There have been numerous housing reports which have missed estimates in the past few months. It’s a bad sign for the economy because housing is a leading indicator. The initial problem in housing has been catalyzed by a lack of affordability and rising interest rates. The problem may morph into being caused by a weak economy if the labor market weakens.
The good news is the October existing home sales report beat estimates for the first time in 7 months. This doesn’t mean the trend is changing, but at least it signals the housing market isn’t cratering yet. Existing home sales were 5.22 million which was up 1.4% month over month, but down 5.1% year over year. This shows how the sequential improvement couldn’t make up for the trend weakness. Single family homes and condos were up 0.9% and 5.3% monthly, but down 5.3% and 3.2% yearly.
Year over year prices were up 3.8%. Prices have been up on a year over year basis for 80 straight months. However, prices were down 0.3% month over month to $255,400. Since home affordability is a problem, a decline in price growth will bring out buyers if the labor market is strong. Supply fell 1.6% to 1.85 million. In relation to sales, supply fell from 4.4 months to 4.3 months.
Weakness In Leading Cities
Some of the cities which have outperformed in this cycle are starting to show weakness. This is similar to how the stock market leaders crater the hardest and the quickest after the stock market tops. In the current scenario, the FAANG stocks have underperformed. Of course, we still don’t know if the stock market has topped this cycle.
The charts below show the beginning signs of weakness in the Dallas, Denver, Seattle, and San Francisco housing markets.
Since these areas have had high price appreciation, it’s likely that once they weaken, there will be a decent sized decline. Year over year, inventories in these cities are up much more than the national average as San Francisco has seen a whopping 41.6% increase. Home price growth has started to slow in these 4 cities. 3-month average sales in Dallas are at the flatline on a year over year basis.