Existing home sales, prices, and inventory remain rangebound

 

 - by New Deal democrat

Although they constitute about 90% of all housing sales, I don’t pay too much attention to existing sales because they are not nearly so important as new home sales, since the latter involve much more economic activity in the building process, plus more landscaping and furnishings.

As I’ll show below, what has been happening with prices and inventory is more interesting than what has been happening with sales themselves, which have been rangebound between 3.85 million annualized to 4.35 million for the past three years.

And rangebound they remained in April, with a 5,000 annualized monthly increase to 4.02 million. This is also only 0.5% higher compared with one year ago:

Although I’m not showing the 10 year graph this month, the current range is well below the pre-COVID average of roughly 5.5 million annualized sales.

As noted above, the more interesting trend is in prices. These are not seasonally adjusted, so the only good way to look at them is YoY. So measured, they were only up 0.9%:

This is consistent with the near record low YoY increases (outside of the Housing Bust) in the Case-Shiller and FHFA repeat home sales indexes, and the slight YoY decline in new home prices as developers downsize to meet the market.

But in order to bring the housing market back into the equilibrium it was in prior to the pandemic, inventory has to increase, and increase substantially. There the progress is glacial, as existing home inventory was up only 1.4% YoY to 1.47 million:

Meanwhile, similar to the sideways trend in prices in both the FHFA and Case Shiller repeat sales indexes, on a YoY basis prices were only up 1.4%. As the below 10 year graph shows, inventory has mainly recovered from its post-COVID lows, it is still only about 80% of what it was in the several years before 2020.

The past few months have indicated that the housing market has reached a post-COVID equilibrium, with sideways sales and prices, and slowly increasing inventory. Unfortunately, the US needs much more housing to be built in order for it to be as affordable as it was before (actually, several decades before) COVID.

Weekly Indicators for May 4 - 8 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Surprisingly, most of the data is almost relentlessly positive. In particular, those things most tied up with AI — corporate profits, stock prices, and downstream consumer spending — are particularly strong. Also, American energy companies are making windfall profits from the closure of the Persian Gulf, which makes oil sourced elsewhere rise sharply in price.  

In fact, consumer spending as measured by Redbook, has actually gotten *more positive* YoY in the past few months!

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the economy, and reward me a little bit for my efforts.

April jobs report: reversals in 2025 trends give rise to the second positive report in a row

 - by New Deal democrat

My current Big Theme is that the AI Boom (or possibly bubble) is counterbalancing a stagnant or even shallowly recessionary rest of the economy. 

This was reflected in what has happened in the past few months. The initial jobs report for February was a loss of -92,000 jobs. Then there was a total whipsaw in March, with a gain of 178,000!. After revisions this month the net of both of those months was a paltry +29,000 — right in line with average gains over the past 12 months.

This morning’s report for April had a good headline and mixed internals, but tilted towards the positive - more evidence for the “AI vs. everything else” economy. 

Below is my in depth synopsis.

HEADLINES:

• 115,000 jobs gained, Private sector jobs increased 123,000, while government jobs declined -8,000. The three month average declilned from last month’s preliminary +68,000 to +48,000.
• The pattern of downward revisions to previous months continued. February was revised downward by -23,000 to -156,000, while March was revised upward by 7,000 to +185,000, for a net decline of -16,000. As per above, after all the drama the net gain for the two months was only +29,000.
• The alternate, and more volatile measure in the household report, declined by -226,000 jobs. On a YoY basis, this series *declined* for the third month in a row, by 1,276,000 jobs, or an average of -106,000 monthly.
• The U3 unemployment rate remained steady at 4.3%. 
• The U6 underemployment rate rose +0.2% to 8.2%.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by +61,000 to 6.111 million, about average for the past 12 months..

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. These were mainly positive, although there was one big exception:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 41.6hours, the highest number in 5 years, equalling its 2021 peak of 41.6 hours.

• Manufacturing jobs declined -2,000, the 10th decline in the last 12 months.
• Truck driving rose for a change, by 4,300.
• Construction jobs rose +9,000.
• Residential construction jobs, which are even more leading, declined -1,500, but stayed within the stabilizing trend since last April.
• Goods producing jobs as a whole rose +10,000.. 

