Trend watch
Air passenger traffic and hotel occupancy fell this past week. Both metrics should continue gradually falling over the next three weeks before stabilizing in early to mid-September for several weeks. Travel typically restarts the decline again in late October and continues until about a week before Thanksgiving, which falls on November 27th this year—a relatively late date.
Meanwhile, in the full report, we updated the scheduled freight bookings from China to the United States. With bookings continuing to drift lower, the lower incoming freight volumes will ripple through the port, rail, trucking and freight data in coming weeks, which we attribute to tariff-related distortions.
Our take
Housing remains in a bad neighborhood. Both new and existing home sales have spent the better part of the last three years in a bad neighborhood, although existing home sales rose slightly in July. Before breaking out the confetti – that’s just the third increase this year. More importantly, the annualized rate of 3.64 million is 25% below the 20-year average of 4.54 million. Yikes!
New home sales results for July will be released next Monday, but several related data points received this week paint a bleak picture, including lousy traffic numbers of prospective buyers, which are hovering at the worst since 2022 and only marginally better than COVID-era lows. Moreover, new building permits for single-family homes edged up 0.5% in July, only the second increase this year.
Meanwhile, all eyes are on the Federal Reserve (Fed) and “will they/won’t they” lower near-term interest rates. There’s also been a lot of talk about high mortgage rates hampering housing activity, but the real culprit is home price.
For existing homes, the median price is up an eye-popping 54.7% since December 2019. Similarly, though not nearly as bad, new home prices are up 21.9% over the same span (through June). It's also important to understand that there are more than five times as many existing homes sold each year compared to new homes.
Thus, price is a dramatically bigger factor in the affordability struggle for homebuyers and potential homeowners. Indeed, lower mortgage rates would help some borrowers on the margin. Moreover, mortgage rates can be refinanced, while the cost of the home cannot (if the homeowner wanted to stay in the home).
Furthermore, the situation has been exacerbated by more than a decade of underbuilding in the United States, which has caused a severe lack of housing supply. While that doesn’t apply to some areas of the country, including parts of the upper Midwest and many rural areas, the lack of supply has plagued large swathes of the Southeast, South, and Southwest.
Alas, the broad housing challenge will likely persist for the foreseeable future, and even more so for affordable housing.
It's important to note that the higher home prices aren’t all bad, lest we forget that higher prices are simultaneously pushing up home equity for existing homeowners. By the end of 2024, U.S. homeowners collectively held nearly $35 trillion in home equity, according to the Federal Reserve Bank of St. Louis. This represents a significant rise from around $20 trillion at the start of 2020.
Lastly, the economic data wasn’t all bad this week – S&P Global’s Manufacturing Index expanded in August after stumbling in July.
Bottom line
The U.S. economy remains in a muddle-through environment. Economic data will continue to jostle due to air pockets as demand normalizes following accelerated purchases by consumers and businesses attempting to front-run tariffs. While we don’t believe that tariffs will be catastrophic for the U.S. economically, they will certainly continue to distort behaviors and, in turn, the economic data.
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