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By New_Deal_democrat April 23, 2014 1:24 pm
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New and Existing home sales show that increased interest rates and increasing sales prices are biting

Back in December, I wrote a post here at XE.oom saying that "Interest rates will negatively impact US housing in 2014."

While building permits, the specific metric I cited in my post, have not turned negative YoY at all  in the first three months of 2014, every other US housing metric is now significantly negative.

  • Housing starts are -59,000 YoY and -150,000 from their November 2013 peak.
  • New home sales are also -59,000 YoY and -86,000 from their peak in January of this year.
  • Existing home sales are -370,000 YoY and -790,000 from their peak in July 2014.

This morning we had the worst new home sales report since October 2012.

So let's take a look at both existing and new home sales for the US.

Existing home sales are less important for the economy, but constitute about 90% of the total market.  New home sales, because of their subsequent effect on construction, appliances, furnishings, landscaping, and other sectors, are a long leading indicator for the economy as a whole.

Here are the totals for the last 5 years of new home sales (blue) and existing home sales (red):

To get the overall picture, here is the total of both new plus existing home sales since January 2012:

As you can see, these are off -13.5% since their peak in July of last year.

Next, here is the median sale price for new homes (blue) compared with the inventory of new homes on the market (red):

Here is the same comparison for existing homes:

As you can see, as prices rise, so does inventory, as sellers take advantage of good prices to put their homes on the market.  As prices have increased in the last two years, fewer potential sellers are "underwater" and the supply of houses on the market has increased.  Note that inventory appears to follow sales, so I expect inventory to continue to increase in the next few months.

Finally, here is the months' supply of new (blue) and existing (red) houses on the market:

Both of these have turned up since the summer of last year, and inventory of new homes in particular is now at a level where it will put downward pressure on prices - via decreased sales.  If inventory does continue to increase in the next few months, prices are likely to retreat YoY.

In the meantime, with the sole and admittedly very important exception of building permits, interest rates as well as a likely overshoot in prices is indeed negatively impacting the housing market this year.

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