market update graphic green

Home Sales Continue Wild Run – Market Update

Kevin Graham6-minute read
September 10, 2021

It’s after Labor Day and despite the fact that it’s 87 degrees in Michigan as I write this, it’s like someone has painted the leaves on the trees. Fall is just around the corner. With fall comes things like harvest, football and apple orchards. It’s also the traditional end of home buying season, but 2020 made so many things wacky. Does that still hold true?

Headline News

This portion of the reporting was aided by analysis from Econoday.1 Let’s get into it!

Consumer Price Index (CPI)

Inflation was up 0.5% in the month of July based on this index of consumer staples. It’s up 5.4% overall on the year. When taking out food and energy, prices are only up 0.3% for the month and 4.3% since last July. This is running well above the Federal Reserve’s 2% target goal for long-term inflation, but inflation has been stagnant for a while before that.

Despite the willingness of the Fed to let inflation run a little high at the moment, there have been rumblings of backing off some of the monetary stimulus being provided by the Fed right now. More on that when we get to mortgage rates later on. On the other hand, August employment numbers may show that we still have a ways to go in recovery.

To get back to the actual numbers, food prices were up 0.7% and are up 3.4% on the year. Meanwhile, energy prices were up 1.6% and have gone up 23.8% since the same time a year ago.

Other categories seeing significant price increases over the past month include shelter, which was up 0.4%. Meanwhile, new vehicle prices were up 1.7% and have risen 6.4% year-over-year. Personal care costs were up 0.8% and the cost of medical care rose 0.3%. Finally, there was a 0.6% uptick in recreation costs.

Producer Price Index (PPI)

On the production side, prices are rising faster than they are for the consumer. Makers of goods and services can’t always pass through increased costs right away without having their consumers balk. Prices for producers were up 1% in July and they’ve risen 7.8% since the same time a year ago.

Taking out food and energy, inflation was still up 1% monthly, but the year-over-year pace was only 6.2%. When trade services (producers buying from retail and wholesale locations) were excluded, monthly price gains were 0.9% and 6.1% since last summer.

Tuning into individual categories, there was a 1.1% rise in the price of services. This accounted for about 75% of the monthly gain. It’s also the biggest services price hike since December 2009. Meanwhile, the price of finished goods was up 0.6%.

Retail Sales

Retail sales fell 1.1% in July and they were down 0.4% when vehicles were taken out. When further excluding gas, these were down 0.7%.

Car sales were down 4.3% in July, making it a continued round of declines as people just can’t find the cars they want due to the chip shortage.

Other key categories seeing declines were home furniture and furnishings, down 0.6% and building materials and garden supplies, falling 1.2%. Other notable losses included the sporting goods sector, hobbies, musical instruments, books and accessories.

Not everything was in a downward spiral, sales at restaurants and bars were up 1.7% to go along with a 0.3% rise in spending on electronics and appliances. Finally, health and personal care products side a 0.1% uptick.

Industrial Production

Industrial production was up 0.9% in July starting with a 1.4% increase in manufacturing output. More floorspace was being utilized in factories as well, up to 76.1%.

Mining activity was up 1.2% as higher energy prices gave incentives to produce more oil. Utility production was down 2.1%. Electricity output was down 2.7%, which was offset by natural gas being up 1.2%.

Housing Market Index

Home builder sentiment took a step back in August, down 5 points at 75. Breaking that down based on components, both traffic of prospective buyers walking through homes and current sales were down 5 points at 81 and 60, respectively. Meanwhile, future sales expectations over the next 6 months were flat at 81.

New Residential Construction

Anyone trying to buy a home can probably tell you that supply is limited right now. It’s worse in some places than others. Although the shortage is particularly troublesome in existing home inventory, one way to make sure there are more homes on the market is to build more. That’s what this report is all about.

Housing completions came in at 1.391 million, up 5.6% on the month and 3.8% higher than a year ago. Single-family starts in July were up 3.6% at 954,000, while there were 426,000 multifamily completions with five units or more.

Housing starts were down 7% at 1.534 million. This is still 2.5% higher than this time last year. Meanwhile, single-family starts were down 4.5% at 1.111 million. There were 412,000 multifamily starts.

