INDICATOR: March Housing Sales
KEY DATA: New Home Sales: -14.5%; Year-over-Year: -13.3%/Existing Home Sales: -0.2%; Year-over-Year: -7.5%
IN A NUTSHELL: "Yikes, the housing market is starting to falter again."
WHAT IT MEANS: Going into March, I thought that neither snow, nor cold, nor higher prices, nor higher mortgage rates would stay homebuyers from their appointed rounds. Boy was I wrong. At least in March, few came back into the market as new home demand plummeted. Yesterday we saw that existing home purchases also fell, but only modestly. Still, over the year, both new and existing home sales were down quite sharply. The biggest problem appears to be in the new housing segment, where demand declined to their lowest level in eight months. Distressingly, it was not due to a paucity of homes for sale as the inventory was up. Was it weather? Hard to argue that. Purchases were off everywhere but in the Northeast, which had a pretty miserable first part of the month. Indeed, the Northeast also led the way with a large gain in existing home sales. Meanwhile, demand fell in the South and West for both new and "previously owned" units. Only in the Midwest was there some mix as new home demand was off but existing sales improved. Prices, on a year-over-year basis, are still rising, but at a decelerating pace.
MARKETS AND FED POLICY IMPLICATIONS: There was little positive in the home sales numbers. Since I am ever the optimist, I am willing to give it another month or two, but I am getting a little worried. We need the housing market to start moving forward at a more normal pace after having soared for about two years. This ebb and flow pattern is a bit disconcerting, though it is not surprising that the market did cool after having been so hot. The uncertainty is about where we will go from here. Mortgage rates in the 4.5% range are still quite low so I don't buy the rising mortgage argument. While prices are up sharply from the bottom, many metropolitan areas are still well below their peaks that were hit six, seven or even eight years ago. Yes, affordability is down from its peak, but that occurred at an historic low in mortgage rates and after a total collapse of prices. You cannot compare conditions to that artificial period. But because we are adjusting to a somewhat more expensive housing cost environment, we may be seeing some sticker shock, especially on the part of first-time buyers who are becoming affordability-challenged. Regardless, the housing data should cause those at the Fed who want to shut down asset purchases immediately and start raising rates to think twice. At least it should. It will provide ammunition for Chair Yellen to continue to argue for patience. As for investors, these reports are pointing to a very sluggish first quarter but with earnings coming out, it is not clear if the economy is center-stage in most peoples' minds.