Existing home sales plunge amid stable jobless claims

REAL ECONOMY BLOG | April 18, 2024

Authored by RSM US LLP

March proved challenging for the housing market as sales of existing homes plummeted by 4.3%, marking the steepest drop since November 2022, according to the National Association of Realtors on Thursday. This decline mirrors earlier setbacks in housing starts and permits.

A significant uptick in mortgage rates since February has chilled the housing market, prompting both builders and buyers to pause their activities as they await clearer guidance from the Federal Reserve.

The resurgence of inflation in the first quarter has prompted the Fed to reassess its interest rate strategy, hinting at sustained higher rates which may further delay the recovery of the housing market, particularly in existing home sales.

This slowdown in transactions led to a rise in inventory, with supply reaching 3.2 months at the current pace—the highest since November.

Although the median selling price’s growth decelerated to 4.8% year over year from 5.6% in February, this moderation remains a silver lining for inflation, as it is still below the 5.5% average annual increase in the five years pre-pandemic.

We anticipate that the normalization of housing prices will temper overall inflation in the summer and beyond, compensating for potential increases in other sectors like energy, food and core services.

Jobless claims

In a separate report from the Labor Department, the labor market continues to exhibit strength, with initial jobless claims holding steady at 212,000 for the week ending April 13. Apart from a brief spike at the end of March, new claims have remained below the pre-pandemic average since February.

The 13-week moving average, a more reliable gauge, has also stayed under the pre-pandemic norm at 213,000, although it has shown a slight upward trend since the year’s start, warranting attention as the economy and labor market are projected to decelerate.

Despite these concerns, it remains one of the most robust job markets in decades. A solid labor market coupled with enduring economic growth are key reasons the Federal Reserve maintains a hawkish stance. But the recent spike in inflation and the risk of a slowdown because of high interest rates are significant.

Consequently, there is a risk that the Fed may lag in adjusting rates. It’s vital not to underestimate the delay in monetary policy effects, which may not have fully permeated the economy yet.

We think that the Fed and market participants need to stay flexible and adopt a proactive outlook to maintain the current economic momentum.