Finally, permits were pulled at a rate of 1.635 million, up 2.6% on the month. On the downside, single-family permits were down 1.7% to an annual rate of 1.066 million. Meanwhile, multifamily permits came in at 532,000.

Existing Home Sales

Sales of previously owned homes were up 2% in July to an annual rate of 5.99 million. This is an increase of 1.5% since last July. Although the price of an existing home was down 0.8% in July, it’s still up 17.8% compared to last year at $359,900.

Taking a brief look at regional data, sales were unchanged in the Northeast and up 1.2% in the South. In the West, sales rose 3.3%, with a 3.8% uptick in the Midwest. Meanwhile, supply remains an issue. There are just 2.6 months’ worth of existing homes on the market at the current pace of sales.

New Home Sales

New home sales were up 1% in July to 708,000. This is down 27.2% from this time last year at the height of the hysteria when everyone and their mother was looking for a different house.

Unlike the market for existing homes, there aren’t really the supply problems in the market for a new construction. Relative to sales, supply is at 6.2 months, which is signifies a market that’s pretty much in balance.

On the other hand, like existing homes, prices are way up. They rose about 5.5% in July to come in at $390,500, up 18.4% on the year.

Durable Goods Orders

New orders of durable goods were down 0.1% in July, but that beat consensus estimates for a 0.2% down take. Moreover, when transportation was taken out, orders were up 0.7%. Given that, it seems like the chip shortage is having a real effect. Orders of core capital goods were flat. On the other hand, orders in this category were down 8%.

When digging into the reasons why, there were a bunch of drops in non-defense categories that were enough to offset a 20.5% uptick in military orders. Meanwhile, shipments were up 2.2%, while unfilled orders were up 0.3% and inventories rose 0.6%.

Gross Domestic Product (GDP) 

Overall economic growth increased 6.6% according to the latest reading of GDP. Meanwhile consumer spending was up 11.9% in the second estimate, an increase of 0.1%. This category alone contributed 7.8% to GDP growth. Meanwhile, fixed investment from business was up 3.4% to 0.63% of economic output.

On the negative side, net exports shared a trade deficit of 884.7 billion, which took away 0.24% from economic growth. Meanwhile, inventories were down $176.1 billion and dropped 1.3% from GDP. Residential housing didn’t help either, losing 11.5% since last quarter.

Personal Income And Outlays

Personal incomes were up 1.1% overall. There was a 1% uptick in wages and salaries thought to be driven by a return of workers in leisure and hospitality. Meanwhile, unemployment payments were down 12.1% in July as more people return to the workforce. There was a small uptick in a catchall social benefits category. It’s likely that this has to do with the paying ahead of the enhanced child tax credit for this year.

Meanwhile, personal spending was up 0.3%. That was just good enough to keep pace with core inflation categories. Meanwhile, the yearly increase in current inflation is 3.6%. Overall prices were up 0.4% and 4.2% since last July.

Spending on services was up 1%, while durable and nondurable goods were down 2.3% and 0.4%, respectively. It’s pointed out that spending on nondurable goods is up and down with gas prices.

Pending Home Sales Index

Pending home sales are an indicator of future existing home sales because they measure the number of purchase agreements in place. These were down 1.8% in July to an index level of 110.7.

Case-Shiller Home Price Index

This index takes a look at all home sales across 20 major metropolitan cities and looks at price levels on a 3-month average. In June, prices were up 1.8% on a seasonally adjusted basis and 2.2% overall. Compared to last June, prices have risen 18.6%. This is higher than peaks seen in September 2005.

However, there’s some evidence that this is being sustained by low interest and a real frenzy in home buying demand, both of which were spurred for different reasons by the pandemic.

FHFA House Price Index

Home prices were up 1.6% in this index, which is based solely on conventional loan transactions. It’s also not a 3-month average, but the year-over-year numbers are also remarkably similar, up 18.8%.

Consumer Confidence

Consumer confidence was down 12.3 points to 113.8. Moreover, numbers in June were revised down 4 points to 125.1. Analysts cite various explanations for this including rising prices, the Delta variant and pessimism over the way things are going geopolitically.

