Tuesday, June 22, 2021

The remedy for high house prices is . . . high house prices


 - by New Deal democrat

I normally don’t pay much attention to existing home sales, since they tell us much less about future economic activity than new home sales, but since there is nothing else on the calendar today, let’s take a brief look.

Existing home sales declined again, by 0.9%, in May, to a 10 month low (blue in the graph below). Prices, however, continued to soar (red):

Prices are now up 23.6% YoY!:

Existing home sales have clearly joined the decline already evident in new home sales (gold) and also housing permits and starts (not shown):

As always, sales lead prices. If sales continue to trend much lower, expect prices to reverse course soon. In this regard, just for reference, here is my template of the late 1980’s for the kind of sales and price decline I am expecting as a first estimate:

After sales peaked, with a delay the YoY increase in prices declined by more than half, and indeed prices only increased on average about 1% a year (less than the rate of inflation) in the last several years before the recession.