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posted on 25 August 2017

Home Sales Showing Signs Of Stress

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My analysis of home sales recently has become more and more pessimistic. This past week both new home sales and existing home sales were fairly soft.

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It is not just that the single month's data that is bad - but it is the deteriorating trend lines over the past year which are concerning.

New Home Sales:

  • unadjusted sales growth decelerated 25.3 % month-over-month.
  • unadjusted year-over-year sales down 9.3 % year-over-year. Year-over-year growth rate this month was below the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth decelerated 3.8 % month-over-month - is up 5.7 % year-over-year.

Existing Home Sales:

  • Unadjusted sales rate of growth decelerated 0.3 % month-over-month, up 0.0 % year-over-year - sales growth rate trend decelerated using the 3 month moving average.
  • The homes for sale inventory contracted this month, remains historically low for Julys, and is down 9.0 % from inventory levels one year ago).

What is the problem? From my perspective, homes are just too expensive for the average Joe.

And the cost of home ownership beyond the mortgage is way to much [see analysis here].

Why should one be concerned?

I do not know - but in the past, a paid off home was the path to affordable living after retirement.

I have lived a considerable part of my life in and around Singapore. It is a goal of the government to make sure families own their own house. The logic is simple - if one owns their house, in theory they would have a major portion of their living costs paid for going into retirement. In practice in Singapore, this works because the tax rate for the median person (who live in flats) is very modest.

But alas, the USA uses property taxes to support most local services - and is quite dear relative to Singapore. A few states have give seniors some property tax relief - but most (even with relief) are very expensive - and have been going up significantly recently corresponding to the increase in property values. Some states limit the property tax increases. Other states have homeowners exemptions which reduce the property valuation. Florida allows homeowner's exemption portability - which allows one to move and transfer the property tax peg.

But in general, the cost of homeownership in the USA is expensive even if the house is paid off. And property taxes are a major reason why many people do not move.

One would think that all ownership costs would be included in rents, but they are not. That is why the government uses owner equilivent rents in determining inflation (as rent inflation is lower than ownership costs). Property tax increases generally parallel the increase in home sales prices.

Using this measure, the cost of home ownership may be a third higher than owner equilivent rents.

Assuming that the owner equilivent rents have been calculated accurately, then it means rents are not including all the the increases in home ownership. My opinion is:

  • that there is a glut of rentable properties;
  • anyone who has ever owned rental properties knows that when a tenant moves out, you have a lot of costs to make the property ready to re-rent. It is better to keep an existing tenant so a landlord generally keeps rent increases moderate.

Even so, will lower inflating equivilent rent 10 years from now still be true if rental homes are in short supply - and rents skyrocket?

It is hard to read the future costs of one's residence. What to do? What to do?

Other Economic News this Week:

The Econintersect Economic Index for August 2017 appears to forecast static economic growth fundamentals - with the index showing normal growth for the fourth month in a row. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from none

Weekly Economic Release Scorecard:

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