Late-Summer Data for Housing, Consumers

Although reported housing market numbers are actually better than expected, consumer confidence continues to erode

Weak reports on U.S. existing-home sales in August and on July home prices—as well as a decline in a key consumer confidence gauge in September—provided negative jolts to the markets on Sept. 25. Yet the headline figure for the existing-home sales report—and the report's median price component—were actually stronger than we had anticipated, given homebuilder sentiment deterioration in August and the sharp 12% drop in the pending home sales index.

The real negative surprise for the day was the decline in consumer confidence. This weakness will boost the significance of the various confidence measures followed by the market for October, as we gauge whether the Sept. 25 reading from this one survey was a one-off swing in just one measure that bucked the pattern in most surveys or a more significant indicator of underlying deterioration in consumer attitudes.

Here is Action Economics' rundown of the Sept. 25 releases:

Existing Home Sales

Existing-home sales fell 4.3% in August, to a 5.50 million unit annual pace from an unrevised 5.75 million pace in July. Single-family home sales fell 3.8%, the seventh consecutive decline. Sales of condos and co-ops fell 8%, continuing the monthly volatility seen this year.

Inventories continued to pile up. The supply of unsold homes rose to 10 months from 9.6 in July. The supply of single-family homes rose to 9.8 months from 9.2 months, the highest level since May, 1989. The median price fell to $224,500 from a revised $228,700 in July (from $228,900).

The existing-home sales drop in August was hefty, but smaller than we had expected given the big 12.2% drop in the pending-home sales index in July and the credit-market disruptions to August sales that we had assumed. The August report certainly contained a weak set of figures, but not as bad as might have been expected given the deterioration in homebuilder confidence and real estate conditions for the month.

And the median price figure of $224,500 was notably stronger than we had assumed and actually left a 0.2% gain on a year-over-year basis. The median price figures from this report have generally outpaced our assumptions through 2007.

The reported sales drop was roughly in line with declines in other August reports for the housing sector: The 2.6% housing-starts decline to a 1.331 million annual rate, the 5.9% decline in permits to a 1.307 million rate, and the decline in the National Association of Homebuilders' index in August to a 22 reading from 24 in July (the index fell further in September, to a 20 reading). We will assume a hefty 11% drop in new-home sales in August, to a 770,000 annual rate, and a 0.5% drop in August construction spending.

We will continue to expect a 20% rate of decline in residential construction in the third and fourth quarters, following the 11.6% rate of decline in the second-quarter gross domestic product report, as credit crunch fears take the housing sector to fresh lows.

S&P/Case-Schiller Index

The S&P/Case-Schiller home price index fell 0.45%, to 198.4 in July from a revised 199.3 in June (199.2 previously), for the 20-city composite index. On a year-over-year basis, the index is down 3.9%, vs. a 3.4% decline in June, as price declines accelerate. Indeed, this is the steepest decline on record, though this index only began in 2001. Las Vegas, Miami, New York, Phoenix, and San Diego are some of the major cities pacing the weakness.

Of course, the July index does not reflect the effects of the late-summer credit crunch, and price declines could show some acceleration in the August and September reports.

Consumer Confidence Index

U.S. consumer confidence, as gauged by the Conference Board's monthly index, fell to 99.8 in September from 105.6 in August (revised from 105.0). That's as low as it's been since November, 2005. It appears that the negative news related to financial market turmoil and some disappointing economic reports continue to weigh on the mood of the consumer.

The present situations component plunged to 121.7 from a revised 130.1 (130.3 previously). The expectations index fell to 85.2 from 89.2 (revised from 88.2). The labor index (jobs plentiful minus jobs hard to get) fell to 3.6 from 7.8.

The confidence drop in September left the index sharply underperforming the other confidence measures on the month. We will continue to monitor the full mix of confidence measures, and if the rest show little change in October, we will see this reading—with its particularly large drop in the current conditions measure—as more of an aberration than an indicator of deteriorating underlying conditions for consumer spending.

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