- by New Deal democrat
The final note from yesterday’s data is concerning new home sales, and more importantly at the moment, prices.
As a general refresher, new home sales are perhaps the most leading of all housing data; but they are very volatile and heavily revised, which is why I pay more attention to single family permits. But averaged over three months, most of the noise goes away.
Normally I start with the sales numbers, but at present I am most interested in what is happening with house prices. The data for new homes is not seasonally adjusted, so the better metric is the YoY% change. On a YoY basis, those were up 2.2% through April (orange) (absolute prices shown in blue, right scale):
The three month moving average remained negative (quarterly average shown in red), at -1.3%, well within the range over the past three years. Indeed, from the same three month period three years ago, prices are down -4.9%.
Compare this with existing home sales, where the median price through April was up 0.9%, and the Case Shiller and FHFA repeat home sales prices, which were up 0.7% and 1.7%, respectively.
The difference is that home builders can change, and have changed, price points, not just by lowering profit margins, but also by building more densely, or smaller square footages, or fewer amenities.
So the bottom line is that all of the measures of median home prices that we have indicate that house price inflation is somnolent.
Now let me turn to sales, which are seasonally adjusted. These declined -41,000 to 622,000 annualized. All four month so far this year have shown sales at or near the bottom of their range for the past three years. This is a negative long leading indicator, but one that I will need to see validated by single family permits (red) in the next several months:
Perhaps more importantly at present, as opposed to new single family homes *sold*, the inventory of new single family homes *for sale* is typically one of the last shoes to drop before a recession actually begins. In April, inventory increased 8.000 to 489,000. After decreasing since last March, Inventory (red in the graph below) has been increasing so far this year:
This is probably because, until the Iran war, mortgage rates were decreasing and builders expected there to be more demand for spec houses. Since mortgage rates have since increased, builders were probably caught somewhat flatfooted.
The only other time such a turnaround happened was during the tech boom of the 1990s. After declining into 1998, housing inventory increased again until early 2000. Then it decreased again in the next year until the recession:
Not exactly the same scenario, but it suggests that a recession will not be signaled by this metric until iinventory turns down again.