The median price of a new home is down 17.6 percent from a year ago. But what does that stat tell us about sticky inflation?
The chart shows the median price of a new home has fallen 17.6 percent from a year ago. Given the massive margins of error in these Census Bureau reports, the number is highly suspect.
Nonetheless, let’s assume that the stat is true.
Q: What does median price have to do with home prices or “sticky inflation” in general?
A: The surprising answer to those who don’t understand the reports, is little or nothing.
This came up in a Tweet discussion yesterday.
No Sticky Inflation Based on Median Price?
Contrarian to @MishGEA, @EconguyRosie sees no ‘sticky inflation’ in housing data, because “median new home prices in October sunk a record -18% YoY, taking out the worst point (-15%) we saw in the Great Recession.”
My Take Supported by Bob Elliott
“Median New Home Price is one joke of a stat. How many rooms? What amenities? How big is the lot? Case-Shiller lags big but prices still rising.“
Bob Elliott Chimes In
Weird Focus
“Agree with this take. Like for like rising about 0.75% a month for the year. Weird to focus on stats that have huge composition shift issues when an accurate methodology is easily available with a 1 month lag.“
Year-Over-Year Numbers
Five Year-Over-Year Measurements Through September
- CPI: +3.71%
- Case-Shiller National: +3.92%
- Case-Shiller 10-City: +4.76%
- OER: +7.08%
- Rent: +7.44%
CPI Rent
Rent of primary residence, the cost that best equates to the rent people pay, jumped 0.5 another percent in October.
For discussion of rent, please see Falling Rent is Extremely Rare, Yet Economists Keep Expecting That
Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months!
People keep telling me rents are falling, I keep saying they aren’t (and the data proves it).
The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent
Please note The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent
Talk of a tame CPI report this month is entirely an energy mirage and easy year-over-year comparisons.
Home Prices Hit a New Record High
For discussion of the numbers, please see Home Prices Hit a New Record High According to Case-Shiller, Thank the Fed
Not only have we set a new all-time record, the current trend is up.
Key Points
- For 9 consecutive months (every month this year), the national and 10-city prices increased.
- Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months!
- The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent
Rosenberg Should Know Better
On the basis of a meaningless stat that ignores huge composition shift issues, there is allegedly no “sticky inflation” despite massive evidence that suggests otherwise.
Rosenberg not only should know better, I am certain he does know better. So what’s going on?
Rosenberg’s Tweet supports the view Rosie believes in, inflation will decline. We all tend to look for things that support our view, me included.
But in this case, his view is very extreme and downright weird, if not totally ridiculous.
A month ago, Pulte Homes reported that they spent 6.3% of something like an average sales price of $475K on buying down mortgage 30Y rates. That’s $30K+ to mortgage companies. The average rate buydown was 1-1.25%. No wonder the mortgage companies aren’t going bankrupt yet. They’re getting massive amounts for each new home they finance. AND, Pulte STILL had a 29% gross margin before cost of doing business. New homes are still running at least 2x where gross margin should be for a healthy builder.
WHO CARES ABOUT THIS 18%? Mish, why does this matter? All that 18% represents is the FROTH that needed to be cut out of the equation. What matters is what happens in 2024.
There’s a REALLY high probability that the Fed holds rates steady through January. Employment is going to remain stable and IS NOT going to tank. Why? Because the government is spending $1.7T+ that it’s borrowing. Local governments aren’t lowering property taxes yet, so they’re spending like drunken sailors as well. Most red states have budget surpluses, so states are on a spending tear. And none of this will go “POOF” and go away next year. Corporate profits are holding up well.
My predication is headline inflation will rise slowly next year. We’re in the middle on a ’74 to ’76 inflation head fake.
With millions of illegals streaming across the border, WHO in their right mind thinks rent inflation is going to turn negative next year? Who thinks gas is going to go down next year?
FJB! The guy is a corrupts as the day is sunny.
You clearly do not understand mortgages…. the buydown does not go to the mortgage company, it goes to the servicing bank (Fannie/Freddie) for the lower rate. There is a large loss to the mortgage company locking a rate well below market offset by the buydown.They make money on the selling release fee and most of the rest goes away.
You clearly don’t recognize that I’m talking about the mortgage company as the entity that originates the loan. Sometimes this is a broker and sometimes it’s an actual company like Wells Fargo that originates the loan directly.
Either way, somebody is making a sh!t ton of money up front. Sure, most loans are sold into MBS but that’s not the part I’m talking about, Joe!
I’m ONLY talking about the $30K+ buydown money that someone is getting stuffed into their pockets.
Furthermore, it just shows how much of a Ponzi scheme housing is nowadays
Mish, I think that you should continue to refine the numbers that you feel are important for us to understand. R.E. is a huge part of many of your reader’s net worth data. HUGE. In many cases, I would guess that your reader’s GROSS ASSETS have well over 80% of those estimates tied to real estate. Many of my Boomer friends are STILL sitting in mansions, and some in HUGE ranches of orchards and live stock, sitting there wondering what they CAN do in a Housing Market that is not as hot as even five years ago. It is gonna catch up to them!
Mish, who keeps the “Central Repository” on Home SALES PRICES? Where might we tap it?
