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Economic Watch: GDP Stable, Existing Home Sales Drop

The latest measure of strength in the overall U.S. economy shows it maintained its momentum in the third quarter of the year. A separate report shows a big decline in existing home sales for the second straight month.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
December 22, 2015
Economic Watch: GDP Stable, Existing Home Sales Drop

 

2 min to read


The latest measure of strength in the overall U.S. economy shows it maintained its momentum in the third quarter of the year. A separate report shows a big decline in existing home sales for the second straight month.

According to the U.S. Commerce Department on Tuesday, the nation’s gross domestic product expanded at an annual rate of 2% in August through October period, down just slightly from the 2.1% pace the department reported a month earlier.

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This was due to business inventories accumulating a little less than previously estimated, following huge spikes earlier in the year. Consumer spending remained unchanged, increasing 3%, while growth in spending on business equipment rose 9.9% rather than the earlier reported 9.5% hike.

“This strength in domestic spending was sufficient to prompt the U.S. Federal Reserve to start raising fed funds [rate] at the Dec. 16 Federal Open Market Committee [meeting] with the range increased 25 basis points to 0.25% to 0.50%,” says Paul Ferley, assistant chief economist at RBC Economics. “We expect this strength in domestic spending growth will persist, resulting in the fed funds range rising a further 100 basis points (1%) over the course of 2016.”

In the meantime, a report from the National Association of Realtors shows existing-home sales dropped off considerably in November to the slowest pace in 19 months.

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Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 10.5% to a seasonally adjusted annual rate of 4.76 million in November, from a downwardly revised 5.32 million in October. That's the lowest since April 2014's 4.75 million home sales.

Sales are 3.8% below a year ago. the first year-over-year decrease since September 2014.

Lawrence Yun, NAR chief economist, says multiple factors led to November's sales decline. The primary reason, however, could be an anomaly as the industry adjusts to the new “Know Before You Owe” rule, a federal initiative that simplifies paperwork for homebuyers.

"Sparse inventory and affordability issues continue to impede a large pool of buyers' ability to buy, which is holding back sales," he said. "However, signed contracts have remained mostly steady in recent months, and properties sold faster in November. Therefore it's highly possible the stark sales decline wasn't because of sudden, withering demand."

According to Yun, although Realtors are adjusting to the Know Before You Owe initiative, the main takeaway so far has been the need for longer closing times.

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"It's possible the longer timeframes pushed a latter portion of would-be November transactions into December," says Yun. "As long as closing timeframes don't rise even further, it's likely more sales will register to this month's total, and November's large dip will be more of an outlier."

 

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