The event of the year is occurring later this week when President Trump and Chinese President Xi Jinping meet at the G20 summit. How will trade agreements reignite global economic growth? What impacts will a successful outcome have on the housing industry?
A successful outcome from the G20 summit, defined by a mutually beneficial trade agreement with no additional taxes implemented on either side, could reignite global economic growth. Clarity is good for hiring, encourages business investment, and promotes consumer spending. A seemingly negative impact on the housing industry could be higher rates, but we need to think about the bigger picture. Higher rates would be a sign investors are less concerned about an imminent recession. Not reaching a deal, however, could mean that the ‘growing but slowing’ economy of today could persist and potentially worsen.
Uneven Trends In New Home Sales Activity
National new home sales fell, but not everywhere. Sales in the Midwest and South grew YOY.
We’ve been writing for a while that mortgage rates are certainly considered by buyers and in many cases can make or break a deal, but they alone cannot drive sales forward. New home sales dropped 7.8% MOM and 3.7% YOY.
The distribution of sales slowed on the low-end and high-end. Homes sold under $200,000 decreased by nearly 20.0% (thanks to a lack of supply), while those over $500,000 fell 7.0% year-over-year. The sweet spot was between $200,000 and $500,000 for May.
There is a silver lining buried in the year-to-date data. New home sales are up 4.2% and our Zonda data shows some markets are selling particularly well this year. For example, Las Vegas builders are averaging about 3.5 sales per month per community and Austin new home contracts grew 22% so far this year compared to last.
Existing Home Sales Increased For The First Time In Two Months
The existing home space captures roughly 90% of the total housing market.
May existing home sales jumped 2.5% compared to April. The positive bump provides hope that consumers are taking advantage of the more favorable buying terms with price cuts, slightly more supply, and lower mortgage rates.
Year-over-year trends are less rosy. Sales fell 1.1% compared to last year as home prices grew 4.8% over the same period.
Existing home sales are down on a year-to-date basis compared to 2016, 2017, and 2018. The average so far this year is 2% higher than the same period in 2015.
Housing Starts Lack Momentum
Single-family housing starts are a strong leading indicator of economic health.
Housing starts fell 0.9% MOM in May. The month-over-month decrease was driven primarily by a 5.0% drop in the multifamily sector, which in recent months has accounted for nearly 40% of total activity.
Housing starts slipped nearly 5.0% year-over-year, with the single-family space responsible, falling 3.3%. Diving into the raw data reveals nearly 21,000 fewer single-family housing units (NSA) begun construction year-to-date compared to the same period in 2018.
When using starts as a predictive indicator, we prefer to look at a longer-term trend such as the year-over-year growth rate of the 6-month moving average. This data shows a pullback since hitting the peak in April 2016. While demographics support greater housing development, replacement land, entitlement issues, and costs are making it difficult for supply to ramp up.
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