Housing activity improved to start spring, providing another boost to freight activity

new-home-2095489_960_720.png

Sales of single-family homes improved for the 2nd consecutive month in a sign that housing activity is beginning to accelerate at the start of spring. This, in turn, should boost freight demand for building materials, furniture, and appliances as households move in and settle.

 New home sales continue on an upward trend

New home sales continue on an upward trend

The Census Bureau reported this morning that sales of new single-family homes rose to a 694,000 unit annualized pace in March. This marks a 4.0% increase from February’s upwardly-revised pace and exceeds consensus expectations of 630,000 new homes sold. Big gains in the West and South helped offset declines in the Northeast and Midwest, leaving the economy with the largest monthly gain in new home sales since last November.

In addition, sales of existing single-family homes also exceeded expectations in March. The National Association of Realtors reported on Monday that sales rose 1.1% during the month, rising to a 4.99 million unit annualized pace.

 Existing home sales grew in March, but have been muted by limited inventory

Existing home sales grew in March, but have been muted by limited inventory

Home sales sputtered at the start of the year, as the combination of poor weather, tight inventories of homes for sale, and uncertainty revolving around recent tax changes caused some households to delay purchases. Results over the past couple of months have been healthy, however, for both new and existing sales, and housing activity is expected to continue to gain momentum in upcoming quarters. Limited housing inventory remain an issue, particularly for existing home sales, leading to large gains in home prices, worsening affordability, and muted sales gains.

Home sales and freight movements

From a freight perspective, housing activity helps drive activity in a number of ways. Home building (seen in the home starts and construction spending data) boosts the demand for lumber, sheetrock and other building materials for construction. This then influences the demand for flatbed trucks and dry vans to carry these materials to construction sites.

Home sales, on the other hand, typically affect demand for associated goods. Rising home sales and homes offered for sale often provide a benefit for building materials and gardening equipment, as owners spend on remodeling and landscaping efforts. In addition, heavy consumer durable goods like furniture, air conditioning units, refrigerators, and stoves (known as “white goods” for their traditional finish) typically see a lift from rising home sales. This provides a boost to freight movements to ship these items to and from warehouses and distribution centers. In addition, these white goods sales have increasingly opened up to e-commerce channels in recent years, helping to drive some of the growth in last-mile delivery services for truckers and LTL carriers.

Behind the numbers

The home sales data from this month is another positive sign for the housing market after home starts posted a healthy gain last week. Housing in general remains on a general upward trend, and there remains significant room for improvement going forward. Housing inventories remain tight and the pace of construction, starts and sales of housing remains well below the pre-recession highs, but the sector is continuing to make progress.

Moreover, aside from the weak employment numbers at the start of the month, the readings from the economy in general have been far better in April. GDP is likely to show softer growth in the 1st quarter relative to the 4th quarter when it is released this Friday, but the largely positive readings throughout the course of the month serve as a reminder that the fundamentals of growth in the economy overall remain healthy.

Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.