More unwelcome news in (new) house prices, while sales continue sideways trend

 

 - by New Deal democrat

I almost always start out my post on new home sales by indicating that, while they are the most leading of all housing metrics, they are very noisy and heavily revised.

That was true in spades for this morning’s report for January. As shown in the graph below, sales of new single family homes declined -10.5%, or by 77,000 annualized, to 657,000, from December’s level of 734,000, which was upwardly revised by 36,000, or about 5%, from its originally reported level of 698,000. 

That’s why I usually compare them with single family permits (red, right scale), which lag slightly but are much less noisy or revised:

Just like existing home sales, which I discussed earlier this week, new home sales have been rangebound in the past two years, varying between a low of 611,000 and a high of 741,000.

So despite the sturm and drang of the monthly decline, really this just shows a steady and flat market.

What is perhaps more important is what is happening with prices. 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 increases to abate in existing homes, and prices to remain flat or still declining in new homes.

Sales lead prices, which are best viewed in a YoY% comparison. The below graph shows sales (/1.5 for scale) and median prices of new homes (red) in that format, together with the YoY% change in the FHFA repeat sales index reported yesterday (gold):

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. 

The unwelcome news here is, just as with the repeat sales indexes yesterday, after about two years of generally declining prices, on a YoY basis the median price of a new home was higher by 3.7%. This isn’t rebalancing, but a renewed push in inflation in both new and existing house prices

As the below graph of actual non-seasonally adjusted prices shows, in January we broke that two year trend of slightly declining prices, with the highest price since summer 2022:

This is not good.

Finally, the inventory of new houses made yet another 15+ year high in January, if fact an all time high except for 2006-07. 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):

So in summary January continued the “steady as she goes” pattern for sales, but broke that trend for prices (subject to noise and revisions next month!). With mortgage rates still close to 7%, I do not expect any upward breakout in sales soon. Which, while it isn’t *bad* news for the economy, is definitely not good news either.