This week's housing data was bad, but economists aren't worried
There was a flurry of U.S. housing data this week that painted a negative picture of the economy, but showed signs for potential growth.
The bad news: Building permits fell for the second straight month and housing starts had their largest decline in 8 months, according to U.S. government data. Construction of single-family homes dropped to its lowest in more than 18 months.
Details: Existing home sales rose 11.8% in February, but buyers signed 1% fewer contracts for existing homes, month-over-month, and pending contracts were 4.9% lower than a year earlier.
- The Case-Shiller price index showed home prices rose 4.3% annually in January. However that was the weakest gain since April 2015.
What they're saying: Tendayi Kapfidze, chief economist at LendingTree, says the slowdown is actually a good thing.
- "We do not see the housing market as a risk to the broader economy," he says. "When we look at prior housing cycles, continued acceleration in home sales and prices would have to come at the cost of increasing leverage; this is how we got in trouble before. Had the market slowed in an orderly fashion in 2003/2004, we may have saved the economy from the woes unleashed later in the decade."
- He points out that homebuilder confidence readings show expectations of strong demand in the months ahead. However, the sub-index for buyer traffic fell to 44, indicating contraction.
The good news: U.S. mortgage rates had their biggest one-week drop in 10 years, with 30-year mortgage rates falling 22 basis points.
- "The Federal Reserve's concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over 10 years," said Freddie Mac's chief economist Sam Khater. "Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand. We have recently seen home sales start to recover and with this week's rate drop we expect a continued rise in purchase demand."