Weekly Economic Update-Southern Exposure

It was supposed to be about home sales, but the news this week took a slight detour into the prices of those homes. Pending sales had another bad month and, while new home sales were up nationally, outside the South they weren’t. New home prices were down as well. Probably a statistical anomaly, but worth watching.
While Case Shiller’s home price indices set records each month, their chief analyst says some of those new price peaks are only an illusion. Subtract inflation and home prices still haven’t caught up with 2006.

Unlike pending sales, which we will get to in a moment, and existing home sales which fell for the second month in a row, new home sales recovered from their April slump. May’s sales numbers were up by 6.7%; however it wasn’t a broad-based improvement.

The gains (+17.9%) were nearly all in the South. Sales fell in both the Northeast and the West by 10.0% and 8.7% respectively, and the Northeast is now lagging sales in May 2017 by 16.3%. The West is clinging to a slim year-over-year increase of 0.6%.

The new home report had sales prices lower on both a median and an average basis compared to the previous May. Both were down about $10,000 to $313,000 and $368,000, respectively. While average home prices do fluctuate, it was the first time since April 2017 that both numbers were lower than their year-earlier figures. It is possible that higher sales in the South, where prices are generally lower, pulled the numbers down. 

Pending home sales extended their losses into a second month and were down on an annual basis for the fifth straight time. Contract signings were higher than in April in three of the four regions but were offset by a significant downturn in, yes, the South. All four regions are now at or below last year’s readings.

Home Prices Still Rising

The S&P Dow Jones Case-Shiller home price indices continued to rise, although the pace of the increase did soften a bit in April. The National Index reflected 6.4% annual appreciation compared to 6.5% in March and price gains in both the 10- and 20-City Composites ticked down by fractions of a percent.

The seemingly perpetual price increases have raised alarms about affordability and sustainability, but Case-Shiller spokesperson David M. Blitzer, threw a dose of context into his usual analysis of the month’s results. He said, “Looking back to the peak of the boom in 2006, 10 of the 20 cities tracked by the indices are higher than their peaks; the other ten are below their high points. The National Index is also above its previous all-time high (by 8.8%), the 20-city index slightly up versus its peak, and the 10-city is a bit below. However, if one adjusts the price movements for inflation since 2006, a very different picture emerges. Only three cities--Dallas, Denver and Seattle--are ahead in real, or inflation-adjusted, terms. The National Index is 14% below its boom-time peak, and Las Vegas, the city with the longest road to a new high, is 47% below its peak when inflation is factored in.”

Pop goes the (fear of a) bubble?



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