Home Sales Soft at Year-End, Looking for January Rebound
- The Conference Board’s Leading Economic Index for the U.S. was up 0.6 percent in December.
- New Home Sales dropped by 9.3 percent in December, to a 625,000 unit rate.
- Existing Home Sales fell by 3.6 percent in December, to a 5,570,000 unit annual rate.
- Initial Claims for Unemployment Insurance gained 17,000 for the week ending January 20.
The U.S. economy finished 2017 in good shape and looks set for a positive 2018, according to the Conference Board’s widely followed indexes. The Leading Economic Index gained 0.6 percent in December, boosted by credit metrics, interest rate spread, stock prices, consumer expectations and manufacturers’ new orders. Manufacturing hours and initial UI claims were negatives. The Coincident Index was up 0.3 percent for the month, and the Lagging Index was up 0.7 percent in December, completing the positive trifecta. We will get a reality check on the Conference Board’s indexes tomorrow with the release of the first estimate of 2017Q4 real GDP growth. We look for a number close to three percent annualized growth. We expect to see good but lower real GDP in the current first quarter of 2018, in the vicinity of 2.5 percent, as auto sales moderate after the hurricane-related Q4 surge.
Both new and existing home sales fell in December, in part due to very bad weather in the eastern half of the U.S. in late December. Existing home sales were down 3.6 percent in December, to a 5,570,000 unit annual rate, about where they were in December 2016. We expect to see gradual improvement in existing home sales this year. We do not expect to see an accelerating market. Overall improvements in the economy will be positive for housing, but rising interest rates and a more conservative (less speculative) attitude toward housing by the general public will continue to keep existing home sales near their long term average this year. Existing home sales were down in all four census regions in December. The market remains very tight at 3.2 months’ worth of available inventory. This will support moderate price gains going forward. The median sales price of an existing home was up by 5.8 percent in December, over the previous 12 months.
New home sales fell with a thud, by 9.3 percent in December, to a 625,000 unit annual pace. This comes after a very strong 15 percent gain in November. All four census regions saw declines in December. The months’ supply of new homes available jumped to 5.7 months’ worth. Mortgage apps for purchase are up in each of the first three weeks of January, supporting our expectations for improving new and existing home sales in January. We also look for more upside in the new home sales outlook than for existing home sales.
Weekly labor market numbers look good. Initial claims for unemployment insurance increased by 17,000 for the week ending January 20, to hit 233,000. Initial claims have been a little choppy through the fourth quarter of 2017 and into early 2018, but remain in a very low range. Continuing claims for unemployment insurance fell by 28,000 for the week ending January 13, to hit a very low 1,937,000.
Market Reaction: U.S. equity markets are mixed. The 10-year Treasury bond yield is down to 2.64 percent. NYMEX crude oil is up to $65.96/barrel. Natural gas futures are up to $3.13/mmbtu.
For a PDF version of this report click here: Existing_Home_Sales_01252018.
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