Home Sales and Starts Pull Back in March, While Economic Data Continue to Support Near-Term Growth

Key Takeaways:

• Retail sales and food services rose 0.7 percent in March and were upwardly revised in both January and February, according to the Census Bureau. The headline figure benefited a bit from a 2.1 percent price-related increase in gas station sales, though sales at general merchandise stores rose 1.1 percent and nonstore retail, representing primarily online sales, jumped 2.7 percent. Control group retail sales (excluding auto, building supplies, and gas station sales) increased 1.1 percent and were revised upward by three-tenths in February.
• Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, increased 0.4 percent to 102.7 in March, according to the Federal Reserve Board. Manufacturing activity rose 0.5 percent following an upwardly revised 1.2 percent gain the month prior, bringing the index to its highest level in 11 months. Mining output declined 1.4 percent, while utilities output increased 2.1 percent.
• Existing home sales declined 4.3 percent to a seasonally adjusted annualized rate (SAAR) of 4.19 million in March, reversing roughly half of the surprise jump in February, according to the National Association of REALTORS® (NAR). The number of homes available on the market rose 4.7 percent to 1.11 million, pushing the months’ supply up three-tenths to 3.2. The NAR’s measure of the median sales price of existing homes sold rose 4.8 percent compared to a year earlier.
• Housing starts declined 14.7 percent to a SAAR of 1.32 million in March, the lowest level since August 2023, according to the Census Bureau. Single-family starts dropped 12.4 percent to a SAAR of 1.02 million, almost entirely reversing the 14.6 percent jump in the month prior, while multifamily starts were down 21.7 percent to a SAAR of 299,000, the lowest level since 2017, excluding the pandemic months. Single-family permits declined 5.7 percent to a SAAR of 973,000, ending a 13-month streak of increases. Multifamily permits were down 1.2 percent to a SAAR of 485,000.
• The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index was flat at 51 in April. The index for single-family sales in the present moved up 1 point to 57, while the index for sales in the next six months declined 2 points to 60. The index for foot traffic of prospective buyers rose 1 point to 35.

Forecast Impact:

The strong gain in control group retail sales in March, as well as upward revisions to prior months, presents some upside risk to our Q1 and Q2 consumption forecast. While we continue to believe the current pace of consumption relative to income growth is unsustainable in the long run, wealth effects from recent stock market and home price gains may be able to continue to propel consumption growth in the near term. The industrial production report, which saw a second consecutive monthly gain in the highly cyclical manufacturing sector, is also supportive of relatively strong near-term growth.

The pullback in existing home sales brought the quarterly figure in line with our expectations. It also confirmed our suspicion that the jump in February home sales was due to seasonal quirks and did not represent a sustainable rise in sales activity. Our current home sales forecast faces some downside risk from the recent runup in interest rates, but we continue to expect a gradual increase in sales activity as new listings continue to rise. The drop in single-family starts also brought the quarterly figure in line with our expectations. We expect some modest slowing in single-family construction next quarter because new starts have outpaced new sales in recent months. The first decline in single-family permits in more than a year is supportive of that forecast. Additionally, we continue to expect that multifamily construction will slow this year, in line with a further decline in permits.

Nathaniel Drake
Economic and Strategic Research Group
April 19, 2024

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