up to 1.38 million as of the week ending July 9. That level of continuing claims was 379,000 lower than they were before the pandemic.
The broadest measure of continuing claims declined by 48,000 to 1.35 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 56,000 over the last four weeks but is 750,000 lower than the pre-pandemic level. The jobless claims data show the labor market is starting to deteriorate from historically low levels of unemployment.
Sentiment climbs: The Morning Consult daily index reached its highest point last Friday since June 10, as it increased 0.7% in the previous week and is up 1.9% so far for the month. This corresponds with gas prices continuing to decline. The national average price for unleaded was $4.41 last Thursday, which was down 3.6% from the week before and down 12% from the peak of $5.02 on June 13.
Jonathan Smoke is chief economist at Cox Automotive.