The report last week of a 13% fall in the number of new homes sold in September (compared to the previous September) was another bit of bad news behind the 10% fall in the S&P 500 so far in October. Homebuilder stocks are down nearly 40% from last January.
Looking at the graph below of Federal Reserve Economic Data (FRED), you can see new home sales have a strong tendency to fall a year or two before recessions begin, which helps explain why so many people are interested in following new home sales.
The number of new homes sold began to fall a year or two before six out of the last seven recessions. (Home sales did not fall before the 2001 recession.) Looking at the graph again, you can see that new home sales did fall a few times without being followed by recessions—once in the 1960s, once in the 1980s and twice in the 1990s.
Case-Shiller Home Price Index
Now let’s switch from the new home market to the much larger existing home market and existing home price trends.
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One of the most closely followed statistics on the strength of the existing home market is the Case-Shiller Home Price Index, which released numbers today for August. The Case-Shiller numbers are not the most current, running about two months behind. But despite being slow, their “repeat sale” index is considered by many to be a better measure of home prices than median or average home prices. Average and median home prices, for example, are affected by the composition of the homes sold. If more luxury homes sell because the stock market is hot, that would increase the median and average home prices in a city even if home prices haven’t actually changed at all.
The latest Case-Shiller numbers show that home prices were still increasing in all 20 cities covered by the index and in the U.S. as a whole, but price increases were getting smaller.
Hot: Las Vegas home prices (up 13.9% in August compared to the previous August), San Francisco (up 10.6%) and Seattle (9.6%) had the highest annual home price appreciation in the 20 cities covered by Case-Shiller.
Cold: New York (up 2.8%) tied Washington D.C. (up 2.8%) for the least home price appreciation in the 20 cities. New York knocked Chicago (up 2.9%) out of the second worst spot.