Yesterday NAR reported the fifth straight monthly drop in pending home sales. Today, however, Census reported a big jump in new building permits, to the highest level in 5 years, and Case-Shiller reported the largest month-over-month increase in home prices since April. What should we make of these mixed signals?
•Some of the weakness in the October pending home sales data was probably due to the government shutdown. Watch next month’s data closely for signs of a rebound.
•The October existing home sales data – released last week – were also down, but the overall number masked a key trend: the continued shift from distressed (foreclosure and short sales) to conventional sales. While overall existing sales rose just 6% year-over-year, conventional sales were up 22% year-over-year.
•The shift from distressed to conventional sales is a key part of the housing recovery. Sales data that combine distressed and conventional sales – like pending sales index and the existing home sales index – understate the recovery in home sales.
•Today’s October 2013 permit data showed multifamily permitting the highest in 5 years, with single-family permits just shy of their 5-year high. This was a strong report for construction. The housing starts data for September and October won’t be released until December 18, however.
•These solid permits data are not just due to monthly volatility. The three-month average for total building permits (i.e., Aug-Oct) is also at a 5-year high.
•The construction recovery is uneven. Permits are now above local norms in metro Boston, NYC, San Francisco, Austin, Houston, Oklahoma City, and San Jose. However, permits are still way below local norms in Atlanta, Phoenix, Las Vegas, Sacramento, Chicago, and Detroit.
•Today’s Case-Shiller report for September showed the biggest month-over-month increase since April for the 20-metro index. The more reliable national quarterly report showed Q3 prices rising slightly faster than in Q2 – and the second-highest quarterly gain since 2005 Q4.
•Price gains are clearly slowing in California. In the rest of the country, though, prices are accelerating in some markets and slowing in others.
•Case-Shiller data show what was happening in the market several months ago. The Trulia Price Monitor shows the current trend: October asking prices slowed slightly, but prices are still rising at a fast pace. We’ll report November’s Price and Rent Monitors next Wednesday, December 4.
Overall, this has been a strong 24 hours for housing data. The broader trend in sales data is better than the pending home sales report appears because of (1) the shift from distressed to conventional sales and (2) some of the drop is probably temporary impact of the shutdown.
Price data show healthy slowing from unsustainable levels earlier this year but no signs of a crash. The best news for the housing recovery, though, is the strong permits data. Construction has been the laggard of the recovery, with starts still 40% below normal (as of August), held back by high vacancy rates and slow household formation. The jump in permits points to more construction activity in the next month or two and more inventory coming onto the market next year.
Jed Kolko, Chief Economist
Jed leads Trulia’s housing research and provides insight on market trends and public policy to major media outlets including TIME magazine, CNN, and numerous others. Jed’s background includes a Ph.D. in Economics from Harvard University and more than 15 years of publications and research management in economic development, land use and housing policy, and consumer technology adoption.