- Home sales fall as residential construction is mixed while mortgage rates soar.
- Lower gas prices failed to buoy consumer sentiment, pulled down by a turbulent stock market and rancorous election campaigning.
- The job market still stands strong.
Residential construction trends in September were mixed, but single-family housing activity is clearly declining. Existing home sales fell in September for the eighth straight month. More declines can be expected as demand wanes and supply remains very limited, unlike the 2008 downturn.
Initial jobless claims declined in the latest week, and jobless claims overall remain exceptionally low.
Consumer sentiment dropped last week and is on track to end October down as consumers deal with a turbulent stock market and negative mid-term election rhetoric.
Residential Construction Mixed With Single-Family Activity Declining
Residential construction trends were mixed in September, but single-family activity is clearly declining. The seasonally adjusted annualized rate (SAAR) of starts fell 8.1%, and the decline was slightly worse than expected. However, permits increased by 1.4% when a small drop of 0.8% had been expected.
The starts decline was steeper in the more volatile multifamily component with a 13.2% decline and a smaller 4.7% decline in single family. After the September decline, starts were down 7.7% from a year ago but up 10.9% compared to September 2019. The permits increase was driven by multifamily with a 7.8% increase compared to a 3.1% decline in single family.
Permits were down 3.2% from a year ago but up 7.0% compared to 2019. Permits lead starts, so the permitting pace at 1.564 million units was higher than the 1.439 million starts pace, which indicates that starts could increase in the coming months.
However, single-family permits are at an 872,000 pace compared to a starts pace of 892,000. That indicates that single-family starts are likely to decline further. The massive move up in mortgage rates experienced this year is clearly reducing demand for single-family homes. Compared to 2019, single-family permits were down 2.9% in September, while multifamily permits were up 22.9%.
Home Sales Fall to Lowest Sales Pace Since May 2020
Existing home sales declined in line with expectations in September and extended the decline streak to eight 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 September declined to the slowest since May 2020, and before the lockdowns. The last time we saw existing home sales at this level was in September 2012. The existing home sales SAAR declined 1.5% to 4.71 million from 4.78 million in August.
At the September rate, existing home sales were down 23.8% from a year ago and down 11.3% compared to September 2019. Inventory declined to 1.25 million units, which was down 0.8% year-to-year.
The National Association of Realtors reported that supply is limited in this downturn compared to the previous major downturn in 2008, when inventory levels were four times what they are today. Inventory is still moving quickly, as 70% of the homes sold in September were on the market for less than a month, and the typical time on the market was 19 days, up from 16 days in August and up from 17 days in September last year. The months’ supply of homes for sale was steady at 3.2 months, and that supply level is just half of what is considered normal.
The median sales price declined to $384,800, which still was up 8.4% from a year ago.
Job Market Stays Strong, Reflecting Stable Labor Market Dynamics
Seasonally adjusted initial jobless claims declined by 12,000 to 214,000 for the week ending October 15. Non-seasonally adjusted claims fell by 20,000. Both measures have been up and down in recent weeks but remain extremely low and are not reflecting substantial changes in labor market dynamics. The non-seasonal number remains lower than 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 21,000 week-to-week, bringing the total up to 1.39 million as of the week ending October 8. That level of continuing claims was 378,000 lower than before the pandemic.
The broadest measure of continuing claims declined by 31,000 to 1.22 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 71,500 over the last four weeks of data and is 879,000 lower than the pre-pandemic level.
Consumer Confidence Falls on Turbulent Stock Market and Negative Campaign Rhetoric
Consumer sentiment has declined so far in October, following a small decline in September that followed gains in July and August. The daily index of consumer sentiment from Morning Consult has declined 3.3% so far in October and was down 1.4% week-to-week as of last Friday.
The price of gasoline increased late in September and early October but declined last week. The average price of unleaded was down 2.1% from the week earlier at $3.82, and gas prices are down 23.8% from the peak of $5.02 in June. However, a turbulent stock market and negative campaign rhetoric leading up to the mid-term elections are weighing on consumer spirits.
Jonathan Smoke is chief economist at Cox Automotive.