A Review of Some Old School Housing Measurements vs. the Media Perception

The old version of Shenandoah once updated the housing predicament in 2007 onward with a series of charts and data provided by the Census bureau which highlighted the decline of that era. I elected to discontinue the series as the government elected to begin new policies in 2013 to reinflate the market in attempt to restore the normal housing market. Needless to say, since the policies went into full effect in 2014, it has been a non-stop bubble upwards peaking in the past three years with some minor bumps in the road due to the pandemic.

The following charts abandon the financial media and government’s favorite news release of SAAR or “Seasonally Adjusted Annual Rate” which sounds better many times than it actually is. For example, if one reads the report from the Census Bureau on New Home Sales, the press release says the following:

Sales of new single-family houses in April 2024 were at a seasonally adjusted annual rate of 634,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±12.0 percent)* below the revised March rate of 665,000 and is 7.7 percent (±13.2 percent)* below the April 2023 estimate of 687,000.

Why is this important?

The headline announcement is provided to the financial and mainstream media as 634,000 new homes sold at an annual rate. What most people are too lazy to understand is that the real story was that the opening of the “spring home buying season” actually saw an unusual decline to only 55,000 new homes sold nationwide. Usually during April there is an uptick in activity so the slowdown in sales should be alarming to the Federal Reserve and those in charge of policy as it might indicate that the interest rate tricks might have run its course of qualified buyers for now.

Chart I: Privately Owned New Home Sales

Even with the post-GFC hangover, the market is still struggling to return to the 1997 to 2005 peaks above the 60,000 plus units per month on a consistent basis.

Meanwhile this April, allegedly a busy month and the start of the spring home buying season, it was not one for the record books.

Despite this apparent lack of consistent demand, builders continue to crank out new homes at an absurd pace as the duration on the market is still historically short as demonstrated in the next chart.

Chart II: Median Number of Months for Sale

As long as the home builders do not have to hold on to a property for more than 100 days, the pace of building should continue unabated. Unfortunately for a potentially flooded market with existing homes on top of new ones, it could become a problem in the months ahead.

Chart III: For Sale by Stage of Construction

It starts to get interesting when looking at the data now, with 474,000 new homes for sale under construction yet only 325,000 sold in the last six months total.

The percentages look good, but if there isn’t a surge of new home buyers by year end, inventory will balloon as it already has in the existing markets of some America’s hottest home buying regions.

Chart IV: New Homes Sold by Type of Financing

Despite some people believing that origination from the FHA and VA has taken the lead, that does not remain true to this very day.

Unfortunately for the taxpayer however, still well north of 70% of all conventional are still purchased and backed by the government GSEs. Meaning that in combination with the FHA and VA the taxpayer is on the hook for at least 90% of all mortgage paper issued unless a financial institution elects to hold it.

Chart V: Single Family and Multifamily Permits

The permit picture still shows demand from prospective builders to begin new housing projects, especially in the single family home portion of the market.

Meanwhile, the multi-family boom seems to finally be winding down as in many communities there is evidence of over saturation in that market area.

While this deluge of data might look dazzling and confusing, the reality is that the idea of “seasonal adjustments” is simply to make the material look more palatable to potential buyers as everyone seems to prefer buying at the top versus finding the diamond in the rough.

Add in the fact that the data could easily be obtained from every county or state government entity which issues permits being required to report the data to the Federal government would provide a much more accurate picture than the Census Bureau offers to the American public. Sadly, a good portion of the data issued is based on “estimates” due to non-reporting from the states and counties thus why there are massive revisions in the spring of every year.

If this chart series proves to be popular, I shall return to updating it on a monthly basis for my readers and the group at MacroEdge as it is a better gauge than the “seasonally adjusted” insanity promoted for political and economic purposes.

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