One Chart That Will Make You Feel Better About The Housing Data

2013’s drop in existing home sales due to rising mortgage rates has economists asking whether the housing recovery has fallen off the rails.

“The slump in existing home sales has set the recovery in housing market activity back by 12 months,” writes Capital Economics’ Paul Diggle. “But there are good reasons to think that, like the timelier new home sales series, the decline in existing home sales will prove temporary.” From Diggle:

The number of new home sales fell by 17% m/m in July, shortly after rates started rising. But new home sales have since more than made up for that drop. Existing home sales are measured at a later stage of the home-buying process relative to new home sales (contract closing vs. contract signing). In other words, while the new home sales data reflect decisions made today, the existing home sales data capture sales initiated several months earlier. So it makes sense that they are taking longer to show an improvement. But we think that they will.

“The bottom line is that the improvement in housing market activity during 2014 will be considerably weaker than the improvement during 2013 — even taking account of the soft end to last year,” Diggle writes. “But we do at least expect a further improvement in activity.”

Check out the chart of new home sales versus existing home sales. New home sales are making up for slumping existing sales:

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