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By New_Deal_democrat January 25, 2018 11:20 am
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December housing summary: sales and prices accelerate
With this morning's release of new home sales for December, we have a good picture of the housing market through the end of 2017, with the caveat that the Census Bureau's report on median asking rent for the 4th Quarter will not be released until next Tuesday.
 
A quick synopsis of last week's report on December housing permits and starts is:
  • single family permits (the least volatile, most forward looking metric) made another new high
  • total permits were just slightly below their October high
  • the three month moving average of the more volatile housing starts made a new high save for the three month average from 10 months ago.

I'll return to that shortly, but now let's take a look at the December new home sales report. This report has the advantage of possibly being the most leading of all of the housing reports. It's disadvantage is that it is extremely volatile, and heavily revised.  That was shown in spades with the November number, which was originally reported one month ago at 733,000 -- nearly 100,000 above any other report since the recession!  I predicted it would be revised downward, and it was -- by 44,000 to 689,000.  Even so, it remains the highest number since 2007, and heavily relies upon was is still a 40% increase in a single month in the West census region.

 

Here is the graph, showing the number of annualized sales in blue (right scale) and the YoY% change in red (left scale), averaged quarterly to cut down on volatility:

 

 

You can easily see the downdraft in 2014 due to the 1.75% increase in interest rates following the 2013 "taper tantrum," and the smaller stall in mid-2017 due to the roughly 1% increase following the US presidential election. Now, with YoY interest rates no longer a drag on the market, sales have increased again.

 

Let's show how that compares with single family housing permits (blue) and housing starts (green) in the graph below, which again shows a big stall in 2014 for all metrics, but little discernible deviations YoY in single family permits and starts in 2017, unlike new home sales.

 

 

But here is the same data normed to 100 as of the beginning of 2016:

 

 

This does show the slowdown q/q in permits and starts in Qs 2 and 3 of 2017 from Q1, and an acceleration in Q4.

 

Interest rates have made new 3 year highs this month. We'll have to see if that is sustained, but even if it is, it won't begin to have an effect of any sort for a few months.

 

Before concluding, let's look at prices for new homes, again showing the median price in blue on the right scale, and the YoY% change in red on the left:

 

 

Price acceleration has begun again in the last 6 months. Although I don't have a graph to show it, the N.A.R. data shows that the median price of an existing home rose 6.3% in 2017. This price acceleration will also put pressure on the market.

 

Finally, although the official census data won't come out until next week, a decent and much more timely source of monthly rental data can be found at Zumper.com.  Here' is their graph of the YoY% change in rental prices for 2017:

 

 

This shows continuing increased pricing pressure on the rental market as well. Since renting is an alternative to buying a house, the *relative* increased pressure in interest rates and prices for housing may not be significantly more for that of renting. That, together with the demographic tailwind of the large Millennial generation suggests that housing is not about to be derailed yet.

 

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