Add new housing starts to the list of things indicating a recession may be looming. The Commerce Department released data today indicating sales of new single-family homes are down 4.9% through the first six months compared to the same period in 2013.
The June sales report on new single-family homes was markedly down from May, off 8.1%, making projections for the year dip to 406,000. The May figures, which were the best since the recovery began, were revised down to 442,000. So all those feel-good stories of the spring are gone.
What this means is that the economy may be slowing down. As with back-to-school sales, the new housing starts are a good picture of how people spend. And as we all know, people don’t spend lavishly when they feel threatened.
New home sales are the strongest indicator of confidence, but their dip affects more than housing. There’s mortgage applications and furniture manufacturing and all the incremental bits of the housing food chain. They’ll all slow down in response, meaning employment will go down, meaning confidence will also dip as people see their friends and neighbors out of work.
Next week, the initial estimate of how much the economy grew in the second quarter will be out. Remember that the first quarter featured a shocking contraction of 2.9%. That was blamed on weather, a holiday season hangover, and other factors that depressed the overall economy. The second quarter should indicate some sort of rebound if those reasonings are sound. If it comes in well below what’s expected, it will send shock waves through the economy.
Even in desireable neighborhoods and with older homes on the market, housing is somewhat tepid. The supply of homes on the market in many locations is increasing, an indication that buyers are taking a wait-and-see approach. The Commerce Dept. estimates a 5.8 month supply of new homes on the market at the end of June, up from a 5.2-month inventory at the end of April. Add that to the older homes that are piling up, and you have the definition of sluggish.
The back to school season will be a key test of how people feel about the market. If retail sales slump, combined with the uncertain housing market, the always-volatile fall season in the stock market could be a wild one.