Housing – Sales, Inventory, and Prices

Trends in the housing market can have near-term impacts on economic outcomes given all the activity related to transaction volume. Additionally, we believe the current inventory/price dynamics could likely lead to a reacceleration of the shelter component in CPI, which may cause further uncertainty around the pace and amount of FOMC rate cuts as we move into 2025.

For the month of June, sales of existing homes and new homes fell to seasonally adjusted annualized rates of 3.52 million and 617,000, respectively. Since January 2020, existing home sales have declined by 26% and new home sales have declined by 11%. Both series are down 40% from their cycle highs made between October 2020 and January 2021.

Source: Macrobond.

In terms of broader economic activity, we have seen a slowdown in related consumer spending categories and significant shifts in single family construction spending. As an approximation for consumer spending, we can look at the combination of Furniture & Furnishings Stores and Building Material & Supplies Dealers from monthly retail sales data, which is in line with 3Q21 levels and has shrunk from nearly 8.0% of total retail sales at the start of 2021 to an all-time low of 6.5% today. On the construction front, private construction of new single-family homes on a seasonally adjusted annualized basis accelerated from a cycle low of $271 billion in June 2020 to $499 billion by April 2022, an all-time high. From there, construction spend decelerated to $375 billion by March 2023 before reaccelerating to $440 billion in February of this year. Since then, the rate of change has started to slow again, coming in at $437 billion for May. The takeaway from this setup is the synchronized slowdown in home sales transactions and related spending that, over an economic cycle, can impact components of individual headline data that make its way into GDP calculations.

Source: Macrobond.

Turning to inventory and pricing, months' supply for existing homes increased to 4.0, its highest level since May 2020, while months' supply for new homes increased to 9.3, its highest level since October 2022. Despite the recent rise in months' supply, the total inventory setup remains low relative to the ten-year period pre-pandemic, which likely continues to put upward pressure on prices. The median price for existing homes notched another record high at $432,700, above the $417,300 median price for new homes. Looking ahead, the base effect setup for the y/y growth rate of home prices will remain easy, making it mathematically easier to see an acceleration that impacts inflation calculations toward the end of this year and into 2025.

Source: Macrobond.

As we move through the rest of the year, we will provide updates on housing-related activity that may impact the trajectory of inflation moving forward and what that could mean for FOMC decision making.

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.