Friday, March 23, 2018

February new and existing home sales: signs of stress?

 - by New Deal democrat

There's a real disconnect between the market for new and existing homes.  To cut to the chase, while sales of new homes have continued to increase, even in the face of higher mortgage rates, those of existing homes have stalled.

In the below graph, I have normed both series to 100 as of July 2015.  While sales of new homes (red) are roughly 25% higher than over 2 years ago on a three month rolling average, existing home sales are only about 2% above that level!

Meanwhile, the median price of both new and existing houses continue to increase at a rate in excess of 5% YoY:

We know that inventory of existing homes is down, resulting in a seller's market with bidding wars for the first time in over a decade (h/t Calculated Risk):

One way to look at this is to in terms of the monthly carrying cost of housing. There is probably at least another 10% to go before these rise near their 2005 bubble levels.

But there may be some signs of some stress already. The number of houses sold leads the number of houses under construction. Before a downturn, as sales decline but houses are still being built, the relative YoY change in houses sold vs. under construction typically turns negative:

The above graph is quarterly to cut down on noise and ends as of Q4 2017. Here is the monthly look at the past year:

With a few months' exception, sales have not been keeping pace with construction.

Since the recent increase in mortgage rates hasn't really filtered through yet, this situation is likely to deteriorate further rather than to improve.