With interest rates rising, mortgage refinancings going down, and a few week datapoints in other areas lately, there’s been talk about the housing recovery stalling.
The housing recovery is a huge part of the story of the overall economic story, so if it fades, then that presents a serious risk.
In light of that, it’s important to remember what’s actually meant by the housing recovery.
Bill McBride at Calculated Risk offers a good reminder:
The problem is many people don’t understand what “housing recovery” means. There are really two recoveries: House prices and residential investment. Most people – homeowners and potential buyers – focus on prices, and for prices we should use the repeat sales indexes, and not the NAR median price (repeat sales indexes include Case-Shiller, CoreLogic, etc). What matters in the NAR report for prices is inventory and months-of-supply.
For GDP and jobs, the key is what the Bureau of Economic Analysis (BEA) calls “residential investment” (RI) . For existing homes, only the broker’s commission is part of GDP, but for new homes the entire sales price is part of GDP. There are some spillover effects from home sales (furniture, etc), but those aren’t included in RI. If existing home sales decline there is only a minor impact on RI and GDP. When we talk about the “housing recovery” for jobs and GDP, existing home sales are mostly irrelevant – the focus should be on new home sales, housing starts and home improvement.
This is a reminder that the key number in the existing home sales report is not sales, but inventory. It is mostly visible inventory that impacts prices. When we look at sales for existing homes, the focus should be on the composition between conventional and distressed, not total sales. Bottom line: I expect sales to be below the consensus, but for conventional sales to be increasing. I also expect further evidence that inventory bottomed early this year. And, oh, expect some more uninformed hand wringing!
Prices and inventory. Keep your eye on those thigns, and don’t take your eye off the ball.
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