The current conditions index was down almost 10 points and expectations for the future fell more than 12 points. This less-than-stellar outlook has yet to show up in spending patterns yet, but these may be getting supported by the child tax credit payments, sales tax holidays, and returns to in-person schooling.

ISM Manufacturing Index

This metric to manufacturing health was up 0.4 points to 59.9. New orders were all the way up to 66.7. However, production is only at an even 60, failing to keep pace. Meanwhile, employment is at a breakeven 50.

Backlogs are up more than 3 points at 68.2. Also rising are shortages and delivery delays. Prices paid are at an extremely high 79.4.

International Trade

The U.S. trade deficit fell in July by $5.6 billion to $70.1 billion. Exports were up 1.3% to $212.8 billion while imports were at $282.9 billion, down 0.2%.

On the export side, capital goods were up $1 billion with a $100 million increase in consumer goods and another $600 million in exports for automotive vehicles. Meanwhile, there was a $100 million uptick in services exports.

July imports were down particularly in the area of consumer goods, falling $2.5 billion with an additional $1.7 billion fall for industrial supplies and a $1.1 billion decrease in automotive imports. Some of this may have to do with the chip shortage.

Meanwhile, imports and toys, games and sporting goods were down $1.1 billion. It’s likely that retailers are working to clear shelves to make room for holiday stock. Imports of services were up $1 billion, largely having to do with broadcast carriage fees for the Olympics.

Employment Situation

Nonfarm payrolls were up by just 235,000 last month, well below consensus for 740,000 jobs added. That said, the unemployment rate did fall 0.2% to 5.2% while the labor force participation rate held steady at 61.7%. There was also a big increase in wages as companies look to entice workers back. These were up 0.6% in August and 4.3% for the year. Finally, the length of the workweek held steady at 34 hours, 36 minutes.

Looking at individual sectors, manufacturing jobs were up 37,000. Meanwhile, there were just 203,000 jobs added in services. Retail lost 28,500 jobs. There were no additions in leisure and hospitality. There were gains in arts, entertainment and recreation. However, there were layoffs at restaurants and bars.

Mortgage Rates

Mortgage rates were relatively flat. Even more importantly than the week-to-week movements at this point, we’re keeping an eye on what the Federal Reserve might do in the near future. The governors have talked recently about dialing back purchases of mortgage-backed securities. When that happens, rates are likely to go up unless someone starts buying in at high levels. However, this week’s employment data might certainly be enough to give them pause.

If you’re looking for a takeaway, it’s that when rates are being advertised for 3%, the market is really good and you should take advantage if you’re looking to purchase or refinance. You can apply today.

The average rate for a 30-year fixed mortgage last week according to Freddie Mac was 2.87% with 0.6 points paid in fees, unchanged from the week prior. This is down slightly from 2.93% last year.

Meanwhile, the average rate for a 15-year fixed mortgage with the same number of points paid was up a single basis point to 2.18%, having fallen from 2.42% last year.

If you’re interested in an adjustable-rate mortgage (ARM) the average rate for a 5-year treasury-indexed, hybrid ARM was up just 1 basis point to 2.43% with 0.3 points paid. This is down from 2.93% a year ago.

Stock Market

A good day for tech stocks limited the downside for the broader market as investors were disappointed by the low number of jobs given in the employment report. This helped cushion things heading into the Labor Day weekend.

The Dow Jones Industrial Average was up 0.76% for the 30 days ending September 3, closing at 35,369.09 Friday, falling 74.73 points on the day. Meanwhile, the S&P 500 was down 1.52 points Friday to close at 4,535.43. This was still up 2.33% on the month. Finally, the Nasdaq was up 32.34 points on the day to close at 15,363.52. This was a 3.39% 30-day gain.

If all this housing talk and all these numbers are putting you to sleep, it could be the writing, but as the writer I’m going to be more optimistic. Let’s help you get some better sleep. Check out our primary bedroom decor and design ideas. Have a great month!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2021 Econoday, Inc. All rights reserved.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.