New Home Market Coming Back?

Almost exactly one month ago we looked at some disturbing dips in the new home sales market and a corresponding drop in stock prices in the construction sector. The plunge had followed a few months of anemic, but at least slightly positive gains in that market. I finished the story with the following question:

So what does this mean for the coming year? (I’m honestly asking here because I’m obviously no economist.) Is housing in a sustainable period of recovery and this month’s plunge is just a glitch? Or is the market going back into retreat?

Well, we’re now nearly into the month of May and according to Business Insider the numbers seem to be changing course yet again and at least hinting at a continuation of the previous, positive trends. April is looking up a bit.

Home Sales Chart

In early April, it looked like investors had obviously been drinking too much Kool-Aid, and that the pain would continue.

But! Housing is actually showing a pulse.

This week, Northern Trust’s Asha Bangalore went through some of the charts showing recovery.

Sure it’s modest, but the trend in new homes sales is going in the right direction…

It’s too early to get excited or sound the all clear. But it’s a very good sign that the hiccup we saw last month didn’t continue. And if the positive trends continue, it will be very bullish for the economy overall.

We could certainly use some good news, and housing is one of the slowest, most ungainly numbers to get moving in the right direction. But it’s springtime… traditionally the time of year when construction picks up in the Northeast and Midwest. Could this just be a predictable seasonal bump as builders head out into the field? I decided to contact BI’s own Joe Weisenthal to ask.

You always have to watch out for seasonality when it comes to housing, but the data from the government is generally good at adjusting for it. One easy way to see if there’s a seasonality issue in the data is to just look at year-over-year numbers, and generally (with the exception of actual prices) things are looking much better than they were a year ago. Of course, the warm winter may have played a big part in that, although if that had been the case, March numbers would have been much better. As it is, March was a bit weak, but April is looking better. The good news is that nothing is pointing down. Now we just need to see some consistency on the upside.

The original linked article includes charts of the stock market associated with new home construction and the curve seems to be bending in the same direction. I tend to be pretty cautious when it comes to getting my hopes up over the housing market. (Just looking at what happened to my place’s value is enough to give pause.) But this trend – with the obvious exception of March – now dates back roughly six months, so I’m almost ready to start having a little hope here. Real estate – both commercial and residential – is one of the lynchpins of the economy over the long run and any possible recovery was never going to look very solid until the market stabilized. Is this a sign that the market has finally reached bottom and is beginning to turn around? Keep your fingers crossed.