Decrease in Home Sales Points to Slowing Economy
The U.S. economy showed some signs of slowing Wednesday as sales of new homes weakened in April and a key forecasting gauge dipped, offering hope the Federal Reserve’s interest rate tightening cycle may be near an end.
The Commerce Department said the number of single-family homes sold in April fell 5.8% to a seasonally adjusted annual rate of 909,000 units, compared with a pace of 965,000 units in March.
Although April’s sales were weaker than the 937,000 units forecast by economists in a Reuters poll, the pace of homes sold remained remarkably strong, given that March was the second-strongest month on record.
Separately, the Conference Board, a private business group, said its key U.S. economic forecasting gauge fell 0.1% in April, after a similar rise in March, in a sign that the economy may be slowing in response to six interest rate increases by the Fed since last June.
“The data suggest that some sectors may be beginning to respond to Fed tightening,” Conference Board economist Ken Goldstein said in a statement.
Treasury bond yields fell across the board Wednesday, as more investors appeared to bet that a slowing economy will discourage the Fed from raising interest rates much more.
“Tighter monetary policy is beginning to have some impact on one of the leading economic indicators in the economy, which is housing,” said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.
The housing sector is key to slowing the economy because new homeowners spend heavily on furniture and other big-ticket items, spurring consumer spending.
Sohn said his bank, the nation’s largest residential mortgage lender, has begun to approve fewer and fewer mortgage applications as higher interest rates have started to squeeze many Americans out of the real estate market.
Although the Fed hoped higher interest rates would slow the economy, housing--usually sensitive to interest rates--has shown tremendous strength, thanks to strong employment, high consumer confidence and rising wealth from stock market and home equity gains.
The strength in real estate also has been due in large part to the availability of adjustable-rate mortgages, which make buying a home affordable even as 30-year fixed mortgages rise.
But in recent weeks adjustable-rate loans have risen to 7.25%, after being as low as 5.68% in May of last year, before the Fed started tightening monetary policy.
Sohn said that the economy has not slowed enough to keep the Fed from tightening by a quarter of a percentage point at its June and August meetings. Those moves, he said, should bring the central bank’s latest tightening cycle to a conclusion.
The notion that the economy is not slowing enough is underscored by the fact that April marked an unprecedented run of five months of new-home sales above 900,000 units. Before 1998, when the housing market began its current boom, a sales pace above 700,000 units was viewed as very strong.
Some economists said the weakness in the housing sector adds pressure on the Fed to not act at its June meeting and opt instead to wait for additional evidence that its previous moves have been enough to slow the economy.
“This does reduce the odds that the Fed will move in June, because it’s the kind of indicator that suggests that the moves they have made already are starting to percolate through the economy,” said Bill Cheney, chief economist at John Hancock Financial Services in Boston.
The report held some good news for those looking for a new home--the median price of homes fell to $161,400, from $165,000 in March. That was a sign that more Americans were buying less-expensive homes. Meanwhile, the mean price of homes rose to $208,000 in April from $202,300, a sign that many Americans are flush with cash for high-end homes.
Sales fell the most in the Midwest, dropping 15.5% to a pace of 153,000 units. Sales in the West also fell sharply, dropping 11.5% to a 246,000-unit pace, while sales in the South were 0.7% lower at 422,000 units. Sales in the Northeast rose 8.6% to 88,000 units.
In a separate report, the Commerce Department said consumer purchases via the Internet increased in the first quarter, but still represented just 0.7% of the $747.8 billion in overall retail sales.
E-commerce sales rose 1.2% to $5.260 billion in the first three months of the year, compared with $5.198 billion in the fourth quarter of last year.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
New-Home Sales
Seasonally adjusted annual
rate, in thousands of units:
April:
909,000 units
Source: Commerce Department
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Index of Leading Economic IndicatorsSeasonally adjusted index; 1992=100:
April:
106.0
Source: Conference Board
