If pending home sales are a leading indicator, the long run of monthly declines in US existing home sales may soon be over.
In what counted as yet another piece of evidence to support the notion that “animal spirits” are stirring across the world’s largest economy, pending home sales surged more than 8% in January, according to data released Monday.
That was three full percentage points above the highest guess from two-dozen economists, and came on the heels of December’s surprise uptick which, you’ll recall, was a harbinger for what turned out to be a robust January for the US economy.
December’s increase looked less impressive after revisions, but nevertheless, January’s jump marked the second consecutive month during which contract signings increased. That suggests existing home sales may inflect imminently after falling a 12th consecutive month.
January’s rise in pending home sales was the largest since June of 2020, when the pandemic housing bubble was still in its infancy. Consensus expected a mere 1% advance from December.
“Buyers responded to better affordability from falling mortgage rates in December and January,” NAR Chief Economist Lawrence Yun said Monday, adding that although “home sales activity looks to be bottoming out in the first quarter of this year,” sales likely won’t post another annual gain until 2024. The NAR sees existing home sales falling more than 11% this year, and expects the 30-year fixed to average 6.1%.
Late last week, government data showed new home sales rose sharply last month amid a historic drop in prices. Those figures are erratic and most observers view them with skepticism, but the jump was consistent with the balance of data for January, virtually all of which pointed to restless consumers anxious to spend whatever they have left.
Pending home sales rose in every region in January versus December, although measured against January of last year, they obviously fell. The index dropped more than 24% on a YoY basis.
As ever (and I realize this is repetitive) it’s not obvious that the Fed wants to see a rapid recovery in housing market activity. Stabilization is desirable given the drag from residential fixed investment on GDP, but another frenzy would be a decidedly unwelcome development, particularly in the context of evidence which suggests that, as JonesTrading’s Mike O’Rourke put it, the FOMC has made “little progress on taming inflation.”
The recent selloff in Treasurys could curb housing activity, and the MBA’s index of purchase applications sits near a three-decade low. Additionally, developments in new leases mean shelter inflation, as it manifests in the CPI series anyway, is guaranteed to fall on a lag.
But, the Fed has to protect the disinflationary momentum in housing. That’s mission critical. If they lose that tailwind, it’d mean there’s nothing left. The assist from goods deflation is already waning. There’s no progress (none) on the services ex-housing side. If the housing market heats up again, the Fed will be behind the eight ball in earnest.
It may soon be time for Powell to consider active MBS sales to slam the brakes on housing before it’s too late. Although the long run neutral discussion is getting some traction, it still seems unlikely that long-end US yields are prepared to fully embrace the “regime change” narrative and price the macro shift accordingly. That, in turn, suggests that absent a shove from the Fed, mortgage rates have probably peaked. And spring is coming.
Frankly, I like the new AI-generated article artwork you’ve started using for some of the posts. This one has the clearest hallmarks (standard Diffusion-style wording on the road sign, road sign implausibly placed in the middle of a driveway/sidewalk), but there’s been lots of these since the change to the new H+ format. More variety now in the art than before, but in any case and from whatever source, it’s a breath of fresh air to have original artwork for articles, it really adds to the readability. Worth the price of admission right there, as if the content wasn’t already the best.
I’m glad somebody understands why this is important. Although longtime, superfans have an affinity for some of my “classic” banner images, etc., I have to keep in mind that thousands of people are consuming this content each day, and I want every minute of that experience to be enjoyable, which entails constantly trying to keep it fresh.
Also, I deliberately choose some of the generations with implausible elements, almost as a kind of subtle nod to René Magritte. The trick is not going overboard with the implausibility, tempting though it is. Also, I hope readers understand: This isn’t as simple as clicking “generate.” For every one you see that “works,” there were dozens upon dozens that didn’t. This, like everything else I do, takes a lot of care and effort.
Housing turnover is slow, although January was better. Weather and the dip in mortgage rates helped, as did price cuts. Mortgage rates are back up, the weather, who knows? A one month trend especially in a slow time of year not meaningful. If you saw a busy spring for 3 months, that would be very meaningful.