• David Gill

Housing growth bucks economic trend

WASHINGTON — Close on the heels of last week's dive in the consumer confidence index came the key housing numbers — which showed few traces of the unconfident consumer that came from The Conference Board's survey.

In fact, the two housing sales numbers experienced whopping growth in March. New home sales set a monthly record for the statistic by posting 1,021,000 units on a seasonally adjusted, annualized basis. Existing homes sales fattened to 5,440,000 units on the same basis — the second best monthly total in resales history, topped only by June 1999's 5,450,000 units.

The housing starts number also seemed to deny what consumers were saying about the economy. Although, as the confidence survey showed, consumers see dark clouds over the next six months, starts finished March with a healthy 1,613,000 units on a seasonally adjusted annualized basis.

Clearly, the Federal Reserve's serial cuts in interest rates have overcome whatever doubts consumers may have about income and jobs.

David Lereah, chief economist for the National Realtors Association, observed that "mortgage interest rates that are near 30-year lows are bringing many buyers into the market at the beginning of the traditional home-buying season." Data from the Federal Home Mortgage Association show that the national average commitment rate for a 30-year, fixed-rate mortgage was 6.95 percent in March, down from 7.05 percent from February.

Bruce Smith, president of the National Association of Home Builders, agreed with Lereah. Smith said low rates helped offset both declining consumer confidence and weakened labor markets.

Smith also cautioned that the starts figure (which for March was off 1.3 percent from February's total) and association surveys of builder/members showed that "the long-resilient housing sector is experiencing some anticipated softening."

For now, however, pundits both inside and outside the housing markets are enjoying the healthy sales totals. Robert Podorefsky, analyst with Fleet Bank, called the two sales reports "great news for the economy. There cannot be any ambiguity any longer that the housing sector has remarkable resiliency."

The sales figures reveal "an element of consumer confidence that captures the essence of what drives this economy: consumers wanting a better life style and having the faith to go for it," Podorefsky added.

Michael Niemira, analyst with the Bank of Tokyo-Mitsubishi, Ltd., said, "Clearly, demand is strong (for housing). For the resale market, the strong housing demand is pulling up prices, as the median sale price rose to $143,500, which was a new record high."

Niemira also warned, however, that "there is an ongoing caveat in viewing these data: They can be subject to considerable revision." In particular, he said, the nearly 39 percent "bulge" in new home sales in the Northeast region was "not only unsustainable, but likely to be revised down."

Regarding starts, the overall figure was drawn down in March because of a 4.3 percent drop in starts of single-family homes — to 1,240,000 units on a seasonally adjusted annualized basis, its slowest pace since last November. NAHB also pointed out that residential building permits dropped in March, underscoring its view that housing as a whole was headed for a tough climate over the next few months.

Housing by region
Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast +3.2 +4.0 +38.9
Midwest -0.9 -2.8 +15.3
South +5.9 -5.8 +8.4
West +9.7 +6.9 -17.2

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