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Economic Watch: Existing Home Sales Slip, Total U.S. Construction Falls

September 22, 2014

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After four consecutive months of gains, existing-home sales slipped in August, according to the National Association of Realtors, but remains near its highest level so far this year.

Total existing-home sales decreased 1.8% to a seasonally adjusted annual rate of 5.05 million in August from a slight downwardly revised 5.14 million in July. Sales were at the second-highest pace of 2014, but 5.3% below the 5.33 million level from last August, which was also the second-highest sales level of 2013.

Lawrence Yun, NAR chief economist, said sales activity remains stronger than earlier in the year, but fell last month as investors stepped away.

"There was a marked decline in all-cash sales from investors,” he said. "On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country. As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.”

Regionally, August existing home sales in the Northeast jumped 4.7% while in the Midwest, it gained 2.5%. Existing-home sales in the South declined 4.2% while existing-home sales in the West fell 5.1%.

A separate report shows new construction starts in the U.S. during August dropped 9%, according to McGraw Hill Construction. The decline followed July's elevated volume, the strongest so far in 2014, and brought activity back to the average pace reported during the first seven months of this year.

By major sector, nonresidential building fell sharply, after being lifted in July by the start of several large manufacturing plant projects, while nonbuilding construction, such as public works and electric utilities construction, also retreated. Residential building in August ran counter by posting a modest gain, helped by the continued growth for multifamily housing.

Through the first eight months of 2014, total construction starts on an unadjusted basis were $361.4 billion, up 4% from the same period a year ago.

"The broad trend for construction activity remains upward, but on a month-to-month basis there are still the occasional setbacks," said Robert A. Murray, chief economist for McGraw Hill Construction. "Nonresidential building over the past two months was boosted by the start of several unusually large energy-related manufacturing projects, so the pullback in August was not unexpected.”

He said the public works construction is now settling back with the August passage of the $10.8 billion patch to the Highway Trust Fund, which should help to keep the slide from getting too severe.

“Residential building continues to be supported by the ongoing strength shown by multifamily housing,” Murray said. “However, this year's pause for single family housing has emerged as an area of concern, limiting the growth that's being reported for total construction activity."

 

 

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