Existing Home Sales Decline Modestly in March, while Single-Family Starts Rise

Key Takeaways:

• The Conference Board Leading Economic Index® (LEI) declined 1.2 percent in March to 108.4. The index’s rate of decline is quickening as it fell 4.5 percent for the six-month period ending in March, compared to 3.5 percent the six months prior.
• Existing home sales declined 2.4 percent in March to a seasonally adjusted annualized rate (SAAR) of 4.44 million, according to the National Association of REALTORS®. For the first quarter, sales averaged an annualized pace of 4.33 million, an improvement of 3.2 percent compared to Q4 2022. In March, the inventory of homes for sales rose 1.0 percent to 980,000. The months’ supply was flat at 2.6, and the median sales price of existing homes declined 0.9 percent compared to a year ago.
• Housing starts declined 0.8 percent to a SAAR of 1.42 million in March, according to the Census Bureau. Single-family starts rose 2.7 percent to a SAAR of 861,000, while multifamily starts declined 5.9 percent (following gains of 9.4 and 16.2 percent in January and February, respectively) to a SAAR of 559,000. Single-family permits increased 4.1 percent to a SAAR of 818,000, continuing a trend of starts outpacing permits, though the two series have converged modestly over the past two months. Multifamily permits fell 22.1 percent to a still-strong SAAR of 595,000.
• The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index increased 1 point to 45 in April, its fourth consecutive monthly gain but the smallest increase in that period. The index for single-family sales in the present rose 2 points to 51, its first reading above 50 since September 2022, and the index for single-family sales in the next six months was up 3 points to 50. The index for foot traffic of prospective buyers was flat at 31.

Forecast Impact:

The further decline of the LEI in March remains supportive of our call for a modest recession in the second half of 2023. With the initial bank panic subsiding and the small uptick in the economic coincident index, current indications are that the economy is not already in a recession.

Existing home sales were approximately in line with our Q1 expectations. The increase in the sales pace from the end of 2022 to the beginning of 2023 illustrates that homebuying demand remains relatively resilient and was surprisingly responsive to small dips in mortgage rates. This resiliency is also reflected in the single-family starts report, which came in moderately above our forecast. The supply of existing homes remains constrained both because of a decade of underbuilding following the Great Financial Crisis and, more recently, the “lock-in effect” discouraging current homeowners from listing their homes for sale due to not wanting to give up their low mortgage rates. As such, in light of an extremely limited supply of existing homes for sale, many homebuyers are turning to new homes. Still, with the generally more indicative single-family permits series continuing to trend below starts and our forecast for a modest recession beginning in the second half of this year, we expect further pullback in both new and existing home sales activity, though the new home market will likely continue to outperform relative to the existing market.

Nathaniel Drake
Economic and Strategic Research Group
April 21, 2023

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.