Auto Market Weekly Summary

The trend in new daily COVID-19 cases continued increasing last week. Consumer sentiment declined again and is having its worst month since November.

Wholesale used vehicle values continue to decline from their peak in early June. Retail prices are likely to reach their peak this month.

New construction trends in June were mixed, but declining permits indicate future declines in activity as the market deals with shortages and record prices. Existing home sales increased in June, and another new record in prices was set.

New jobless claims increased and remain elevated, but continuing claims continue to fall.

Used-vehicle sales slow: Used-vehicle sales have slowed since April when the market saw the best retail sales month in history. The pace in July has slowed so that the month is likely to end down compared to 2019, which was the strongest year for used retail sales. 

With the sales pace slowing and inventory slowly improving, retail used vehicle supply conditions have normalized, and we are likely now at the peak of retail used vehicle prices. The peak in retail lags the peak in wholesale values, which occurred in early June. 

After declining 1.3% in June, the Manheim Used Vehicle Value Index declined again in the first 15 days of July. The seasonally adjusted index declined 1.7% comparing the first 15 days of July to the month of June. The non-seasonally adjusted price decline over the first half of July compared to June was 2.2%. The last three weeks have seen a 0.9% decline in three-year-old Manheim Market Report (MMR) values, which have been the largest declines since September 2020. 

Retail price increases in recent weeks have slowed to the smallest gains recorded since prices began to rise this year

Consumer sentiment falls: The daily index of consumer sentiment from Morning Consult has declined in each of the last seven days as of last Friday. That means sentiment has declined 2.3% in the last week. The decline leaves sentiment down 4.3% for the month after modest declines in May and June. 

The strong recovery pattern in February, March, and April stalled out and is now reversing. July is shaping up to be the worst month for consumer sentiment since November. The Morning Consult Index as of Friday was down 15.9% since February 29, 2020, which is where it was in early March.

Home sales mixed: Existing home sales increased in June and broke a four-month decline streak. The existing home sales SAAR increased 1.4% to 5.86 million, which was also slightly higher than the pace in April. At the June rate, existing home sales were up 22.9% from a year ago and up 9.5% compared to June 2019. Inventory increased to 1.25 million units, which was the highest level in seven months. 

However, June inventory was down 18.8% from a year ago. The National Association of Realtors reported that 89% of the homes sold in June were on the market for less than a month, and the typical time on the market was 17 days, which was unchanged from April and May and still a record low. The months’ supply of homes for sale increased to 2.6 months, which was the highest since September but still less than half of what is considered normal. 

The median sales price, now at a record $363,300, represented a 23.4% year-over-year gain. Home sales were up in every region in June except the South, where they were unchanged

Homebuilding mixed: Residential construction trends were mixed again in June, but the continued decline in permits signals future declines in construction activity. 

The seasonally adjusted annualized rate of starts increased 6.3% but permits declined 5.1%. After the June increase, starts were up 29% from last June and up 33% compared to June 2019. Permits were up 23% from a year ago and up 25% compared to 2019. Permits lead starts, so the permitting pace at 1.598 million units was less than the 1.643 million starts pace, and that is an indication that starts will slow in future months. 

Material shortages and associated increases in costs, as well as labor shortages, have been holding back activity this year. Builders are also deliberately slowing sales of contracts on to-be-built homes. Single-family permits declined 6% in June while multi-family permits declined 3%. Compared to 2019, single-family permits were up 26%, and multi-family permits were up 23%.

Jobless claims mixed: As of July 10, 3.236 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage, but 12.6 million people remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond six months. That broadest measure of benefits has declined by 2.27 million over the last four weeks as many states elected to end enhanced unemployment benefits in June. 

However, initial claims increased last week to 419,000, which was about the same level as four weeks ago. Weekly initial claims remain elevated despite economic activity recovering as claims averaged 216,000 in the first 11 weeks of 2020 leading up to the pandemic.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, August 3.