The US residential housing recovery is fast running out of energy as rapidly rising prices, higher mortgage rates and a weak labor market have priced many prospective buyers out of the market.
Sales of new single family homes unexpectedly dropped 14.5 percent in March to a 384,000 annualized rate, well below the 450,000 forecast in the Bloomberg survey of economists, reported the Commerce Department today. It was the slowest purchase rate since October 2012. Three of four geographic areas in the country witnessed declines with Western demand slipping to the lowest level in over two years.
Home prices have been rising rapidly for more than a year. If the Case-Shiller 20-City Home price index comes in as forecast at 12.90 percent for February it will be the twelfth straight month of double digit price increases.
Mortgage rates have been relatively stable for the past ten months averaging 4.38 percent and ranging from a high of 4.67 percent down to 4.13 percent. But that represents a sharp increase from the 3.55 percent average for the year before last May.
Consumer income has also been essentially static for the past year. Average hourly earnings were 2.1 percent higher in March over the prior year, barely outpacing the 1.5 percent gain in prices. Personal income in March was 3.1 percent higher on the year, and while that is double the inflation rate it is less than half the 30 year average of 6.9 percent from 1978 to 2007.
Job creation has averaged 177,000 per month over the past two years. That is an improvement on the 160,000 average of the prior two years but it has not been enough to return millions of long term unemployed to work. The labor force participation rate remains near its recent record low.
Chief Market Strategist
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