With the seasonal festivities upon us, our Numbers for the Week will be abbreviated until the first Friday in January 2023. Best wishes to all.
The Holiday (Giving Readers a Break) Version
- Home sales are declining.
- Home prices are rising year-over-year, but declining month-to-month.
- Residential rents are rising year-over-year, but declining month-to-month.
- When adjusted for inflation, home prices are nearly equal to the peak in 2006.
Home Sales, Starts, and Financing
- The National Association of Realtors released its Pending Home Sales Index for November 2022, showing a 37.8% drop in pending transactions from the same month in 2021.
- For the same month, the U.S. Census Bureau reported a 5.8% increase in new home sales from October 2022 but 15.3% below November 2021.
- The median sales price was $471,200, and the average price was $543,600 (disproportionately skewed by the high volume of sales in the most expensive metros).
- At the end of November, 461,000 new homes were for sale, representing a supply of 8.6 months, down from 8.9 months in October, 9.2 months in September.
- Inventory stood at 6.9 months supply in October 2021.
- The S&P CoreLogic Case-Shiller National Home Price Index showed a 9.2% year-over-year increase in home prices for the year ending October 2022, down 150 basis points from September and the fourth straight monthly decline.
- Several major metros, however, showed double-digit gains, including Charlotte with a 15% climb year-to-year, but even in these cities, the rate of price increases is slowing.
- None of the top 20 metros tracked by the Index showed a larger year-over-year increase in October compared to September.
- Calculated Risk’s Bill McBride sheds revealing light on the Case-Shiller data.
- He suggests that a better measure of home prices should adjust for core inflation as measured by the Consumer Price Index (excluding, of course, shelter costs). Viewed in this context, home prices today are not meaningfully higher than they were in 2006 and likely will fall below the 2006 peak.
- The ratio of median residential rent to median home price also resembles the state of housing in 2006.
- According to Redfin, approximately one-third of home purchases were all-cash in October 2022.
- The number was last that high in 2014.
- Florida leads the country with all-cash transactions, especially in Jacksonville and West Palm Beach.
- The Realtor.com monthly rent report showed a continuation of the pattern that began in the summer with year-over-year rents higher (albeit less than 10%) and month-to-month decreases in many metros.
- Nationwide, median rent has declined approximately $100 since mid-2020.
- Midwest markets are the contrarians with month-to-month increases.
- Historically popular markets, such as New York City and Boston also are bucking the dominant trend of declining rents.
- Despite the slowing growth in median rent in the past several months, the longer view reveals the dramatic pandemic era rise in rents by as much as 23.3% in the South.
Construction Costs and Supply Chain
- The NAHB reported that construction costs have risen 35% since the inception of the Covid-19 pandemic.
- John Burns Consulting (a real estate advisory firm) found from client surveys that builder profit margin in 2022 was above 27% through the third quarter, about 6 percentage points higher than normal.
- The firm also estimates that single-family homes built for rental now comprise 12% of all new homes under construction.
- Zonda’s chief economist stated in an interview with Quartz that 90% of homebuilders reported supply chain challenges in December 2021 but the number has declined to 48% a year later. Challenges still exist and are well above pre-pandemic levels but obviously declining.
Residential Leasing
- Home sellers unwilling to accept a lowered price are becoming landlords. In some parts of the country, the number of sellers turning to rental has quadrupled, according to John Burns Consulting.
Other News and Data
- In a bright spot for investors just before the holidays, 9,000 more people sought unemployment benefits in the week ending December 23. The news sparked a brief rally in the stock market. One man’s pleasure is another man’s pain.
- Another bit of good news (if you think that a slowing economy is good news) came from The Conference Board, which released just before the holiday its monthly assessment of the U.S. economy.
- The Board’s Leading Economic Index dropped a full percentage point in November to cap a 3.7 point decline from May to November.
- A separate index compiled by The Board focuses on employment, income, and production and rose slightly in November.
- The disparity between the two indices suggests that individual consumers are doing well but economic headwinds in major industries (e.g., homebuilding) are a drag on overall economic growth.
- For those preferring hawkish news, the Bureau of Labor Statistics accommodates.
- Unemployment declined in the year ending November 2022 for a substantial majority of metropolitan areas.
- Over 200 metropolitan areas had an unemployment rate below the 3.4% national average.
- Despite indications of a slowing economy, most employers are not yet cutting headcount significantly.
- Why is higher unemployment and a slowing economy good news, at least for stock market investors? Because these data are an indication that the Federal Reserve interest rate policy is having the Fed’s desired effect on the economy and will give the Fed room to slow or stop increasing its core interest rate. As with all things, the good comes with bad and finding the right balance is a delicate task.