House Prices Are Rising Faster Than Case Shiller Says, Market Is Tight
by Lee Adler, Wall Street Examiner
Forget the severely lagged and smoothed Case Shiller Index which reported that the median US house sale price in June was up 11% year over year. That actually represents the 3 month average contract price with a time mid point of mid March. Are you interested in where the 3 month moving average of the Dow was in mid March? I didn’t think so. You want to know how the market is doing today.
Electronic real estate broker Redfin released current contract data for July this week (Tuesday 27 August) for the 19 US metro markets it covers. This includes all contracts reported to the regional MLS’s for those markets. The 19 markets are mostly in the Northeast and on the West Coast, with only four markets in the US interior hinterlands, but it’s broad enough to give us a reasonably good idea of where the market stood and was headed a month ago based on contracts signed in July.
It seems abundantly clear from that data that the US housing market is in a bubble and is a lot hotter than Case Shiller says. According to Redfin, home prices per square foot rose by 19.3% year over year in those markets. Based on the typical US home with 3 bedrooms, 2 to 2 1/2 baths and 1,600 to 2,000 square feet prices rose 18.9% year to year. Annual gains ranged from a low of 3.9% in Philly to 39.1% in Vegas, and 38.8% in Sacramento. The total gain from the 2011 low is 31.9%.
Redfin reported that July sales volume rose by 3% from June and is up 17.6% versus July 2013. Redfin also collects and reports data on the number of offers it submits and the number of house showings it conducts. Showings were up 28% and offers were up 25% in July versus July 2012. So much for higher mortgage rates suppressing demand. Rising rates pushed buyers sitting on the fence to jump now rather than wait. This is typical inflationary behavior that the Fed pretends not to see by ignoring housing inflation.
Another service that provides closed sale data on a real time basis shows similar gains. Dataquick.com publishes closed sales for 98 of the 100 largest US metros from public record data, each week. It aggregates the data on a rolling 4 week basis. Typically, recorded sales in most locales lag the closing dates by about 3 weeks. The most recent data would therefore tend to represent sales closed in July, with contracts typically reached in May and June.
Dataquick’s data shows that as of August 22, the latest 4 weeks of reported closed sales rose 16.2% in price over the prior year period. That compared with a gain of 14.1% as of July 18, so price gains were accelerating. The total gain since the cycle low in March 2012 was 35.9%.
Dataquick reported sales volume of 261,000 homes as of the 4 weeks ended August 22, for an annual increase in sales volume of 33.8%. It was also 1.5% higher than the 257,365 sales reported in the 4 week period ended July 25.
Redfin reports that supply started shrinking again in July, as is seasonally normal, with active MLS listings in the 19 markets down 4.6%% from June and 30.6% from July 2012.
DepartmentofNumbers.com which collects listings data from the 55 largest US metros shows real time listings still rising through July and August, with a month to month increase of 3.3% as of August 26, but that was still 5.7% below August 2012′s extremely tight level. Normally listing inventories decline from August through January. This data includes a broader sampling of US heartland and Southern markets than does Redfin. Even with the August uptick, supply remains tight.
There’s no question that restricted supply is the primary driver of the house price bubble. At some point, higher prices should bring forth a torrent of supply.When that happens, we should see a return of downward price pressure. But we’re not there yet. Demand, while nowhere near the levels of the prior decade is still increasing and sufficient to continue to put upward pressure on prices at the current level of supply. The first signs that the price rise is coming to an end will be a drop in sales volume or a material increase in supply, or both.
See Rick Santelli use one of my proprietary charts on CNBC to explain how the Fed impacts the stock market directly through its trades with the Primary Dealers. This is just one example of the dozens of proprietary charts that I build that will help you to clearly see and understand the market’s trend, and when that trend is beginning to change.
Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Get the research and analysis you need to understand these critical forces and stay ahead of the herd. Click this link and begin your risk free trial NOW!
Economic Chart Gallery