New Home Sales by Census Department, Chart by MishStage of Construction Details

Builder OptimismAllegedly, there are 480,00 homes for sale but 101,000 of them have not been started. That is a land commitment only.The builders are fully committed once they start building. That is a big speculative investment.New Home Sales vs Homes for SaleSales vs for Sale Key Points

New Homes Sold vs Sales PriceBuilders reacted to the huge slowdown (first red arrow down) by building smaller homes, on smaller lots, with fewer rooms, and fewer amenities, coupled with mortgage rate buydowns.About a year ago, buyers balked while median prices fell and average prices went sideways.The price insensitive buyers are still willing to pony up, for now, but what are builders going to do for an encore otherwise?I dislike median and average price computations because they do not reflect what you get for your money. Is it granite or vinal? Three bedrooms or four? Etc.I have no idea what those buyers are getting but I strongly suspect much less for the money than four years ago. Mortgage rate buydowns are not free. Getting far less for your money does not make a house affordable.Existing-Home Sales Decline 1.9 PercentExisting-home sales fell 1.9 percent in April and are also down 1.9 percent from a year ago. Sales have not gone anywhere for 17 months.Existing-home Sales data from the National Association of Realtors (NAR) via the St. Louis Fed On May 27, I commented Existing-Home Sales Decline 1.9 Percent, Sales Mostly Stagnant for 17 MonthsKey Highlights

“Home sales changed little overall, but the upper-end market is experiencing a sizable gain due to more supply coming onto the market,” said NAR Chief Economist Lawrence Yun.Case Shiller Home Price IndexThe Case-Shiller national home price index hit a new high in February. That’s the latest data. Economists don’t count this as inflation. Case-Shiller national and 10-city indexes via St. Louis Fed, OER, CPI, and Rent from the BLSChart Notes

Case-Shiller measures repeat sales of the same home over time and the indexes attempt to weed out major home improvements.Case-Shiller is a far better measure of home prices than median or average prices which do not factor in the number of rooms, location, lot size, or amenities.Home Prices Hit New Record High, Not InflationFor discussion of the previous chart, please see Home Prices Hit New Record High, Don’t Worry, It’s Not Inflation

Not Inflation?!

Economists, including the Fed, consider homes a capital expense, not a consumer expense.

As a result, they all ignore economic bubbles and blatantly obvious inflation on grounds it’s not consumer inflation. This has gotten the Fed into trouble at least three times. The first was the dot-com bubble, then the Great Recession housing bubble and now.

It’s really pathetic when you make the same major mistake over and over and over. It’s a result of groupthink.

They all believe in the same silly models based on disproved theories including inflation expectations and the Phillips curve. You do not get in the good ole boys Fed club unless you think like a good ole boy.

The big problem with Case-Shiller is the huge lags. It’s nearly June and Case-Shiller is from February. And that reflects sales for 1-3 months prior.Are Home Prices Still Rising?I have very strong doubts. But those sitting on an existing home do not want to trade a 3.0 percent mortgage for a 7.0 or higher percent mortgage.Would-be sellers hoping to move are trapped and waiting things out.Homebuilders do not have the luxury of waiting things out. As unsold speculative inventory rises, the urge to reduce prices will be overwhelming.More By This Author:New Home Sales Sink 4.7 Percent on Top of Huge Negative RevisionsFed Minutes Show Willingness for Still More Rate HikesExisting-Home Sales Decline 1.9 Percent, Sales Mostly Stagnant for 17 Months