A pair of housing reports were out today, new home sales, and the Case-Shiller index of home prices. Let’s start with the latter.
Surprise Softness in Home Prices
The Bloomberg Consensus Estimate for the Case-Shiller home price index was +0.1%, but month-over-month prices actually declined.
Inventories may be low and sales rates firm, but both Case-Shiller and FHFA are pointing to a surprising flat spot for home-price appreciation. Case-Shiller’s 20-city adjusted index fell 0.1 percent in June vs Econoday expectations for a 0.1 percent rise. Year-on-year, 20-city prices, whether adjusted or unadjusted, are unchanged at plus 5.0 percent. This rate has been inching higher but looks like it may be ready to fall back unless prices pick up.
Eleven of 20 cities show declines in the month with Chicago showing the steepest at minus 1.7 percent. The biggest gainer in the month is Portland, Oregon, up 0.5 percent to extend a long run of solid gains. Year-on-year, Chicago is the weakest at plus 1.3 percent with Denver at the top at plus 10.2 percent followed by San Francisco at 9.5 percent.
Softness in home prices is a surprise and suggests that sellers are offering price concessions. Flexibility in price is a positive right now for sales but tightness in available homes for sales, along with strong demand tied to health in the labor market, point to firming prices ahead.
New Home Sales Rise From July Downdraft
New home sales rose in July, rebounding from a dismal downdraft in July, but far less than the Bloomberg Consensus Estimate of 516,000 annualized.
New home sales rose solidly in July from a downdraft in June, up 5.4 percent to a 507,000 annual pace. Year-on-year, sales have surged, up 26 percent. The strength in sales has thinned an already tight market where supply is at 5.2 months, down from 5.3 months in June and compared with 6.1 months a year ago.
Regional data show a surge for the Northeast where, however, readings are skewed by very low sales rates. Still, the Northeast is out front with a year-on-year gain of 39 percent followed by the West at 30 percent and the South, which is much bigger than all the other regions combined, at a very strong 29 percent. The Midwest is lagging at no change.
Price data are of special interest given signs of weakness in this morning’s FHFA and Case-Shiller reports. And here the story is much the same. Though the median price did rise 3.0 percent in the month to $285,900, the year-on-year gain, however, is only 2.0 percent which is a tiny fraction of the sales gain.
Though prices may not be soaring, supply is low and rates are low which should continue to encourage builders to enter the market. The housing sector may not be soaring, but it is a center of strength for the economy.
New Home Sales
click on chart for sharper image
The above chart puts a needed perspective on new home sales. Year over-year sales growth seems impressive, but actual sales in number of units don’t. And home prices seem to have hit a wall.
Bloomberg says “supply is low and rates are low which should continue to encourage builders to enter the market.“
That sounds much like “If you build it, people will buy” speculation. Perhaps they will. But at what price? Who is left that wants a house, needs a house, and can afford a house?
Stalling home prices likely provides the answer.
Housing will be a net contributor to GDP, just nothing like the mid-2000s.
Mike “Mish” Shedlock