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By New_Deal_democrat January 2, 2015 8:26 am
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Expect US house prices to continue to increase

To reiterate a point I have made previously about the housing market,

  • first, interest rates turn
  • second, sales turn
  • third, prices turn
  • finally, inventory turns

I wrote last week that, after a slight downturn earlier in 2014, housing sales have trended slowly higher later in the year, following the decline in interest rates from their January high.  And when we look at prices, the same pattern is emerging.

DataQuick tracks housing sales and prices from 99 of the top 100 US markets, and reports them on a rolling monthly basis each week.  This is the service I use in my Weekly Indicator columns. After being negative earlier this year, sales as reported by DataQuck turned positive 7 weeks ago, and have remained positive ever since.  Meanwhile, prices increases have decelerated to the point where they have been under 3% YoY for the last 4 weeks, as shown in this chart:

Now let's compare prices, as measured by the Case Shiller index, which was just reported through October, with permits for building single family houses:

It's easy to see that permits (blue) peaked in late 2013, and then bottomed in February 2014, before resuming a slow ascent, and were followed by prices, which turned slightly down between spring and summer 2014, and have also turned slightly higher in the last two months.

Here is the same comparison, showing that permits lead prices, but this time measured as a YoY%, for the last 10 years:

Finally, let's look at inventory (blue, left scale) vs. house prices (red, right scale):

As I noted at the outset of this article, housing inventory continues to rise even after house prices turn down.  A comparison with the housing boom of a decade ago suggests that house prices could rise another 15%-20% in real terms before sales stall and inventory mushrooms.

The bottom line is that, with declining interest rates and rising sales, I expect house prices to resume rising at a slightly faster rate in coming months, and inventory to rise only slowly.

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