• Temporary jobs, which have declined by over -650,000 since late 2022, rose this month by 7,900, thus remaining above their post-pandemic low set last October.
• The number of people unemployed for 5 weeks or less rose 358,000 to 2.496 million, the highest number in over 5 years except for last November.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.11, or +0.3%, to $32.23, for a YoY gain of +3.7%, a marked increase form its 5 year low of 3.4% set last month. its lowest YoY% gain since the pandemic. This is 0.4% higher than the YoY inflation rate through March. We will have to see what next week’s report for April brings.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers increased +0.1%, and is up 0.8% YoY, below average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose a strong 0.5%, and is up 4.5% YoY, vs. its post-pandemic low of 4.0% set last June.

Other significant data:

• Professional and business employment rose for the second month in a row, by +7,000. These tend to be well-paying jobs. This remains above its October low, it still remains lower YoY by -35,000, which in the past 80+ years - until now - has almost *always* meant recession.
• The employment population ratio declined another -0.1% to 59.1%, vs. 61.1% in February 2020, and its lowest since October 2021.
• The Labor Force Participation Rate also declined another -0.1% to 61.8% , vs. 63.4% in February 2020, and its lowest since Ocotber 2021.

SUMMARY

This was the second good monthly report in a row, with only one important negative area. 

Let’s start with the negatives. The most important of these were all of the unemployment and labor force numbers, excluding the headline unemployment rate, which was unchanged. Employment as measured by the household report went down. Labor force participation and the employment population ratio went down. the underemployment rate increased, as did the number of those who aren’t currently in the labor force but want a job. Additionally, the pattern of net downward revisions to the Establishment survey’s headline jobs number also continued. A few leading sectors, including manufacturing and residential construction employment, declined.

But mainly there were positives, including not just the headline employment number, but the increase in construction, trucking, temporary jobs, and goods producing jobs in toto. The manufacturing workweek returned to its post-pandemic high. Wage growth continued at a decent clip, and aggregate payrolls rose sharply. 

Probably most noteworthy, as it relates to AI, is that manufacturing employment has stabilized and even increased slightly in the past 4 months, while as noted above, manufacturing hours equaled their post-pandemic record. We will have to wait for next Tuesday's CPI report to see whether the nominal jump in wage growth was sufficient to equal or overcome the likely second big monthly jump in the inflation rate.  

 

February and March construction spending show two leading sectors in decline; only AI spending holding up the economy

 

 - by New Deal democrat

It has become increasingly likely that the Boom (or maybe Bubble) in spending on the construction and operation of AI data centers may be the only thing that has kept the economy out of a recession. This morning’s release of both February and March monthly numbers for construction spending (thus bringing this metric almost completely up to date six months after the end of last autumn’s government shutdown) is more evidence for this proposition. That’s because, in the past I have used construction to help track the long leading sector of housing; and in the wake of the Inflation Reduction Act, plus “Liberation Day,” it has also been useful to track manufacturing. But now, via tracking construction of water supply and power, it is also a useful proxy for construction of AI data centers.

On a monthly basis, in March all but manufacturing construction were positive, but since the last report was for January, comparing the two month change is also significant. Here’s how total construction, and each of the above sectors, broke down in March (first column) as well as the combined February and March period (second column):

Total: +0.6%     +0.1%

Residential: +1.6%     +1.5%

Manufacturing: -1.1%     -2.7%

Power: +0.2%     +0.5%

Water supply: -3.4%     -0.4%

In the below graph, I break out each of the above for the first three months of this year. But the above numbers are nominal. Measuring vs. the cost of construction materials is also important, and those are also supplied in the final line:

Deflated by the cost of materials, which rose 0.8% in March, only water supply and residential construction were positive. For the two month period including February, the costs of construction materials rose 2.1%, meaning in real terms *all* of the sectors were negative.

The importance of AI data center related spending also is apparent in the YoY% comparisons: nominally total construction was only up 1.6%, vs. a 6.0% increase in construction materials. Manufacturing was *down* -17.0% (thank you, tariffs!). Residential construction was a relative bright spot, up 3.5% (but still below the cost of materials). Only power, up 5.3%, and water supply, up 4.8%, fared better, but even those were negative in comparison with construction costs:

Notably, as shown in the graph below, in nominal terms even spending on water supply construction peaked last October, and total and residential construction spending peaked in December. Only power construction spending has continued to increase (but even that not in real terms, as discussed above):

And in real terms, with the exception of a brief rebound this past autumn, residential construction spending has been declining since May of 2024, although like other housing metrics, there are signs it may be bottoming out:

In other words, spending in the two leading sectors - housing and manufacturing - have been in decline for well over a year. If AI related spending rolls over as well, it is difficult to see how the US economy remains out of recession. 

