It's time for my monthly look at housing, which is the most important long leading consumer sector in the economy -- and the news is almost completely positive.
To begin, let me repeat the general paradigm:
- interest rates lead housing sales
- housing sales lead prices
- prices lead inventory
Interest rates have fallen in 2016 to near their 2013 lows:
Unsurprisingly, new home sales have made several new highs, including a near 9 year high in yesterday morning's report for July -- but keep in mind that this report does get heavily revised:
Since new home sales are usually the first housing metric that peaks, this suggests that a recession is at least more than one year away.
Interestingly, even when we subtract the northeast region that includes New York (subject of 2015's distortion), permits have still gone sideways:
A comparison shows that single family permits (blue) have also gone sideways this year, while multi-family permits (red) have been very volatile, and have not approached their mid-2015 high (which was the big NYC distortion):
But housing starts show the actual economic activity, and these (blue in the graph below) have been in a slowly rising trend:
While new home sales and housing starts have shown increases, housing prices are still going sideways:
and although I won't show a graph, July 2016 prices were actually slightly lower than prices 12 months ago.
Meanwhile inventory has actually turned down slightly in the last few months:
When we put hew home sales (blue), prices (red), and inventory (green) all together, normed to 100 at the end of the last recession:
we see that
- sales started up in the beginning of 2011, hit plateaus in 2014 and 2015, and have started up again in the last few months
- prices started up at the end of 2011, and have been flat ever since late 2014, and
- inventory started up in mid-2012, and has continued to increase until plateauing and turning down slightly this year.
Most importantly, the decline in interest rates should continue to fuel improvement in sales.