While housing starts was a disappointing little report the report on existing home sales for February is more re-assuring.
Why?
Housing data ebb and flow; they are fraught with unexpected highs and low. In the winter I like to say that the housing reports are less sector reports than they are weather reports. So what should this one –or housing starts - be any different?
First of all it is not about the monthly number which after an upward revision to January sales shows a decline instead of an increase. It is about more broadly conceived trends. The breadth of the strength and the strength itself is impressive. Sales while still weak by historic standards are lifting strongly from their lows and doing so across all regions.
Housing is still a very crippled sector it is beset with many impediments to growth. But what makes this report most impressive is the advance in prices which tends to be more regular in their seasonality and less subject to the whim of weather. Sales trends are impressive but prices trends are more so.
Nationwide, both average and median prices rose in February. These are not seasonally adjusted so the price increase to which I refer is over 12-months. Both average and median prices last rose together in November 2010. Before then there was a series of month when the special government subsidy programs were in place to spur housing when prices took some special, but unsustained lift. Indeed, in November of 2010 the lift in average and median prices turned out to be a one-off experience, but because of more powerful trends this instance has the ring of sustainability..
This time average and median prices are being lifted by rising average and median prices in the South and in the West. In the Northeast and Midwest both average and median prices remain lower year-on-year. But for all regions the change in year-over-year housing prices improved in February from January. In the Northeast median prices shifted from a drop of 4.5% to a drop of only 1.9% Yr-over-year. In the Midwest prices fell by a bare 0.5% yr/yr after dropping yr/yr by 4.3% in January. The fact that the trend to improved pricing is nationwide is heartening.
And there has been no magic wand that has been waved over the sector. Prices are improving despite a still-hostile environment. Distress sales still made up 34% of all sales in February just a tick below the 35% level of January. Foreclosures were 20% of sales (compared to 22% last month) and short sales were 14% (compared to 13% last month). Speculators are active with investors making up 23% of sales, the same proportion as last month. All-cash sales rose to 33% from 31%. This reading is slightly above the 12-month average. In February contract failures were high at 31% while their recent average has been closer to 16%. Despite such impediments prices improved year-on--year.
Housing affordability remains very high but the joke of the series is that those loans are only for those who can qualify for them. I refer to this an a Republican monetary policy since if you are not underwater on your mortgage, still have a good job, can make your current house payments and have maintained a high credit score you can be eligible for a lower mortgage rate. In classical economic fashion the rich get richer. But those of you who are desperate for financing relief or purchase help are largely left disappointed.
Low rates have not spurred the housing sector because the low rates are not widely accessible. That is one fallacy of low rates. Rates may be low but average credit scores are even lower, turning many a prospective homebuyer into that kid at the candy store window with no money in his pocket just able to look.
But housing is improving despite all the various distortions. Much of it is led by investors. Cash sales are very important. First time buyers are at 32% of the market compared to 33% last month and an average participation of 37% over the last year.
There will be a lot of cynicism about this report but it its signals jibe with those from the job market. Something is truly stirring; and if you will not believe sales trends then believe price trends. Money on the barrelhead is a very good economic signal. One third of the buyers are parting with cold hard cash to make acquisitions. The rebound is for real.