Newly constructed home sales pulled back in January, according to a recent report from the California Association of Realtors (CAR). Elevated mortgage rates may have played a role in the decline, but according to the report, the dip in January was due primarily to harsh weather at the start of the year.
With rates declining in recent weeks and the Fed’s preferred inflation gauge slowing down from last year, however, the housing market could bounce back at the beginning of the second quarter, the report pointed out.
Uncertainties in Washington are creating economic worries, which continue to linger on and begin to take a toll on consumers, however. CEOs, on the other hand, are a bit more optimistic about the business landscape.
Meanwhile, according to the CAR report, sales of new single-family homes declined 10.5% on a month-to-month basis and registered a seasonally adjusted annual rate of 657k in January, the lowest level in three months.
New home sales were below the consensus expectations of 698k units and dropped 1.1% from the same month of last year, with weather playing a distinct role.
The West, on the other hand, experienced an increase of 7.7% despite the wildfires in California. Elevated mortgage rates also kept new home sales low, as mortgage rates reached an 8-month high in mid-January before trending down in the past six weeks.
Sales could bounce back in the next monthly report, said CAR, and continue as the market gears up for the spring homebuying season.
At the same time, new housing inventory climbed to 9.5 months, a jump from 8.0 months in December and an increase from 8.3 months in January 2024, said the CAR report. New for-sale units inched up by 1.4% to 495k and reached the highest level since December 2007.
The personal consumption expenditure price index (PCE) also increased 0.3% on a month-over-month basis in January and was up 2.5% from a year ago, according to the Department of Commerce.
Excluding food and energy, the core PCE recorded a 2.6% year-over-year increase, and reached the lowest level since June 2024. Despite the latest decline, inflation remains higher than the pre-pandemic norm and is still well above the Fed’s 2% target rate.
Americans are also concerned about tariffs that are already affecting US exports, and could potentially drive up inflation, while the latest expectations on price growth from University of Michigan’s Survey of Consumers climbed to the highest level since November 2023.
The Conference Board Consumer Confidence Index also dropped sharply by 7.0 points to 98.3 and reached an 8-monthly cyclical low in February, as Americans began to grow more anxious about future labor market conditions and the outlook of the economy, since January.
The drop was the largest monthly decline since August 2021 and was the third straight monthly dip since the end of last year.
The Present Situation Index inched down 3.4 points to 136.5 in February, while the Expectation Index plunged 9.3 points from the prior month to 72.9, the first dip below 80 since June 2024.
Consumers were especially concerned about the inflation outlook and their future employment prospects. Their 12-month average inflation expectations jumped from 5.2% to 6% last month, while pessimism about the job market outlook worsened and reached a 10-month high, said the CAR report.
Mass layoffs in the federal government sector and worries about tariffs are likely contributing factors to the deterioration of consumer optimism, the report concluded.
