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By New_Deal_democrat December 30, 2015 8:30 am
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Housing wrap up for 2015

Housing is the single most important leading sector of the US economy. Let's take a final look back at it for 2015.

To reiterate, housing sales are primarily driven by two factors:

interest rates 
demographics

Housing sales, in turn, normally lead house prices, and house prices normally lead inventory.

An increase in interest rates makes housing more expensive; a decrease, less expensive.
The number of people moving into the prime house-buying age of 25-35 will also drive demand.

As to demographics, the low-water mark for generational pressure was in 2009.  Since then, housing has benefited from a demographic tailwind.  Thus, even when interest rates spiked over 1.5% in the 2013 "taper tantrum," (blue in the graph below) housing permits (red) and starts merely stalled (with some negative YoY months) in 2014, rather than actually turning down as they have typically done in most episodes over the last 60 years, as is shown in the graph below:

Here is the same information conveyed as YoY changes, with interest rates inverted so that the 2013 spike shows as a low:

In response to the decline in rates throughout 2014, and aided by the demographic tailwiind, in 2015 housing permits gradually increased both in total terms and in their YoY comparisons.

In May and in particularly June, permits were distorted by the expiration of a program in NYC.  As of last week, we learned that ex-NY, housing permits made a new expansion high in November:

Yesterday morning's Case Shiller report confirmed that price increases have firmed somewhat this year (blue in the graph below) - as anticipated by the increase in permits beginning in late 2014.  Meanwhile inventory (red) looks like it is still in its bottoming process.

Prices never declined in 2014, in large part due to the influx of foreign, mainly Chinese all-cash buyers of high-end properties, as Mainland Chinese with wealth hedge their bets on Chinese growth:
Source: http://www.nytimes.com/2015/11/29/business/international/chinese-cash-fl...

Probably due to the crash in Chinese asset prices, all-cash sales have declined in recent months: 
Source: http://www.corelogic.com/blog/authors/molly-boesel/2015/12/cash-sales-sh...

Core Logic reports:
"The cash sales share peaked in January 2011 when cash transactions accounted for 46.6 percent of total home sales nationally. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25 percent. If the cash sales share continues to fall at the same rate it did in September 2015, the share should hit 25 percent by mid-2017."

One fly in the ointment is that new home sales have been in a declining trend since early in 2015.  I cribbed this graph from a Doomer site, but in this case the downward pointing arrow appears warranted:

This does not point to any imminent peril, since as I have previously written, in all but 2 of the housing cycles in the last 50 years, new single home sales have peaked significantly before permits. 

Meanwhile as this breakdown of single family vs. multi-unit permits shows, multi-family construction has been running near 30 year highs this year:

This is also due to Millennials proverbially moving out of their parents' basements.

Due to the same trend, rental prices (nominally) are still increasing:

and vacancy rates are at 30 year lows:

In conclusion, since interest rates have not risen significantly, permits should still improve in the first part of next year, with prices continuing to increase, and inventory beginning to increase again as well. With the big rise in rental prices and low vacancy rates, the multi-decade highs in multi-unit condo and apartment construction should also increase.

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