Let's take a look at the supply of new homes as well as total housing units under construction.

New homes for sale data from commerce department, chart by Mish

The commerce department released its new residential constructing report today. 

Allegedly there is a 9 months supply of new homes for sale. 

New homes for sale supply 

New homes for sale data from commerce department, chart by Mish

New Home Sales

New homes data from commerce department, chart by Mish

Understanding the month's supply calculation

The seasonally‐adjusted estimate of new houses for sale at the end of April was 444,000. This represents a supply of 9.0 months at the current sales rate.

444,000 for sale / 591,000 sold * 12 = 9.0 Months. 

Key points 

  • Of the alleged 444,000 homes for sale, 118,000 have not been started. Instead, builders sit on land, hoping for sales contracts. That's a record number of homes for sale that may not be started for many months or even years in this environment.
  • There are only 38,000 actual completed homes for sale. Even at depressed sales rates, that's miniscule supply. 
  • Arguably a better way of looking at for sale is a measure of completed homes plus homes under construction as a percentage of sales. 

326,000 for sale (started or completed) / 591,000 sold * 12 = 6.6 Months.

Total units under construction

Rent matters more to the Fed 

Rent matters far more to the Fed than home prices. Home prices are not even in the CPI. 

The Fed desperately wants the price of rent to decline and the record number of units under construction will help.

Key shelter points

  • OER is 23.816% of the CPI in April.
  • Rent is 7.278% of the CPI in April.
  • Year-over-year rent was only up 3.8% in January and 4.8% in April.
  • Year-over-year OER was only up 4.1% in January and 4.8% in April.
 

OER is the mythical price one would pay to rent one's own house from himself, unfurnished, and without utilities. 

OER and rent make up over 31 percent of the CPI. The best chance for the CPI to stabilize is if the price of rent declines. 

Hiking rates will slow the construction of housing, including multi-family. But the massive supply of total housing units under construction puts downward pressure on rents.

In addition the 288,000 new homes for sale and under construction puts downward pressure on new home prices. 

Meanwhile, however, it's highly unlikely that rent only went up 4.8% in April. That will put short-term upward pressure on the CPI. 

Longer term, boomer downsizing and eventual deaths will greatly add to supply. 

CPI year-over-year drops a bit, but is it believable?

The CPI rose again in April, more than economists expected. Year-over-year there's a small decline.

I question the rent numbers thus, the entire CPI.

For discussion, please see CPI Year-Over-Year Drops a Bit, But Is it Believable?

For more discussion of housing, please see New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions.

Finally, we had evidence that today's huge plunge in new home sales was coming. 

Yesterday, I commented NAR Pending Home Sales Data Provides More Evidence of a Severe Housing Slump.

And on May 23, I noted The NAHB Wells Fargo Home Builder's Index Is Sinking Spectacularly.

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD recovers modestly, trades above 1.0400

EUR/USD recovers modestly, trades above 1.0400

EUR/USD has managed to stage a modest rebound in the American session and climbed above 1.0400. Despite the risk-averse market environment, falling US Treasury bond yields after the latest inflation data seem to be limiting the greenback's gains for the time being.

EUR/USD News

GBP/USD rises above 1.2150 as dollar retreats

GBP/USD rises above 1.2150 as dollar retreats

Gold has gained traction and turned positive on the day above 1.2150. With the US T-bond yields falling sharply on soft inflation data, the US Dollar Index turned south and erased a large portion of its daily gains, helping GBP/USD push higher.

GBP/USD News

Gold rebounds toward $1,820 on falling yields

Gold rebounds toward $1,820 on falling yields

Gold has turned north and advanced to the $1,820 area after having dropped toward $1,800 earlier in the day. The benchmark 10-year US T-bond yield is down more than 2% on the day near 3% after the latest US data, fueling XAU/USD's upside.

Gold News

Breaking: Ethereum price tanks below $1,000

Breaking: Ethereum price tanks below $1,000

Ethereum price has breached a critical area of support over the past few hours, dipping below $1,000. The Fibonacci retracement indicator shows that ETH lacks any significant support levels that could keep prices at bay.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures