- High mortgage rates caused mixed results for home sales.
- Jobless claims remained stable.
- Consumer sentiment fell. Gas prices and interest rates rose; stock prices dropped.
Existing home sales declined in July, while new home sales increased slightly. Total home sales fell in July as high mortgage rates hurt affordability and limited existing home supply.
Jobless claims remain remarkably stable, which does not indicate a major deterioration in the labor market.
Measures of consumer sentiment have declined in August as stock prices have dropped and gas and interest rates have risen.
Markets improved by the end of last week as the Fed affirmed a cautiously optimistic approach that will likely lead to no more rate increases if inflation continues to come down.
High Mortgage Rates Led to Mixed Results for Home Sales
As the downward streak continues, existing home sales declined more than expected again in July.
The existing home sales SAAR declined 2.2% to 4.07 million from 4.16 million in June. At the July rate, existing home sales were down 16.6% from a year ago.
Inventory increased 3.7% to 1,110,000 units, down 14.6% from a year ago but still the highest level in eight months. Inventory keeps moving quickly, as 74% of the homes sold in July were on the market for less than a month, and the typical time on the market was 20 days, up from 18 days in June and up from 14 days in July last year. The month’s supply of homes for sale increased to 3.3 months from 3.1 months in June but is still less than half of what is considered normal.
The median sales price declined to $406,700, up 1.9% from a year ago. The housing market remains very sensitive to mortgage rates, which have been volatile this year but have surged to new 22-year highs in recent weeks.
The existing home market is very constrained by supply and will be as long as rates remain high since existing mortgages are much lower than what’s possible now. The limited existing home market creates opportunities in the new single-family home market when existing homes cannot expand to meet demand needs. Still, high mortgage rates limit just how much demand homebuilders will see.
New home sales, based on new contracts signed on newly constructed homes, saw increasing sales in July, but prior sales growth in June was reduced. New home sales at an annualized pace of 714,000 were up 4.4% month over month and up 31.5% from a year ago. Compared to July 2019, new home sales were up 6.7%.
New home inventory increased 2.1% from June but was down 4.8% from a year ago. New home supply declined to 7.3 months from an upwardly revised 7.5 months in June. July’s supply level tied May at the lowest level in more than a year yet was still above normal. With the decline in existing home sales in July, total home sales were down 1.2% for the month and down 11.8% from a year ago.
Jobless Claims Remained Stable
Seasonally adjusted initial jobless claims declined by 10,000 for the week ended August 19. That was 16,000 more than we saw in 2020 before the pandemic began. Non-seasonally adjusted initial claims fell by 15,000 and were 47,000 lower than before the pandemic.
Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, declined by 9,000 from the previous week, moving the total down to 1.70 million as of August 12. That level of continuing claims was 159,000 lower than before the pandemic.
The latest data show that the broadest measure of continuing claims increased by 5,000 to 1.84 million, which lags the traditional number and is not seasonally adjusted. That total measure is down 74,000 over the last four weeks and is 264,000 lower than the pre-pandemic level. The labor market is not as strong as it was a year ago, and claims have increased in 2023, but continuing claims remain low and do not represent significant stress in the labor market.
Consumer Sentiment Fell. Gas Prices, Interest Rates Rose; Stock Prices Dropped
The consumer sentiment index from the University of Michigan declined 2.9% in August but was up 19% from a year ago. The consumer’s view of vehicle buying conditions was unchanged from July and at the best level since February. The median expected inflation level in five years was unchanged at 3%, but the median one-year inflation expectation ticked up to 3.5% from 3.4% in July.
The daily index of consumer sentiment from Morning Consult has also measured declining sentiment in August, as the index is down 3.1% from July 31 as of August 25. Expectations of the future had improved the most in June and July but lost ground in August.
Gas prices increased in July and have been rising in August as well but declined over the last week. According to AAA, the national average price for unleaded gas has increased 1.3% so far in August to $3.83 per gallon as of August 24, which was down 1.2% week over week and down just 1% year over year.
Fed Chairman Acknowledges Progress on Inflation
Federal Reserve Chairman Jerome Powell’s speech at the Kansas City Federal Reserve Bank’s annual symposium at Jackson Hole gave no clear indication of a shift ahead in monetary policy. Powell affirmed that the Fed was prepared to raise rates further if needed and would leave rates at a restrictive level until “…inflation is moving sustainably down toward our objective.” However, he also acknowledged that recent data have shown progress.
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.