December new home sales surged well over the high end Econoday
estimate.
The outlook for the housing sector just got a boost from a
sharp jump in new home sales, up 10.8 percent to a 544,000 annualized rate
that is 44,000 over the Econoday consensus and 24,000 over the high estimate.
The gain, however, may have been boosted by discounting as the median price
slipped 2.7 percent to $288,900 for a year-on-year rate of minus 4.3 percent.
With builders slow to bring new homes to market, low supply remains a central
factor holding back sales. Supply did rise 6,000 in the month to 237,000 but
supply relative to sales fell back to 5.2 months from 5.6 months. A reading
of 6.0 months is considered to be the balance point between supply and
demand.
Regional data show a 32 percent sales surge in the Midwest where the year-on-year
rate of 39 percent is the strongest. Sales in the West and Northeast both
rose 21 percent in the month with the year-on-year rate in the West, which is
a key region for new housing, up 22 percent while the Northeast, which is a
very small region in this report, down 6.5 percent on the year. The South,
which is the largest region, shows a fractional gain in the month and no
change on the year.
For full year 2015, new home sales rose 14.7 percent to 501,000 from 437,000
in 2014. Sales of new homes have been noticeably higher than prices,
suggesting that prices have room to accelerate. This report follows
special strength in existing home sales with both perhaps benefiting from
December's warm weather but with both pointing nevertheless to new momentum
for 2016.
Negative Momentum
Why did sales surge 39% in the Midwest? Because this was one of the warmest
December on record even discounting global warming silliness.
Bloomberg calls this "new momentum" for 2016. Indeed it is,
but that momentum is negative.
This statement by Bloomberg caught my eye: "Sales of new homes have
been noticeably higher than prices, suggesting that prices have room to
accelerate."
Prices Have Room to Fall
I suggest home prices have room to fall. Curiously so does Bloomberg, albeit
in different ways, and in a different article.
Please consider Bloomberg's article The Surge in U.S. Mansion Prices Is Now Over, published
just two days ago.
The world’s economic woes -- from China to Russia to South
America -- are damping sales in the high-end real estate market. Haywire
overseas stock markets and dropping currency values caused in part by
plummeting oil prices are dulling demand for mansions, penthouses and winter
escapes.
Luxury Pfft
Prices for the top 5 percent of U.S. real estate transactions remained flat
in 2015 while all other houses gained 4.9 percent, according to data from
Redfin Corp., a real estate brokerage and data provider.
Stronger Dollar
The stronger dollar is driving South American buyers away from the 23,000
condos in the pipeline for Miami’s downtown area, said Peter Zalewski, owner
of South Florida development tracker CraneSpotters.com. Buyers signed about
one-fourth fewer pre-construction contracts last year than in 2014, according
to Anthony M. Graziano, senior managing director at Integra Realty Resources
Inc., which tracks condo data for the Miami Downtown Development Authority.
In nearby Sunny Isles, Florida, faraway currency fluctuations are endangering
the sale of a $3.7 million condominium.
In Houston, the plunge in oil prices to a 12-year low is killing the luxury
boom. Sales for homes priced at $500,000 or more dropped 17 percent in
December from a year earlier, according to the Houston Association of
Realtors.
Manhattan resale prices for the top 20 percent of the market peaked in
February and have fallen every month since, according to an analysis through
October by listings website StreetEasy.
Even in San Francisco, where the market for luxury properties remains strong,
the inventory of listings for $2 million or more jumped in October to a
record level, said Patrick Carlisle, chief market analyst for Paragon Real
Estate.
“More sellers are jumping in and more buyers are holding off because they’re
worried about where the volatility is going,” Carlisle said.
Buyers are now on the hunt for deals, said Nela Richardson, chief economist
at Redfin.
“There’s a limit even to what a wealthy person will spend,” she said.
Is Everybody In?
Bloomberg did not make the necessary connection, but they did provide the
chart. Let's tie up some loose ends.
In bonds, rot starts with junk and spreads to the core. With homes, price rot
starts at the high end.
With Chinese West-coast buyers now not feeling so wealthy after a 47% plunge
in the stock market, and with "Temporary"
Capital Controls likely on the way, that segment of the high-end market
is toast.
The strong dollar is having the same effect in Florida. And in New York, well
... "There’s a limit even to what a wealthy person will spend."
And every decrease in the price at the high end, effects every level below
it. A mansion that was $1,000,000 but is now $900,000 is going to affect the
price of homes listed for $850,000 to $900,000, etc., all the way down the
ladder.
Is Everybody In?
Let's return to the Econoday "room to accelerate" misanalysis.
If homebuilders could sell more expensive homes, they surely would. And at
the very high end, it appears we have hit the peak. That group is "all
in".
It was one hell of a bubble-reblowing effort by the Fed, but another slide
lower awaits. New homes prices will likely get cheaper and cheaper with more
and more features added.
In turn that will lower the price of similar existing homes. This stuff does
cascade. We have seen it before.
Lack of Supply
There's plenty of talk about lack of supply. Actually, there's an ample
supply of homes. There's just no supply at prices people are willing and able
to pay.
Expect lower, not higher prices. And if you need to get out, beat the rush,
if you still can.
Mike "Mish" Shedlock
