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By New_Deal_democrat May 24, 2018 11:32 am
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April 2018 housing summary
Let's take a look at the very leading housing market, now that we have all of the major reports for April.
 
To recap, the single most leading and least volatile housing report is single family permits. This last made an expansion high two months ago in February:
 
 
but there has been no break in the underlying rising trend.
 
So this is very potent evidence just by itself that the economy should continue to progress over the next 12 months.
 
That being said, interest rates tend to lead permits by 6 to 9 months. Meanwhile, permits tend to lead house prices by about 9 to 12 months. Because there is a very potent demographic tailwind in the form of the large Millennial generation having reached home buying age, a bigger increase than usual in interest rates would be necessary to overcome that support.
 
The next two graphs compare the YoY change in mortgage interest rates (blue, inverted) with single family permits (red), and median new single family home prices (green, quarterly) for the last 50+ years:
 
 
Now here is a close-up of the last 5 years. All three series are averaged quarterly to cut down on the noise:
 
 
The recent increase in the YoY% change in house prices (green) follows the YoY% increase in sales during early 2017, which in turn followed the YoY decrease in mortgage rates in late 2016.
 
The 2017 increase in mortgage rates looks like it is feeding through into the YoY% change in sales early this year, and price increases may moderate later this year.
 
Although I pay less attention to new and existing home sales, let's close out with a brief look at them. The former is far too volatile, and often revised more than 5% from the initially reported number, and the latter has much less of an economic impact.
 
Here is a graph I ran several months ago, showing that existing home sales (blue) had stalled since about July 2015, while new home sales had grown about 25%:
 
 
This continues to remain the case, as existing home sales, which were 5.59 million annualized in July 2105, were 5.60 M in March, and 5.46 M in April, just reported. Prices were up 5.3% YoY.
 
Meanwhile, new home sales, even after revisions have exceeded 650,000 annualized in each of  the last 3 months, after only having exceeded that number once previously during this expansion (last November). Although median prices stumbled in April (up only 0.2% YoY), they are very volatile, and the 3 month average is +5.1% YoY.
 
In sum, there is no sign yet in the monthly data for April that the housing market is about to roll over. It will take a more sustained period of higher interest rates, and further price increases, to overcome the demographic support underlaying the market.
 
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