To all appearances, the U.S. housing market is moving sideways. That is what several recent data releases suggest. June new home sales increased to 330,000 units from a cyclical low point of only 267,000 units the month before. However, this still left them at the same depressed level where they have been for most of the past year and a half (see graph below). New home sales are reported in a joint press release of the Census Bureau and Department of Housing and Urban Development.

Meanwhile, the number of unsold single-family homes dropped another notch to set a new all-time low in June. At just over 200,000 units, they are half what they should be, if the market were to be performing in any normally functioning way.

The combination of units unsold and the monthly sales rate has left the number-of-months inventory at 7.5. This is actually a considerable improvement from May when the number-of-months inventory shot up to 9.6, after the expiry of the homebuyer tax credit on April 30. Also, it should be remembered that a year and a half ago the number-of-months inventory was a horrendous 12.1. Considerable painful progress has been made since then.  

That’s the new home market. As for the existing home market, the S & P Case-Shiller resale price index crawled ahead (+1.3% not seasonally adjusted; +0.5% seasonally adjusted) in May versus April. U.S. home resale prices touched bottom in early 2009 and have improved to only a minor degree since then.

Both the 10- and 20-city composite indices now stand about where they were in the fall of 2003. They are down almost one third versus their peak at the beginning of 2006.

The improvement that has taken place should not be minimized, however. On a year-over-year basis, the increase in average resale prices is around 5.0% (i.e. 4.6% for the 10-city composite and +5.4% for the 20-city composite).

Six cities have recorded gains above the national average: San Francisco (+18.3%), San Diego (+12.4%), Minneapolis (+11.6%), Los Angeles (+9.7%), Washington, D.C. (+7.4%) and Phoenix (+7.2%).

In a number of these cases – especially the cities in California, as well as Phoenix – the impressive percentage gains are the result of the base figure being so low.

On the flip side, six cities are still in decline: Las Vegas (-6.5%), Charlotte (-2.8%), Detroit (-2.5%), Chicago (-1.5%), Tampa (-1.5%) and Seattle (-1.4%).

It is good to see a degree of stabilization in Las Vegas. From peak to trough in that city the decline was greatest among all U.S. urban centers, at -50%.

Dynamic changes

Appearances aside, some dynamic changes in U.S. housing demand are underway.

The gradual pickup in U.S. labor markets is encouraging some younger people (mainly aged in their 20s) to move out of their relatives’ homes and seek accommodation on their own. As a consequence of this move away from temporary housing, rental rates have been trending higher.

The evidence for this can be found in the healthy improvement in apartment REIT share prices.

One factor inhibiting a speedier shift to rental units, however, is that the cost of renting versus buying has converged in many major urban centers, due to the home price collapse. This should be another reason to expect new and existing home demand to begin picking up this fall.