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By New_Deal_democrat May 25, 2017 10:11 am
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Positive trend in new and existing home sales remains intact

Now that we have both new and existing home sales as well as last week's housing permits and starts, a clearer picture of the state of the market appears.

This month's new home sales report assumed added importance in the context of interest rates having risen from last summer's lows, and permits and starts backing off their recent highs.  In response to last week's reports, I wondered whether we possibly have passed this cycle's high water mark. New home sales are much more volatile, and heavily revised, but they have had a tendency to peak even before permits.

The report was an important positive, although you could have been forgiven for overlooking that, given the Doomer takeaway of "new home sales plummet 11.4%!!!" They fell by that amount only because March was revised higher by about 3% to a new post-recession high.

Here's what new home sales (blue) look like in this cycle vs. the much less volatile single family permits:

The three month moving average, which smooths out that volatility, also made a new high for January-March, and backed off only slightly for February-April, so there is no change of trend.

The story with existing home sales, which are of much less economic importance, was similar. They declined month over month, but the less volatile three month moving average also established a new post-recession high:

Let's also take a look at prices, because the story here is more mixed.  Typically sales lead prices, meaning that prices only peak when both buyers and sellers adjust their expectations due to declining sales.  Here is the long term look at that relationship:

But note that in the last year or so, new home prices have turned flat even in the presence of increasing sales:

My suspicion is that the relationship this time was distorted due to high end (chiefly Asian) all-cah foreign buyers. who have recently backed off, leading to a different mix of new homes sold.

Meanwhile, existing home prices continue to rise YoY between 5% to 10%:

The bottom line is that the positive trend in new and existing home sales remains, failing to confirm this month's softness in permits and starts. That housing continues as a positive in the face of higher interest rates is the biggest positive surprise story of the year.


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