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By New_Deal_democrat February 26, 2014 1:35 pm
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New home sales for January show surprising strength but still deceleration
So, was I surprised by this morning's new home sales number, which was the highest in five years?  Yes.  There's part of me that thinks the first digit was a mistake!
 
That being said, does it contradict my thesis that higher mortgage rates are causing a housing slowdown?  No.
 
The month to month variability in the new home sales report is very volatile among the major housing reports.  In the last 5 years, the m/m% change has been over 10% in 13 of 60 months, or close to 1/4 of the time.
 
The overall trend since a year ago is flat.  Here's a graph normed to 100 in September 2012 (this is the month that permits and starts started to flatten).  New home sales did not turn sideways for 4 more months:
 
Next, there's been a clear deceleration, as sown in the YoY% trend (blue) compared with existing home sales (red):
 
 
A year ago, new home sales were up 30% YoY. Now they're up 2% YoY.
 
Finally, here's a comparison of the YoY% change in new home sales (blue, left scale) compared with interest rates (red, inverted, right scale):
 
 
One thing that may be going on is home buyers reacting sharply to the .3% decline in rates in January (from above 3% to below 2.7% ).  This is the "buy now or be forever priced out" issue, where there may be aggressive market timing in buying houses based on relatively small changes in rates.  If this is so, we should see particularly sharp m/m changes.
 
Anyway, I am still expecting the deceleration in growth to turn into outright declines YoY in he next few months.
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