Housing strong ahead of COVID-19 effects
New home sales were up 14.3% from a year ago, despite a 4.4% decline in February to a seasonally adjusted annual rate of 765,000, the Commerce Department reported Tuesday.
"The February numbers reflect the strong state of the market before coronavirus concerns set in," according to National Association of Home Builders Chief Economist Robert Dietz. "Given the momentum in the housing market at the start of the year, we do expect sales and construction activity to weaken during the third quarter; but housing's potential suggests it will be a sector that will help lead the economy during the eventual rebound once virus mitigation is complete."
Economists polled by IFR Markets expected a 750,000 pace in the month.
The January rate was revised up to 800,000 from the initially reported 764,000.
The median sales price was $345,900 and the average price was $403,800.
With an estimated 319,000 homes on the market in February, there is a 5.0 month supply.
“With everything at a standstill and many state governments issuing delays on rent payment collections, the sources of funding for [real estate investment trusts (REITs] are drying up,” said Yelena Maleyev, associate economist at Grant Thornton. “The fire sales we are seeing could push down home prices, which would further exacerbate the downturn in the housing market. Home buyers don’t like to buy a depreciating asset.”
The Federal Reserve Bank of Philadelphia’s Nonmanufacturing Business Outlook survey showed “a significant weakening” of activity in the region. “The survey’s indexes for general activity at the firm level, sales/revenues, new orders, and full-time employment all fell sharply and into negative territory this month, coinciding with developments related to the coronavirus,” according to the survey, which was conducted March 5 to19.
The regional business activity index plunged to negative 35.1 in March from positive 31.0 in February. Similarly, at the company level, the index dropped to negative 12.8 from positive 36.1.
And the numbers for six months from now also turned negative regional business activity index fell to negative 36.9 in March from positive 32.9 in February. While at the company level, the index dropped to negative 16.3 from positive 44.2.
The Federal Reserve Bank of Richmond reported manufacturing activity picked up slightly in March, with the composite index gaining to positive 2 from negative 2 in February, as two components — shipments and new orders — grew, while employment, the third component, declined.
Respondents see weaker conditions ahead, as shipment and new orders decrease. The survey didn’t include the time when the coronavirus was accelerating.
The Bank said the service sector also saw “little growth” in the month, as the revenues index fell to 1 in March from 26 in February, the biggest monthly drop since February 2003.
“The indexes for demand and local business conditions both registered their largest one-month decreases on record,” the survey said. “Survey respondents were pessimistic, expecting business conditions to worsen in the next six months.”
Additionally, “The IHS Markit Services PMI plunged to 39.1 in March, the steepest decline in the history of the survey,” said Scott Anderson, chief economist at Bank of the West Economics. “This was below the consensus estimate of 42.0 and suggests the rapidly spreading coronavirus is having an immediate and substantial negative impact on the U.S. service sector.”
Although the manufacturing sector took less of a hit, “falling into mild contraction territory of 49.2 in March from 50.7,” Anderson noted the “sector has steadily slowing since November.”
The Richmond Fed manufacturing index was “a brighter note,” with a positive read, compared to “expectations for a drop to negative 13.”