Tuesday, November 27, 2018

Remember! Home sales lead; house prices follow

 - by New Deal democrat

Remember: home *sales* peak first; house *prices* peak later! That's because it  is reduced sales themselves that give sellers the signal to reconsider their asking prices, and buyers to consider becoming more aggressive.

This morning two important measures of house prices were released, both for September.

First, the Case Shiller indexes all rose:
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.1% in September. The 10-City and 20-City Composites did not report any gains for the month. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in September. The 10-City Composite and the 20-City Composite both posted 0.3% month-over-month increases. In September, nine of 20 cities reported increases before seasonal adjustment, while 18 of 20 cities reported increases after seasonal adjustment 
Second, the FHFA house price index also rose, both for the month of September and the Third Quarter as a whole:
U.S. house prices rose 1.3 percent in the third quarter of 2018 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI).  House prices rose 6.3 percent from the third quarter of 2017 to the third quarter of 2018.  FHFA's seasonally adjusted monthly index for September was up 0.2 percent from August. 
“Home prices continued to rise in the third quarter but their upward pace is slowing somewhat," said Dr. William Doerner, Supervisory Economist.  “Rising mortgage rates have cooled down housing markets—several regions and over two-thirds of states are showing slower annual gains."
While the YoY increases are decelerating, they are still positive. More importantly, where we have seasonally adjusted monthly data, that is the most forward-looking measure.

In short, while home *sales* by any measure peaked no later than this past March, house *prices* have been continuing to increase. Barring a sudden Fed reversal of course, so long as prices continue to increase, expect the dynamic of declining sales to also continue.

I'll update with graphs once available. I'll also post my comprehensive monthly update at Seeking Alpha after new home sales are reported tomorrow.

UPDATE: And, here we go. The below graph features the house price indexes (blue and green, left scale) vs. housing permits (red, right scale) since just before the peak of the housing bubble:

You can see that permits peaked first both times, and troughed first as well. With each new piece of housing data, I become increasingly confident that, barring a prompt reversal of course by the Fed, the housing market, in terms of sales, has peaked.