Economical Updates March 3, 2017

It’s All About Inventories

Sales of new homes in January were every bit as good as those released last week for existing homes. There were an estimated 41,000 newly built homes sold during the month compared to 38,000 in December. On a seasonally adjusted annual basis that works out to a pace of 555,000 units, up 3.7% from December and 5.5% higher than in January 2016. Sales of existing homes had risen by 3.2% for the month and 3.8% year over year so the two reports together bode well for a strong spring market.

If we could, we would just leave it there. Our sense of duty, however, compels us to also mention pending home sales. They sort of took the bloom off the rose. The National Association of Realtors’ (NARs’) Pending Home Sales Index, a leading indicator of existing home sales for the upcoming two months, slipped 2.8% to the lowest level since last January and the December number was revised down to half its previously announced 1.6% gain. Because? Inventories of course.

The West is also looking a little weak and worrisome. Existing sales were up a strong 6.6% for the month although they had fallen in both November and December, but new home sales, strong in the other three regions, were down more than 4% and pending sales plunged by nearly 10% and were fractionally lower than a year earlier. Hopefully, it is just a blip.

That home prices are continuing to escalate was confirmed by the last two of the December reports. Case Shiller’s National Index was up 5.8% year-over-year compared to a 5.6% annual gain in November. Black Knight Financial Services said the annual increase of 5.7% in December tied with November for the largest of the year. Again, no question about what is behind this appreciation.

Inventories are now news beyond the real estate industry. This week the Washington Post headlined the difficulties millennials are having with competition and shortages now that they have finally decided to enter the housing market. Among the stories about failed offers and multiple bids, the Post does offer some encouraging words from the director of Harvard’s Joint Center for Housing. Christopher E. Herbert reminds us that Baby Boomers entered the market in the early 1980s, faced with a double-digit recession and double-digit interest rates. “But then homeownership rates and housing prices boomed in the 1990s. That group started out on a slower trajectory, then caught up. When you’re young you have some time to make up for a slower start.”

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