After increasing to the highest
annual rate in six months, existing-home
sales tumbled in February amidst very low supply levels and robust price
growth in several sections of the country, according to the National Association
of Realtors. Led by the Northeast and Midwest, all four major regions
experienced sales declines in February.
And though several of the Fed’s
Open Market Committee are still pushing for higher interest rates, there is
still little sign of inflation at the wholesale or retail level, which means
wages are not rising fast enough (that aprox. 2/3rds of product costs) to boost
consumer demand, and hence economic growth.
Total existing-home sales1,
which are completed transactions that include single-family homes, townhomes,
condominiums and co-ops, dropped 7.1 percent to a seasonally adjusted annual
rate of 5.08 million in February from 5.47 million in January. Despite last
month's large decline, sales are still
2.2 percent higher than a year ago.
Lawrence Yun, NAR chief economist, said existing sales
disappointed in February and failed to keep pace with what had been a strong
start to the year. "Sales took a considerable step back in most of the
country last month, and especially in the Northeast and Midwest," he said.
"The lull in contract signings in January from the large East Coast
blizzard, along with the slump in the stock market, may have played a role in
February's lack of closings. However, the main issue continues to be a supply
and affordability problem. Finding the right property at an affordable price is
burdening many potential buyers."
Year-on-year, the producer price
index (for wholesale goods and services), at dead zero, is a full 1 percentage
point below the CPI while the producer core rate, at plus 1.2 percent, is 1.1
percentage point behind the CPI core.
So there is really no reason to
worry about inflation. The Fed should
instead be concerned with boosting growth.
As the primary Presidential debates are highlighting, the various trade
agreements have sent most of the high-paying blue collar jobs overseas. What is left?
The lower-paying service sector jobs, such as in health care.
There is the hope that housing will
boost construction jobs, which are higher paying. Indeed, the lower February existing-home
sales are mainly due to the lack of inventory, which is down to a 4.4 month
total, and the consequent higher prices.
"The overall demand for buying
is still solid entering the busy spring season,” said Yun, “but home prices and
rents outpacing wages and anxiety about the health of the economy are holding
back a segment of would-be buyers."
The median existing-home price for all housing types in February was
$210,800, up 4.4 percent from February 2015 ($201,900). February's price
increase marks the 48thconsecutive
month of year-over-year gains.
And total housing inventory at the end of February increased 3.3 percent
to 1.88 million existing homes available for sale, but is still 1.1 percent
lower than a year ago (1.90 million). That is why unsold inventory is at a
4.4-month supply at the current sales pace, up from 4.0 months in January.
Dr. Yun speculates part of the
inventory decline may be due to large funds that are still buying up vacant
units. "Investor sales have trended
surprisingly higher in recent months after falling to as low as 12 percent of
sales in August 2015," adds Yun. "Now that there are fewer distressed
homes available, it appears there's been a shift towards investors purchasing
lower-priced homes and turning them into rentals. Already facing affordability
issues, this competition at the entry-level market only adds to the roadblocks
slowing first-time buyers."
Rising
housing prices do boost inflation, but rising incomes even more so. So when incomes aren’t rising more than, say,
2.5 percent per year, then housing prices cannot rise much faster. The biggest constraint on housing today, even
with still ultra-low interest rates, is in fact static household incomes.
Harlan Green © 2016
Follow Harlan
Green on Twitter: https://twitter.com/HarlanGreen
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