Friday, February 28, 2014

My housing bet with Calculated Risk: January 2014 results

 - by New Deal democrat

As most readers know Bill McBride a/k/a Calculated Risk and I have a charitable bet about the direction of housing in 2014.

In his forecast for 2014 residential investment, CR said, "I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013."

By contrast, several months ago, in a post at, I said that "If the typical past pattern is followed, we will shortly see permits running 100,000 less than one year previously."

Here are the terms of our bet:  If starts or sales are up at least 20% YoY in any month in 2014, I will make a $100 donation to the charity of Bill's choice, which he has designated as the Memorial Fund in honor of his late co-blogger, Tanta.    If housing permits or starts are down 100,000 YoY at least once in 2014, he make a $100 donation to the charity of my choice, which is the Alzheimer's Association. 

This morning the final monthly report on housing, pending home sales, was reported by the NAR.  The index was up 0.1% m/m from December, but down -9.4 YoY:

Photobucket Pictures, Images and Photos

(graph from Wall Street Journal 
So, with January 2014 in the books, how do we stand?  Below are two graphs.

First, here is a graph of the change, in thousands, YoY of starts (blue), permits (red), new home sales (green), and existing home sales (orange) (note that the St. Louis FRED does not track pending home sales):

Photobucket Pictures, Images and Photos

Next, here is the YoY% change in the same four statistics:

Photobucket Pictures, Images and Photos

Both of these graphs show the clear deceleration in the housing market over the course of 2013, to the point where 3 of the 5 monthly reports have turned negative YoY.  The strongest metric is new home sales, which while only up 2% YoY, in January rose to the highest level in over 5 years.

Bill's forecast of 20% annual growth will take a real reversal of momentum, although there are some individual months where there are some easy YoY comparisons.  Obviously I am expecting some further deterioration, concentrated between now and mid-year.

Time will tell!