What the Media Gets Wrong About Home Prices.
What the Media Gets Wrong About Home Prices.
The latest data showed signs of strength in the housing market while the labor sector is getting weaker. Plus, an important recession signal continues to reflect a slowing economy. Don’t miss these stories:
What the Media Gets Wrong About Home Prices
Home Builders Need to be “Starting” Something
NAHB Reports Cautious Optimism Among Home Builders
Job Market Getting Weaker
Recession Signal Flashing
What the Media Gets Wrong About Home Prices
According to the National Association of Realtors (NAR), existing home sales decreased 2.4% from February to March to a 4.44 million unit yearly pace, which was in line with expectations. Sales were down 22% from March of the previous year. This report tracks closings on existing properties, which account for 90% of the market and are therefore a crucial barometer for assessing the health of the housing market.
What’s the bottom line? While it’s true that buyer activity slowed in March, February was an especially strong month for closings, so a slight pullback last month was understandable.
In addition, multiple data points suggest that demand remains strong. Homes stayed on the market on average for 29 days, down sharply from 34 days in February. Plus, 65% of homes sold in March were on the market for less than a month, which is up from 57% and shows homes are selling quickly when they’re priced correctly. Meanwhile, investors accounted for 17% of transactions last month, making up roughly one out of every six deals. Clearly investors are seeing the opportunity in housing right now.
Also of note, there was a 0.9% decline in the median home price to $375,700 from a year earlier. However, this is not the same as a decline in home prices as some media reports implied.
The median home price simply means half the homes sold were above that price and half were below it, and this figure can be skewed by the mix of sales among lower-priced and higher-priced homes. In fact, we could see home prices increase across all price categories, but the median price could still fall if the concentration of sales was on the lower end. Actual appreciation numbers are higher, not lower, on a year-over-year basis according to key reports from Case-Shiller, CoreLogic and the Federal Housing Finance Agency.
Home Builders Need to be “Starting” Something
Housing Starts decreased by about 1% from February to March, signaling a slowdown in the building of new dwellings. The indicator of future supply, building permits, also declined by 8.8% for the month. Even though single-family house starts and permits both edged up from February to March, they were still much fewer than in March of the previous year.
What’s the bottom line? The housing sector is undersupplied, and not enough inventory is heading to the market. Starts for single-family homes have been on a downward trend over the last year, with the pace of 1.191 million units in March 2022 falling all the way to 861,000 units this March. Single-family permits have followed the same pattern, declining from a pace of 1.163 million units to 818,000 over the same period.
With single-family homes remaining in high demand among buyers, the imbalance between supply and demand should continue to be supportive of prices.
NAHB Reports Cautious Optimism Among Home Builders
The National Association of Home Builders (NAHB) Housing Market Index, which measures builder confidence in close to real-time, grew by one point to 45 in April, the fourth consecutive month that it has done so. Current sales circumstances climbed by two points to reach 51 on the index, while sales estimates for the following six months rose by three points to reach 50. Buyer volume remained constant at 31.
What’s the bottom line? Home builder confidence has now risen 14 points since the low of 31 in December. Present sales conditions returned to expansion territory (over 50) for the first time since last September, while the future sales outlook is right at the breakeven between expansion and contraction at its highest level since June. Even though the overall confidence reading remains below 50 in contraction territory, sentiment continues to rebound in the right direction.
Job Market Getting Weaker
Initial Jobless Claims increased again this month, with 245,000 new claims for unemployment insurance being made, an increase of 5,000 from the previous week. This reading was tied for third highest so far this year. Continuing Jobless Claims also increased by 61,000 to 1.865 million.
What’s the bottom line? Continuing Claims measure people who continue to receive benefits after their initial claim is filed and this data clearly shows that hiring has slowed. While the number can be volatile from week to week, the overall trend has been higher with an increase of around 576,000 since the low reached last September.
Plus, there’s greater evidence of workforce reductions as the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, has hovered around 240,000 at a yearly high in recent weeks.
Recession Signal Flashing
“Its lowest level since November of 2020, consistent with worsening economic conditions ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, of the Conference Board’s Leading Economic Index (LEI), which was down 1.2% for the month of March. This report, which is a compilation of economic indexes, can predict when the business cycle will peak and bottom.
What’s the verdict? According to the Conference Board, a warning indicator appears when the annualized LEI 6-month growth rate dips below 0%. However, a break below -4.2%, as we observed last month, is a recession signal that has traditionally been very reliable. According to the Conference Board, the US will have a recession “starting in mid-2023.”
