Weekly Economic Update - Home Sales Trilogy

The last of the three monthly home sales reports was out this week, the one tracking pending home sales.  Like the two that were released last week, it also continued to show the housing market cooling. This isn’t necessarily bad news, especially for those in the market to buy a home. It could mean growing inventories and moderating prices.
 
And price increases do seem to be slowing as well. The Case-Shiller indices were all down slightly.

And pending sales makes three.

Last week we reported that both new and existing home sales had been less than stellar in July--again. Existing home sales had been running on empty for much of the year and stretched its latest losing streak into a fourth month. New home sales had been more volatile recently; rising--often strongly--one month and easing back the next. July broke the mold as sales fell for a second straight month.

This week we got the final installment of the July’s home sales trilogy and it too was, as they say, weak tea. The National Association of Realtors’ (NAR’s) Pending Home Sales Index was down 0.7% from June and is now running 2.3% behind on an annual basis. It was the seventh straight month that the index has lagged its year-earlier numbers.

The weaknesses in the various sales reports are beginning to look less like blips than trends. The pending sales number is a little more disquieting than the actual sales reports because it is a leading indicator, expected to forecast existing sales over the next one or two months.

Want the Good News or...

Like the old joke however, this is the bad news. It may also be the good news. The housing market has long been in overdrive, and supply hasn’t met demand for a couple of years, pushing prices higher and higher. Every housing forecast we saw this month, from banks, government agencies, and housing entities like NAR, Freddie, and Fannie, have bemoaned the increasing lack of affordability, with rising prices no longer offset by record low interest rates.

NAR’s chief economist Lawrence Yun noted that slowing sales have allowed inventories to grow, especially in some overheated markets in the West. This may help cool price growth and make homes more affordable going forward. Yun looks to see year-over-year price appreciation slow to between “two-and-four percent, which will help aspiring first-time buyers, and be good for the long-term health of the nation’s housing market.” 

Price Appreciation Update

Prices did appear to be moderating ever so slightly in the June S&P CoreLogic Case-Shiller home prices report. The National Index was up 6.2% on an annual basis compared to 6.4% in May and the 10- and 20-City Composites eased in a similar fashion.

A lot has been written over the last year or so about whether or not housing was experiencing a bubble. Not sure that question was ever answered, but we do know the best way out of one without getting soap suds all over the place is a gradual slowdown. Perhaps we are lucky that it appears that just that is happening.

08.31.2018

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