New Home sales rose to a Seasonally Adjusted Annualized Rate (SAAR) of 592,000 vs. a Bloomberg Econoday consensus estimate of 562,000.
Interestingly, home price appreciation as measured by Case Shiller unexpectedly declined by 0.1%. That is on top of a revision of for last month from +0.5% to-0.2%.
Housing is emerging as a positive surprise for the 2016 economy. New home sales burst to their best strength of the cycle during the Spring, coming in at a much higher-than-expected 592,000 annualized rate in June following a 572,000 rate in both May and April (both revised). To see the strength by comparison, the rate in June last year was 25 percent lower at 472,000.
Trend strength appears across regions led by the Midwest, up 44 percent year-on-year, with the South at the rear but still up 21 percent. Monthly data show slowing in the Northeast, where however sales totals are very small, and solid strength in the West which is a key region for home builders.
The gain in sales did not come at the expense of prices, at least in June. The median jumped 6.2 percent to $306,700 which, however, is only up 6.1 percent from a year ago.
New Homes Sales 1963-Present
The above chart puts a needed perspective on the strength of the the housing recovery. Sales are where they were in January of 1963!
Home Prices Unexpectedly Decline
The Wall Street Journal reports U.S. Home-Price Increases Maintained Strong Pace in May.
“S&P/Case-Shiller Home Price Index rose 5%, matching April’s increase. Home prices continued rising quickly in May, further proof that the housing market had its strongest spring since the recession,” says the Journal.
However, for the last two months, home prices actually fell. Bloomberg Econoday provides this comparison.
Home sales are up while home prices are down. Case-Shiller’s 20-city adjusted index fell 0.1 percent in May, well under expectations for a 0.4 percent gain. FHFA house price data released last week were also much weaker than expected. Making matters worse is a steep downward revision to April, now at minus 0.2 percent vs an initial plus 0.5 percent. But the trouble is at least limited to April and May as March is revised 1 tenth higher to a very strong 0.9 percent.
Unadjusted data, which are tracked closely in this report, are not revised lower for April, holding at a solid 1.1 percent gain reflecting the heavy housing activity in the Spring. The monthly result for May is plus 0.9 percent. Year-on-year, the unadjusted rate is at only plus 5.2 percent, down from an unrevised 5.4 percent in April and making the 6 percent line, which prices had been testing earlier this year, a distant memory.
Seasonal adjustments are heavy in the spring as they cut levels to match lighter activity during the other seasons. Further clouding comparisons is the fact that readings in this report are 3-month averages, not single month results. But the bottom line is very clear, that home prices, despite thin supplies of homes for sale, are softening.
When discussing Case-Shiller numbers it’s important to understand the numbers are reported two ways, seasonally adjusted and unadjusted in addition to year-over-year comparisons that are always unadjusted. In this case, Bloomberg provides the correct take. Prices are weakening. If that continues, year-over-year numbers will follow.
Mike “Mish” Shedlock
Tony Bennett said:
“Housing is emerging as a positive surprise for the 2016 economy. New home sales burst to their best strength of the cycle during the Spring”
Will prove to be transitory.
Beginning of the year the “expert” consensus was 4 rate hikes for 2016. Fencesitters looking to lock in rates are off the fence. Sales will weaken as true demand re-emerges.
The banks must have decided to “dump” some of their holdings –
to help Hillary!
For the last many many many years, every time I checked Zillow (and this is in one of the top 2 or 3 most “prosperous” regions in the nation) at least half of the listings were “foreclosures.” But for some reason those “foreclosures” never seem to get on the market. At least they didn’t in the many continuous days I keep checking things on it.
Jon sellers said:
The median is $306,700. Median household income is $56,000. The old rule of thumb is house price should not be greater than 3x household income. Not good for long-term price appreciation.
At what interest rate does that rule of thumb apply? price vs interest rate work like a teeter totter… interest high, price low & visa versa, with income being the fulcrum.
Here’a how it really works:
I live in South Florida and looking for a home now in the Miami Area. The homes here are very expensive, but I notice they stay longer and longer in the market. I really think the market has has peaked. Let’s see what happens in the next few months.
You are in 1 of the 5 foreign capital flight states. It probably will last about until it doesn’t:
Foreign buyers accounted for 22 percent of unit sales in South Florida, or 10,600 homes. Foreign buyers paid an average of $590,000, compared to the market average of $329,869.
In many cases, foreign cash buyers have out-bid domestic buyers for homes. Three-quarters of their deals were all cash, according to the Miami Association.
Beer Drinker said:
So simple math:
1963 – 1 House sold for every 320 people
2016 – 1 House sold for every 545 people
Don’t have the time to track back the data in the chart (nor try to guess annualized values based on data points), but would be curious to see what this ratio has done over that period.
Rip that mask off the data.
Yep… it’s a teeter totter. Interest on one side and house price on the other side with income as the fulcrum. The Fed just put a ton of bricks on the interest side to hold the price up.
1963 builder’s cost was $10/square foot and average homes were much smaller. In those days factory workers earned more than college engineering graduates. The USA had a world monopoly on manufacturing capacity. Two billion Indians, Russians, and Chinese were not competing for jobs with American unions. Any Mexican caught on Texas turf was shot dead on sight. Those were the days.
Most are missing the game here look at out flows on market. People are taking money out of market,putting in hard assets 650 bil was pulled. Any Body that been around for more then the last 8 years knows that this is close to being done and you had a gift from 09 Time to buy rent property so you will be safe and have income. Do the math !
I remember in the late 1980’s there was a housing surge around the time the stock markets topped. Then a real estate bubble followed the Dot Com top. After 7- years of stock gains. real estate is looking to be a parking spot for stock market gains, or more appropriately, people are so confident in stock market gains to move money into illiquid assets.
Yup, I interpret this housing report as a contrarian indicator.
That surge was dictated by quickly rising interest rates. The % increase started in 1979 when the 30 year mortgage was going for about 8.75% with 20% down. By the time it was done, the same mortgage going rate was 14-16% by around 1982. Volker was the Fed chairman back then.
The real estate bubble burst about 6 or 7 years after the dot com bubble did. I don’t really see a connection.
Oh, there was a huge real estate bust from about 1980-about 1984 after the Fed raised interest rates to curb the inflation of the 1970’s. Real estate lost about 25% value. look up Paul Volker… he was the fed chairman when Ronald Reagan took office.
Aaron Layman Properties said:
Greg makes some very astute comments. This is a real estate market that has been continually supported at the margins by interest rate shenanigans foreign money laundering (aka “investment”) and artificially depressed inventory resulting from the bank bailouts and the private equity titans who feasted on the governments handouts.
What we now have is a warped, flipped, manipulated housing market where every transaction is a gamble. The Fed has destroyed real price discovery so they could reflate the bubble (spread the “wealth effect”). Of course they have decimated 90 percent of the U.S. population in doing so. Now you can start to see things coming apart at the margins because in the essence of greed the pigs have feasted so heavily there are only scraps left for the middle class.
Here in Texas economists are now coming to terms with the damage that has been done (and is yet to come), but you still see decent sales and inflated prices. At the margin, however, you can see where the “wealth effect” is cooling off and luxury home prices are getting sequentially downgraded into a lower price bands. It’s a top-down deflationary bust playing out in slow motion.
Many sellers are still in denial that they are sitting on magical paper gains, an illusion created by the Fed and government intervention. What is going to be interesting is when a large chunk of homeowners decide to sell (by choice or by necessity). That’s when the illusion is laid bare for all to see.
Every day is a great day to buy a house…until it’s not!
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