Market Recap: Retail Sales Drop, Housing Market Index Down, Construction Stalls

Blog posted On March 16, 2018

Mortgage rates trended slightly downward this week after a multi-week climb.  Some market analysts attribute the rate drop to this week’s tariff proposals and other political news.  Retail sales scaled slightly back in February, as is expected following the holiday season.  The housing market index dropped from last month’s 19-year high.  Housing starts and building permits slipped.

Retail sales slowed in February, driven primarily by declines at auto dealers, gas stations, and department stores.  Total retail sales dropped 0.1% month-over-month, but less gas and auto sales are up 0.3%.  Retail spending tends to pull back in the months following the holiday season.  Spending at internet retailers and apparel and sporting goods stores was strong.  February marks the third straight month of retail sales declines.  

The National Association of Home Builders’ (NAHB) housing market index dropped 1 point in March to a level of 70.  Current sales conditions were unchanged at a reading of 77, sales expectations for the next six months fell to 78 and buyer foot traffic fell to 51.  Any reading above 50 is considered positive.  Although home builders were optimistic about corporate tax cuts stimulating their businesses, new challenges from lumber and steel tariffs are complicating construction activity.  However, the NAHB addressed the continued strong consumer demand in a statement, “builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market.”

Housing starts and building permits are used to predict future housing activity like new home sales.  In February, housing starts declined 7% to an annual rate of 1.24 million.  Building permits also dropped, down 5.7% to 1.3 million.  Despite the month-over-moth fall, January’s rate of construction was the highest in ten years, and building permits issued are stronger year-over-year.  Even with production problems, buyer demand is strong and the need for housing inventory persists.

Although mortgage rates are expected to rise this year, limited housing inventory is tightening the market more.  Sustained buyer demand and slowed construction are creating a competitive market for home buyers.  It is not uncommon to see numerous offers on a single home, especially in a heated region.  One way for potential home buyers to stay competitive in a tight housing market, is to get preapproved before shopping for a home.  Through preapproval, home buyers know how much home they can afford and show sellers they will be able to secure financing when their offer is accepted.   

Sources: Bloomberg, CNBC, MarketWatch, MarketWatch, MarketWatch, Mortgage News Daily