Existing Home Sales and New Construction Jump in February

By klrw460 March 22, 2024

The Federal Open Market Committee (FOMC) maintained the federal funds rate at its existing target range of 5.25-5.5 percent during its March 19-20 meeting. The Summary of Economic Projections (SEP) released alongside indicated that the median forecast expects three 25-basis point rate reductions by the end of 2024, unchanged from December’s projections. However, the distribution now displays a reduced likelihood of easing. Additionally, the March SEP projects a slightly higher expected policy rate for 2025 and 2026, reflecting minor upward adjustments in economic growth and inflation outlooks. While the pace of the Fed’s balance sheet reduction remains unaltered, Chair Powell mentioned that discussions about slowing quantitative tightening were held during the meeting, hinting at a probable deceleration in the near future.

According to the National Association of REALTORS® (NAR), existing home sales surged by 9.5 percent to a seasonally adjusted annualized rate (SAAR) of 4.38 million in February, marking the highest pace in a year. The inventory of available homes increased by 5.9 percent to 1.07 million, yet the more significant rise in sales rate decreased the months’ supply slightly to 2.9 percent, the lowest in 11 months. The median price of sold existing homes experienced a 5.7 percent year-over-year increase.

Data from the Census Bureau revealed that housing starts in February rose by 10.7 percent to a SAAR of 1.52 million, countering most of the decline attributed to January’s weather conditions. Single-family starts increased by 11.6 percent to a SAAR of 1.13 million, reaching the fastest rate since April 2022. Although multifamily starts increased by 8.3 percent to a SAAR of 392,000, this only partially compensated for a 27.9 percent decrease in January. The streak of gains in single-family permits extended to 13 months with a 1.0 percent rise to a SAAR of 1.03 million, while multifamily permits grew by 4.1 percent to a SAAR of 487,000.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index indicated an increase of 3 points to 51 in March, surpassing the neutral threshold of 50 for the first time since August 2023. The segments for single-family sales currently and in the upcoming six months saw increases of 4 points and 2 points, reaching 56 and 62 respectively. The index for prospective buyer traffic rose by 2 points to 34.

Forecast Implications: The Fed’s SEP update aligned with expectations of three 25-basis point rate cuts this year, consistent with prior forecasts. However, recent stronger-than-anticipated inflation and employment figures suggest a potential delay in rate reductions and an increased risk to mortgage rates. The unexpected rise in existing home sales, despite higher mortgage rates and a previous drop in pending sales, suggests an upward adjustment in the near-term sales outlook, maintaining a positive sales trend for 2024. Nonetheless, the February surge might not be sustainable, and a decrease in March is conceivable. The limited months’ supply indicates ongoing pressure on home prices. The notable increase in single-family starts also surpassed expectations, indicating a possible slight upward revision in near-term forecasts. Yet, the robustness in new single-family home construction is expected to persist throughout the year, buoyed by heightened homebuilder sentiment and sustained demand for new homes. The strength observed in February is partly attributed to recovery from January’s adverse weather conditions, as evidenced by the more moderate gains in the permits series.

For the full details and insights, please refer to the original press release at the following link: https://www.fanniemae.com/research-and-insights/forecast/existing-home-sales-and-new-construction-jump-february