- by New Deal democrat
I suspect that both hurricanes as well as mortgage rates somewhat distorted all of the housing reports for October.
Last week with existing home sales I noted that “While sales remained in range, price appreciation increased and the pace of inventory accumulation decreased.“
There was something of a mirror image in yesterday’s reports on both new and repeat home sales. In the case of new homes, sales decreased sharply while inventory increased sharply. And price appreciation accelerated for both new and repeat home sales - but it may be unresolved seasonality at work.
As usual let me start with the important caveat that new home sales data are very noisy and heavily revised. With that out of the way, the next thing to consider is that mortgage rates have risen back close to 7%:
While an increase from 6% to 7% doesn’t seem like much, that increases the necessary monthly payment by about 10%, which is enough to drive many people to the sidelines, and that is what we have seen with purchase mortgage applications, which have fallen back down close to their post-pandemic lows.
In any event, between mortgage rates, hurricanes, and noise, new home sales (blue in the graph below) declined to 610,000 annualized, the lowest rate since November of 2022. The flip side of that was that the inventory of new homes for sale increased sharply to a new post-pandemic high (gold):
The latter is actually “good” news because recessions have in the past happened after not just sales decline, but the inventory of new homes for sale also decline. In other words, probably the anomaly will be reversed in the next month or two.
The median price of an existing home increased 2.5% last month alone, and are up 4.7% YoY, a reversal of the recent trend:
A similar increase occurred in repeat home sales, as on a monthly basis alone prices increased 0.3% in the Case Shiller Index and a whopping 0.7% in the FHFA index. But because there were similar increases last year in October, on a YoY basis the Case Shiller index is only up 3.9%, and the FHFA index up 4.4%, unchanged from a month ago.
Since house prices lead the measure of Owners’ Equivalent Rent in the CPI by 12-18 months, this suggests that the shelter component of the CPI should continue to decline gradually in the months ahead:
Beginning with permits and starts, none of the measures of any kind in the housing market had a good month in October. Construction was down, sales were unchanged (existing homes) or down sharply (new single family homes), and prices were up sharply on a monthly basis.
Just as I wrote earlier this morning about Q3 corporate profits, this is one period only. Single family new home sales in particular are noisy. But if mortgage rates continue in the 7% range, and the housing market as well as corporate profits turn negative, with manufacturing already having stalled out, the economy is going to be under a lot of pressure as we go through 2025.
[Note: I’ll report on personal income and spending on Friday]