My father in law owns a very old Cabin (quite large, run down, in a small mountain town in Norther Cal) and we have had it for sale for three years. It is NOT moving, due to the price, in my view, being too high for its condition (needs new Metal roof, property looks terrible, etc.). One year ago today, I grabbed a screen shot and the local ZILLOW data shows an unreal CRASH in its Zillow value. A crash by a shocking $175K from a YEAR ago. That is a 65% crash. He is STUCK with it now as there was also a mountain Fire that nearly wiped out that little town (So sad, we spent Thanksgivings there). He keeps pay taxes, Insurance and VERY little upkeep since he does not have the money to invest in it.
dont trust zillow
It is funny to read discussions between adults and-or professionals about statistics with nominal prices and-or inflation!
Let me put this in big letters: Nominal prices mean nothing!
AGAIN REPEATING—NOTHING!
What is important is purchasing power, aka the ratio of income to prices.
——–
The US population is growing, so in a normal, healthy economy, the number of new houses sold must grow. Is that the case? No! It is falling; same for cars!
As a result, housing and automobiles are both overpriced!
inflation or deflation, no matrer , as long as the number of units sold is falling or is
historically low relative to the population. PRICE IS NOT RIGHT!
alx
I agree with you, Aix. Over a year ago, a Pal of mine was bragging that he COULD make $15K MORE than he paid for his 2021 Chevy Pickup (nice truck, gorgeous). Now, price has come back down to a NORMAL curve of lower and lower value as time moves forward. STRANGE TIMES, these.
Nope.
Housing is an *extremely* desirable asset to own right now because not only does its replacement cost rise with inflation, it can also generate rents that have a chance to keep pace with or even exceed the overall rate of inflation.
If you can afford to keep a house – you’d be a madman to sell it in this environment.
What’s going on with house prices isn’t cyclical – it’s secular.
so from January to December you need to factor in the
NEW YEARLY DEVALUATION OF fiat $dollar
20% for 2023(better than 30% for 2022)
so I need 20% more to break even this year
The inflation adjusted price of homes fell more than 17.6%. Beginning your argument with reference to the Department of Commerce is like referring to George Santos. Yeah. Sure. You betcha.
The same way that I consider your posts.
Sounds like a monetary phenomenon is in progress.
What these people do not understand is the superiority of the Case Schiller report comparing the same housing from period to period. Median sale price merely averages the mass of housing sold which could have either a mass of high priced or low priced housing in the average. Truly mixing apples, oranges, and oranges together.
I disagree that Case Shiller is superior, as it was two major flaws. One, it lags severely as it has to match repeat sales of the same house, and these are far more rare. Two, it does not adequately include the costs of renovating and staging a house before it is sold. As the market is much more difficult for sellers currently, homeowners increasingly need to have their property in pristine condition, and are spending a lot of money to get it there. CS’s methodology for handing these costs are questionable at best.
It shouldn’t be that hard to put out consistent and reliable data. This is publicly available information. And why do we need to seasonalize everything? Just adds to the confusion.
Focusing on the change in home prices also takes focus off of the real problem – unit sales are crashing. Per car.org, the California Association of Realtors, the annualized sales pace in October is down more than 33,000 units from a year ago. As Mish has said many times, the downstream impacts go way beyond housing.
Homeowners are not listing their houses. Hardly a case for declining home price theory.
You think that a debt based, consumerist, economy can withstand the impact of homeowners choosing “not to sell”? At least 15% of the economy IS real estate, and when you knock out a third of transactions, that’s 5% of the US economy completely missing in action. When you consider all the knock on effects of swiftly moving real estate, it’s probably even worse. So, eventually, that decision to not sell will in and of itself cause job losses, and forced sales. Forced sales invariably drag prices down.
I was JUST going to make your point. We are in a VACUUM effect of the Covid Lockdowns, FREE money (to anyone who was clever enough to fill out a couple of on line forms, you could secure an easy $50K – – I did this for my father-in-law who was SELF EMPLOYED and qualified for a PPP “loan”)…so, ALL of those knock-on effects have caused distortions in the DATA: ALL OF IT!
“At least 15% of the economy is real estate”.
Evidence?
“Forced sales invariably drag prices down”.
Not invariably. Prices only go down with a decreased demand/supply ratio. There are more than enough would-be institutional buyers to snaffle up forced sales. Investment buyers are buying houses as if their dollars are going out of style. Which they are.
I ignore all National Data on Homes, as RE is indeed local in my personal experiences with several homes. So much more comes into play as well of course. What shape, what improvements, what’s the neighborhood, location etc. Maintenance has been my biggest factor that is crucial imo.
I am in NE and my home has went up recently, and so has my entire neighborhood with 2 sales recently at asking. I could be a bad example too, and I have a modest home if that matters.
Yes, Stu, I agree with you as I mentioned, so to speak, in my note about my father-in-law’s Mountain Cabin. It is sitting there. We removed the for sale sign now. IT WILL NOT MOVE. If my father in law dies, I am going to auction it off. HE CANNOT emotionally get rid of it even though we do not use it.
I agree that all Real Estate is local. I live in North Metro Boston. We saw a little weakness from 11/22 – 2/23 – but that’s gone. We have easily the strongest late-autumn seller’s housing market I’ve ever seen right now. 2020 and 2021 NOT excepted. Very little housing is on the market. The stuff that’s moving is flying. We’re seeing bidding wars with 10-15 participants (most of whom are investment or institutional buyers) play out in a couple of days. These sorts of bidding wars used to take weeks to play out. Not now.
The median price in PA is 215K. CS top 5 are 5 times higher. Transactions are down in PA bc there are not enough houses for sale in PA. Transactions are down in CS bc
prices are in bubble territory.