Is The U.S. Economy Still In A Slowdown?

Considering how weak the December housing market was, it’s nice to see new home sales of 621,000 which beat estimates for 590,000 and November’s reading of 599,000. November’s new home sales were sharply revised lower from 657,000. As the chart below shows, the uptrend in new home sales was broken in 2018.

Year over year new home sales in December were still negative even with the monthly improvement as they fell 2.4%. The current sales rate is much lower than previous cycles even though the population is higher. Sales won’t get back to last cycle’s peak anytime soon, but they should continue to recover in 2019 if the labor market is solid.

Home Prices

The 3.7% monthly new home sales improvement was even better when you consider the monthly median new home sales price growth of 5% to $318,600. November was a disaster as its year over year price growth was -11.6%. Median sales prices were $303,500 in November which was a 21 month low. November had the weakest yearly price growth since February 2009 when prices fell 14.5%.

As you can see in the chart below, the monthly improvement still meant yearly growth was -7.1%.

Consumers couldn’t bare the increase in mortgage rates. That shows us that even though the housing market isn’t in a bubble because mortgages are being given to well-qualified buyers, there would be a big decline in housing prices if interest rates increased. Rising rates wouldn’t lead to a massive spike in defaults and tank the economy because housing is a smaller part of the economy than in the 2000s.   

Just as Zillow predicted, CoreLogic reported home price growth was 4.4% in January. That was the weakest gain since August 2012. The combination of accelerated real wage growth, especially for people in the low-income group, lower home price growth, and declining mortgage rates should make this a solid year home buying. The chief economist for CoreLogic agrees as he stated, “Fixed-rate mortgage rates have dropped 0.6 percentage points since November 2018 and today are lower than they were a year ago. With interest rates at this level, we expect a solid homebuying season this spring.”

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