Jobless claims, the most positive data of all, continues to augur for lower unemployment

 

 - by New Deal democrat

The most positive metric in all of economic metric-dom continues to be very positive. Initial jobless claims rose 10,000 to 200,000 last week, still among the lowest readings over the entire past 50+ years. The four week moving average declined -4,250 to 203,250, also among the lowest in the past 50+ years. And continuing claims, with the typical one week delay, declined -10,000 to 1.766 million, the lowest since January 2024:

For all intents and purposes, nobody is getting laid off.

On the YoY% basis more important for forecasting, initial claims were down -12.3%, the four week average down -10.5%, and continuing claims down -5.9%:

This is very positive. In fact, YoY values this much lower have in the past been associated with economic expansions when they were very strong, as shown in the below graphs which norms the current YoY% changes to 0:

Interestingly, the only exception was 1973, when the Arab Oil Embargo caused the economy to reverse quickly.

Finally, the big decline in jobless claims over the last few months *very* strongly suggests not only that the unemployment rate will not increase from its 4.3% level in March, but potentially could decline all the way to 4.0% in the next several employment reports:

We’ll see how that plays out for April in tomorrow’s jobs report.

The positive, noisy monthly March new home sales report masks underlying trend weakness

 

 - by New Deal democrat

New home sales, which were finally updated yesterday for March (and so still are about three weeks behind their regular schedule now 6 months after the end of the government shutdown!) are perhaps the most leading of all indicators for housing, itself a long leading indicator. In fact, they are so leading that they are more of a “mid-cycle” indicator, as their monthly peak usually happens closer to the mid-point of a cycle than they end. But as I almost always point out, they have two major problems: (1) they are very noisy, and (2) they are heavily revised. Which means you must always take the latest month’s number with several grains of salt under the best of circumstances.

With those caveats out of the way, let’s take a look at yesterday’s numbers. The headlines were that sales increased sharply, from 635,000 annualized to 682,000. The median price on a non-seasonally adjusted basis declined to 387,400, a -6.2% YoY decline. And inventory declined ever so slightly, by -2,000 annualized to 481,000 units. 

Here’s a more in-depth look.

First of all, home sales react to mortgage rates, as shown in the first graph below of the last three years:

As mortgage rates (red, right scale) generally declined, especially later in 2025, new home sales increased (blue, left scale). With the increase in mortgage rates over the past two months, I expect the three month average of new home sales to start to decline again.

The trend is somewhat clearer when we average new home sales quarterly (light blue line below). Although they comparatively lag a little, the signal is also distilled quite clearly from the noise by single family permits (red, right scale):

Permits had just started to pick up in the last few months, a few months after new home sales, before the increase in mortgage rates hit. But the Q1 average of new home sales did pick up a decline. We can expect this (noisily!) to continue in Q2.

The next metric to follow sales are prices, shown below historically both monthly (light blue) and quarterly (dark blue) to help smooth out some of the noise:

Prices do go down, or at least advance at a decelerating rate, late in expansions as typically higher interest rates kick in. Now here is the post-pandemic view:

We can see that prices peaked in Q3 2022 and have generally been declining on a consistent basis each quarter thereafter. Faced with a downturn in sales (due to high prices after the pandemic and then a big increase in mortgage interest rates), builders adapted to the market. As of Q1 of this year, the median price of a new home was -8.9% lower than its Q3 2022 peak. While the trend in mortgage rates before the Iran war had been downward, and might yet be reflected in a temporary firming in prices, it seems very likely that the downward trend in prices will resume with the higher interest rates, and in some cases costs of material, due to the Iran war disruption.

The final domino to fall is new houses for sale, i.e., inventory (orange in the graph below). The historical look shows the inventory ultimately always follow sales (blue) with a significant delay, and almost always have started to decline significantly before the onset of recessions:

The post-pandemic view shows that inventory did indeed peak in March and May of last year and declined since, down -4.6% as of March:

But this last graph also shows something interesting — namely, inventory stabilizing. This, by the way, is something that has also been true in the last several months for single family houses under construction (blue):

The historical look suggests that units under construction turns before inventory:

In the present case, it appears that inventory may have made a bottom a month or two before units under construction. If we go back to the long term historical graph above, inventory has typically bottomed after the end of recessions. In other words, as recessionary as housing has been for the last year, this suggested that the danger may have been passing, i.e., the economy may have dodged a bullet.

But again, if the Iran war continues to cause interest rates to be elevated, then sales will turn back down, price reductions will continue, and inventory will continue to decline.