New and Existing Home Sales Rise, While the Fed Minutes Suggest a Likely Rate Cut at September FOMC Meeting

Key Takeaways:

• The minutes from the Federal Open Market Committee (FOMC) July 30-31 meeting showed officials are more confident that inflation is "moving sustainably toward 2 percent." Notably, "Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months." Participants also acknowledged that the labor market remains solid but appeared to be moving "into better balance." However, it should be noted that the July meeting took place prior to the release of the July labor report, which showed a continued rise in unemployment. In terms of monetary policy, the minutes show that "several" participants observed that recent progress "provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision".
• Existing home sales rose 1.3 percent in July to a seasonally adjusted annualized level (SAAR) of 3.95 million, the first increase in four months, according to the National Association of REALTORS® (NAR). The inventory of homes available for sale rose another 0.8% to the highest level since the Fall of 2020. The months’ supply ticked down to 4.0, while NAR's measure of the median sales price of existing homes rose 4.2 percent compared to a year ago, an acceleration of one-tenth from last month.
• New single-family home sales jumped 10.6 percent in July to an annualized rate of 739,000, according to the Census Bureau. Furthermore, sales over the prior three months were revised upward by a total of 102,000. The months’ supply fell nine-tenths to 7.5, the lowest since September. Completed for-sale inventories of new homes continue to rise, growing 3.0 percent in July to 102,000, the highest since late 2009. The inventory of for-sale new homes that have not yet been started also jumped, rising 9.9 percent back to the highest level since October. Median and average sales prices rose in July, though on a year-over-year basis the median sales price for a new single-family home fell 1.4 percent.

Forecast Impact:

The minutes from the FOMC’s July meeting show that many FOMC participants were in favor of a 25bps rate cut at the July meeting if the question had been raised. Given the encouraging inflation reports since the meeting, along with a continued rise in the unemployment rate according to the July labor report, financial markets are placing a high likelihood of a cut in September, aligning with our own view. The details of the August labor report will add clarity to the likely magnitude of the September decision.

In housing, both new and existing home sales rose in July, with new home sales rising sharply and existing home sales rising slightly to just a bit below what we had anticipated. Combined with mortgage rates pulling back in recent weeks, this suggests some upside risk to our new home sales forecast, though existing sales are expected to remain sluggish. Inventories of homes for-sale continue to rise, however, with the combined "for-sale" inventories of new and existing homes now back to levels last seen in mid-2020. While we continue to expect a solid pace of new single-family housing starts over the near term, as builders have shown a willingness to use concessions to drive sales, near-term starts are likely to remain comparatively soft relative to the pace of sales due to the growing inventories of completed homes available for sale.

Richard Goyette
Economic and Strategic Research Group
August 23, 2024

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