(Bloomberg Opinion) -- At his press conference following the Federal Reserve’s monetary policy meeting last week, Chair Jerome Powell spent the bulk of his time talking trade wars and risks to the global economic outlook. What didn’t get any attention was the state of the all-important housing market. Too bad.
Data out on Tuesday paint a picture of a housing market under pressure. That would be concerning under most circumstances, but it’s particularly worrisome now, given the tremendous drop in borrowing costs over the past six months and the lowest unemployment rates in half a century – ingredients that should be supportive for the market.
Let’s take a look at the numbers. First, the S&P CoreLogic Case-Shiller National Home Price index increased just 2.54% in April from a year earlier, marking the 13th straight month during which gains have slowed. This time last year, home prices were rising at a 6.30% clip. On a monthly basis, prices were unchanged, compared with forecasts for a 0.1% increase. Next, the U.S. government said sales of new single-family homes dropped 7.8% in May to a 626,000 annualized pace that missed all estimates in Bloomberg's survey of economists. The median sales price decreased 2.7% from a year earlier to $308,000, marking the sixth time in the past seven months that prices have dropped and a sign that buyers are balking at elevated property values.
If this is the best the housing market can muster – even after the average rate on a 30-year fixed-mortgage as measured by Freddie Mac dropped to 3.84% from last year’s peak of almost 5% in November – then it’s time to question the health of consumers. The latest consumer confidence numbers support the notion that Americans are feeling less secure. The Conference Board’s index of sentiment for June, released Tuesday, dropped to the lowest level since September 2017 as consumers became less upbeat about the economy. At 121.5, down from a revised 131.3 in May, the index came in lower than all forecasts in a Bloomberg News survey of economists.
Residential real estate has been a drag on economic growth for five straight quarters, according to data from the Bureau of Economic Analysis. The last time that happened? It was during the financial crisis of 2008-2009. Now, no one is saying a housing bust is looming. Builder Lennar Corp. said Tuesday that new orders for its homes exceeded analysts’ estimates in the first quarter. And data last week showed sales of existing homes, which make up the majority of the market, topped estimates in May as all four regions of the U.S. gained.
Even so, there are clear signs that the housing market is slowing, which is a concern given how much wealth average Americans have tied up in their homes. If consumers are noticing their homes are no longer appreciating in value, then that could put a damper on what is already tepid spending levels. After all, consumer spending accounts for about two-thirds of the economy. Indeed, the Fed’s quarterly Flow of Funds report released earlier this month showed that consumer debt growth slowed to a 2.3% annual pace in the first quarter, the least since 2015, from a 2.8% rate in the fourth quarter. Again, no crisis, but something to watch.
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Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.
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