Price Growth Cools

• GDP
• Unemployment
• Interest Rates
• Inflation
• Business Spending
• Energy
• Housing
• Retail Sales
• Trade Deficit

Both housing starts and building activity increased modestly in October. Total housing starts rose 1.5% in October to a seasonally adjusted annual rate of 1.228 million. But most of the gain came from the volatile multifamily segment. Multifamily starts jumped 10.3% from the previous month. Single-family starts declined 1.8%, their second consecutive drop. Single-family starts appear to have peaked at an annual pace of 948,000 units in November of last year, spurred by a rebound in residential construction after hurricanes hit Texas and Florida. Rising costs have made it more difficult to build homes at lower price points. Lumber prices have fallen in recent months, but labor costs remain high amid a shortage of skilled construction workers. The combination of higher building costs and rising mortgage rates is starting to have an impact on the demand for new homes.

New-home sales continued to slide in October, falling 8.9% to a seasonally adjusted annual rate of 544,000. Inventory of new homes is improving and the inventory-to-sales ratio is now the highest in years. New single-family homes on the market increased slightly last month and are 17.7% higher than a year ago. It would take 7.4 months to sell through that inventory at today’s sales pace. Slower sales and steady residential construction mean that price growth of new single-family homes will slow down over the course of next year.

Existing-home sales rebounded in October following a slowdown in price gains in recent months. Sales of existing homes rose 1.4% from September to a seasonally adjusted rate of 5.22 million. On a year-over-year basis, sales have dropped for eight consecutive months. One of the main reasons why existing-home sales are falling is that listings remain scarce despite having bottomed out earlier this year. Inventory has started to increase this year, but it still sits close to historical lows. On a year-over-year basis, total inventory was up 2.8% in October. After 37 consecutive months of year-over-year declines, inventory has grown in each of the past four months. It would take 4.3 months at the current sales pace to sell through. Properties stayed on the market for 33 days in October, down from 34 days a year ago. Existing-home sales will finish this year at levels slightly lower than 2017.

See Also: A Housing Shortage Looms as Builders Can't Keep Up

Home values are rising at a more moderate pace across the nation. The S&P CoreLogic Case-Shiller National Home Price Index rose 5.5% in September from a year ago. Price growth across the nation has cooled in the past seven months on a year-over-year basis. The sizable rise in mortgage rates since the start of the year has reduced affordability and slowed the pace of home-value appreciation. Western markets with the leanest inventories continue to see the largest gains. Las Vegas saw the largest annual increase at 13.5%, followed by San Francisco at 10%, Seattle at 8.4% and Denver at 7.3%.

Mortgage rates have risen from the all-time lows reached in 2012 and will keep on climbing in 2019, to 5.3% on the average 30-year fixed-rate loan. The average for these loans rose to 4.81% this week.

Sources:

• National Association of Realtors: Existing-Home Sales
  
• Department of Commerce, New-Home Sales
  
• Department of Commerce, Housing Starts