Market Beat: Examining the housing slowdown
October 7, 2014
There are several economic reports we monitor to gauge the health of the housing market. Among them are existing home sales, new home sales, pending home sales, building permits, housing starts and the home price indexes.
Some of these numbers have turned down somewhat lately, and pundits out there are saying that the housing recovery is fading.
Recent data has shown that the rise in home prices has begun to decline somewhat. The S&P/Case Shiller 20-city index rose just 0.6 percent in July and after seasonal adjustments showed a drop of -0.5 percent. Year over year prices have risen 6.7 percent and that is the slowest pace in the last two years.
In San Francisco, home prices are up 10.3 percent in the last year, but saw a slight drop of -0.4 percent in July. In most major cities, home prices are still below the peak prices that were seen during the housing bubble. Two exceptions are Dallas and Denver, where prices have now risen higher.
The home builder stocks have not fared that well this year, either. The ETF that represents the S&P homebuilder's index is down over 10 percent year to date.
Existing home sales for August dropped by 1.8 percent, but the new home sales report showed a gain of 18 percent to 504,000 homes.
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This was the highest percentage increase since January 1992. The home sales reports are given on a seasonally adjusted annualized rate (SAAR).
The 1.8 percent decline in existing home sales only represents a drop of 11,250 units which is not a big number nationwide.
The sale of distressed homes was only 8 percent of the market and that is down from 12 percent one year ago. One thing this means is that there are less cash investors buying homes, so there will be more homes available for first time home buyers.
There have been substantial job gains for people aged 25-34, who normally account for the majority of first time home purchases. As the number of homes sold has been rising, so has the number of first time home buyers.
Even though we have seen a bit of a slowdown in housing recently, there are still several positive signs for the housing market: the job gains in the 25-34 year-old age group, less distressed sales, and homebuilder confidence is at its highest level since the recession with a 59.0 reading.
While some of the short term data has been a tad disappointing, the longer term trends are still positive.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.