- by New Deal democrat
Yesterday we got the existing home sales portion of the rebalancing of the housing market, showing sales down further, and price growth attenuation. This morning we got the new home slice, which was a virtual mirror image.
As per usual, while new home sales are only about 10% of the housing market, they are the most economically important because of all the new economic activity involved in construction, landscaping, and furnishing. And my usual caveat: new home sales are the single most leading metric for the entire sector, but they suffer from the fact that they are extremely volatile and also heavily revised. So it is best to look at them in comparison with single family permits, which are almost as leading and have a much better signal to noise ratio.
On a month over month basis, in September new home sales rose 4.1% from a downwardly revised August. June and July were also revised slightly downward. On a three month moving average basis, they are at their highest level since early 2022 (blue in the graph below). As you can see, in the past several years single family permits (red) have followed with a several month delay. This morning’s report adds to the evidence that June of this year was their bottom:
And as usual, sales (blue again) lead prices (red, right scale):
The boom in prices followed the boom in sales, and as sale cooled off sharply, prices stalled. Here is the same data in a YoY format, which shows the leading/lagging relationship a little more clearly:
The trend in new home sales has been higher for about a year. Last month I concluded my overview by writing that “Prices are still lower YoY … but can be expect to move higher soon.” This month they were unchanged YoY, the first time the comparison was not negative since January.
For further forecasting purposes, note that historically inventory (“new single family homes for sale”, gold, right scale) lags actual sales. As a general rule, recessions do not happen until builders cut back on actual construction, and the number of houses for sale turns down:
Here is the close-up of the last five years. Inventory has continued to increase albeit slowly (up 2,000 this month):
There is no recession signal in this data.
In conclusion, yesterday and today continued to show the rebalancing of the housing market, as new home sales have increased and prices are firming, while existing homes, for which inventory had virtually disappeared, had a new 10+ year low in sales, with prices increases abating. It is entirely possible that YoY price increases in existing homes completely stop by the end of this year.
