- Construction trends were mixed, prompting the question: Is the worst over?
- Existing home sales declined on high mortgage rates and tight supply.
- Jobless claims rise, but the labor market shows no major deterioration.
New construction trends were mixed in March but permits and starts improved in single-family housing. Some analysts interpreted the growth as a sign that the contraction in residential construction may be nearing an end. That conclusion may be premature based on mortgage rates increasing again and credit conditions tightening.
Existing home sales declined in March as mortgage rates increased and supply remained tight.
The labor market is not as strong as a year ago, but the metrics are varied and do not indicate major deterioration yet, nor do they show signs of significant stress emerging. Moreover, jobless claims remain at historically low levels relative to the job base.
Construction Trends Were Mixed, Prompting the Question: Is the Worst Over?
Residential construction starts declined less than expected in March. However, permits declined more than expected.
The seasonally adjusted annualized rate of housing starts declined 0.8% when a decline of 3.5% was expected, but prior estimates were revised down. Permits declined 8.8% when a 6.5% decline was expected, and previous estimates were revised down.
The starts decline was in multifamily as single-family starts were up 2.7%. After the March decline, total starts were down 17.2% from a year ago but up 18.3% compared to March 2019.
Permits were down by 0.7% compared to 2019 in single-family but up by 20.7% in multifamily. Permits increased for the month in single-family (+4.1%) but declined in multifamily (-22.1%) and were down 24.8% from a year ago in total, down 29.7% in single-family, and down 16.9% in multifamily. Permits lead starts, so the permitting pace at 1.413 million units was slightly behind the 1.420 million starts pace, which indicates that starts could decline again in the coming months.
With the construction report in March mixed, some analysts interpreted the growth in single-family permits and starts as a sign that the contraction in residential construction may be nearing an end. That conclusion may be premature based on mortgage rates increasing again and credit conditions tightening.
Existing Home Sales Declined on High Mortgage Rates, Tight Supply
Existing home sales declined in March after seeing the first increase in more than a year in February. The existing home sales SAAR declined 2.4% to 4.44 million from a downwardly revised 4.55 million in February. At the March rate, existing home sales were down 22.0% from a year ago but still at a better pace than what we saw at year-end and at the beginning of this year.
Inventory increased by 1% to 980,000 units, up 5.4% year-to-year. Inventory keeps moving quickly, as 65% of the homes sold in March were on the market for less than a month, and the typical time on the market was 29 days, which was down from 34 days in February but up from 17 days in March last year. The months’ supply of homes for sale remained at 2.6 months, which is less than half of what is considered normal and still the lowest supply level in 10 months.
The median sales price increased to $375,700, down 0.9% from last year. The housing market remains very sensitive to mortgage rates, which have been volatile so far this year. 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 is possible now.
Jobless Claims Rise, but the Labor Market Shows No Major Deterioration
Seasonally adjusted initial jobless claims increased by 5,000 to 245,000 for the week ending April 15. That was the highest level since January 2022 and over 30,000 more than we saw in 2020 before the pandemic began.
Non-seasonally adjusted initial claims declined by 7,000 and were 17,000 lower than they were before the pandemic, so the seasonal adjustment is contributing to the headline increases in the level of new claims.
Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, increased by 61,000 from the previous week, pushing the total to 1.87 million as of April 8. Continuing claims were 22,000 lower than before the pandemic but the highest level since November 2021.
The broadest measure of continuing claims declined by 50,000 to 1.82 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 117,000 over the last four weeks and is 281,000 lower than the pre-pandemic level.
Jonathan Smoke is the chief economist at Cox Automotive.