Repeat home sales indexes for November show YoY deceleration, m/m stabilizing

 

 - by New Deal democrat

This morning we got the final housing reports for the month, the repeat house price indexes from the FHFA and Case Shiller. Both continued to show deceleration from one year ago, but conflicting signals for the last few months.

On a seasonally adjusted basis, in the three month average through November, U.S. house prices according to the Case-Shiller national index (light blue in the graphs below) rose 0.4%, and the somewhat more leading FHFA purchase only index (dark blue) rose only 0.1%, the lowest monthly increase since June [Note: FRED hasn’t updated the FHFA data yet]:

On a YoY basis, the Case Shiller index accelerated 0.2% to a 3.8% gain, while the FHFA index decelerated -0.3% to a 4.2% YoY increase. both of these are reversals from their October directions:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the updated calculation of its trend. There is every reason to believe that OER should continue to trend gradually towards 3-3.5% YoY increases in the months ahead:

The most leading rental indexes, including the Fed’s experimental all new rental index, continue to indicate that YoY rent increases should decline further, which adds to the evidence for further deceleration in that huge component of consumer price inflation.

Because prices generally follow sales, and in the past few months existing home sales have risen close to the upper limit of their range in the past 2 years, as per the updated graph below:

An open question is whether the increased price pressure in the existing home market that we saw in the December report earlier this week will persist. If the FHFA and Case Shiller Indexes stabilize near the recent YoY levels, then the trend of slowly abating shelter inflation in the CPI may slow even further.

In December, the theme for new homes was “steady as she goes” in sales, price, and inventory trends

 

 - by New Deal democrat

To reiterate my theme from the past few months, Ive been looking at new and existing home sales more in tandem, with a rebalancing of the market in mind. For that to happen we need price to abate in existing homes, to compete with new houses where prices have been slightly declining for over a year. Along with that, we should see inventory of existing homes increasing, reflecting softness in that market. This morning’s report on new home sales in December continued that metric.

As usual, let me start with the caveat that new home sales are very noisy and heavily revised, which is why I usually compare them with single family permits, which lag slightly but are much less noisy.

In December new home sales rose to 698,000 annualized, about average for the past 12 months. The below graph shows the last seven years, to put the number in wider context. Except for the surge in 2021 when we had 3% mortgage rates, the 2024 average was on par with the best levels during the long expansion prior to the pandemic:

Housing permits have also been relatively stable in 2024, and probably will remain so for a few months more.

Sales lead prices, which are best viewed in a YoY% comparison. The below graph shows sales, single family permits, and median prices of new homes in that format:

You can see that prices followed sales higher with about a 12 month lag, and settled in to a slightly declining trend with a similar delay. As shown in the graph, on a YoY basis in December, the median price of a new home was 2.1% lower than it was one year ago. But as the below graph of non-seasonally adjusted prices shows over the past several years, the slightly declining trend is intact:

Finally, the inventory of new houses made yet another 15+ year high in December. This is actually “good” news for the moment because as the below long term historical graph shows, recessions have in the past happened after not just sales decline, but the inventory of new homes for sale - which also consistently lag - also decline (as builders pull back):

In sum, December was a “steady as she goes” month for new home sales, with the recent trends in prices and inventory also continuing. Because mortgage rates increased back to 7% in the past several months, I am expecting at least a slight pullback in the next couple of months.

The other fly in the ointment to the rebalancing scenario is that, as I reported last week, sales of existing homes increased in the past several months, and perhaps more importantly, YoY price increases have been accelerating. 

In other words, while the economic news is “good,” in terms of housing being affordable for average Americans, the sector is still out coming up short.