New Home Sales Falter As Survey Respondents Feel Uneasy

New Home Sales Falter As Survey Respondents Feel Uneasy
Notice a distinct rise on 'FOR SALE' signs in your area? You're not alone.

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Can you feel that? The hair on the back of American's necks is standing up, but most can't put their finger on what's causing it.

The Dallas Fed's manufacturing activity survey came in today at -11.3, marking the 20th month in a row of negative responses about the outlook for upstream manufacturing in the Lone Star state. Given the size of Texas' economy and its interconnectedness to US manufacturing at large, we can glean national sentiment from this survey, too. Among the doom and gloom responses given by survey takers, one sticks out as particularly striking:

An eery calm that tends to precede economic calamity is here, giving people goosebumps and a feeling of uneasiness about the economy at large. Coming from manufacturing which is upstream from just about the entire US economy, the downstream implications of a slowdown are sweeping. Looking at today's national housing data that was released alongside the Dallas Fed's survey, it is clear to see that the economic malaise has made its way into the housing market.

Sales of single-family homes (white) rose to a pace of 661,000 annually this month, below analyst estimates of 684,000 and keeping the pace seen over the last several months after declining from the post-COVID stimulus-fueled highs. The average 30-year fixed mortgage rate (orange) jumped back above 7% and could be well on their way to challenge new highs as the Fed's interest rate campaign is far from over, weighing heavily on potential home buyers and driving homeowners to not part with their properties, both leading to the stagnation you're seeing here:

This deadlock in home sales and secular boom in mortgage rates has caused a commensurate decline in the median sale price of one-family homes, which has sunk to a two-year low of $413,000. Given that homes are the largest asset that most families own in their lifetime, home prices are always indicative of economic health. A secular decline in home prices portends troubled waters for the economy at large as potential consumer spending falls along with it, the sharp dropoff we're still experiencing now is particularly concerning:

The seasonally adjusted yearly rate of change shows that median home prices have actually risen. This is yet another great example of how the government lies perniciously with statistics. As always, looking at NSA data and consumer surveys, the truth wins out in the end. You cannot lie your way out of economic realities:

Existing home sales are still at a 13-year low first notched last November. While they have risen to a 4% monthly rate, we are still well below the historical rate of existing home sales seen in previous economic recovery periods. What we've experienced now is nothing but mean reversion following a surge in home sales when mortgage rates were locked close to zero. Existing home sales were at and around this ~4% monthly rate for the entire Great Financial Crisis; this is the exact spot where we find ourselves today, on the precipice of calamity:

Overlaying mortgage applications, it's clear that this lull in existing home sales is the people on the other side of the lull in new home sales: owners who don't want to sell. They are content with their ~2% mortgage rate and are not trading it for something 4x higher, at least not voluntarily. A recession may force many owners out of their homes and involuntarily into higher mortgage rates, which will of course come down as the Fed slashes rates and attempts to stimulate a floundering economy, but we're not quite there yet. Still in a holding pattern, still on the brink:

This slowdown in home sales and secular decline in home prices leads to major inventory gluts and an eventual slowdown in construction, further reinforcing the economic downturn. Inventory has soared and oversupply is beginning to grip the market as builders haven't slowed but owners and buyers stay far away. Right now, while the inventory of single-family homes is up some 15.6% from this time in 2023, it is down almost 40% from this time in 2019; the perfect example of a rounding top in home-buying activity and construction and a return to the historical trajectory that threatens to dip below it, also known as recession:

@MacroEdgeRes on X

Unsurprisingly, lenders repossessed ~4,000 homes in January, an increase of 13% month-over-month and the first meaningful increase since last July. As rates become untenable while wages are no longer keeping up with mortgage payments and layoffs start to rise, these bank seizures and foreclosures will only become more common. As I've said for a while, the Fed now has the tools to put a pin in recession and spur economic activity very quickly; a prolonged recession is not in the cards in my view, however much monetary and fiscal stimulus it will take.

Recessions usually come when the potential economic pain from a downturn is maximized, be that due to complacency on the part of investors or a peak in headlines that read something like "maybe this time, we won't have a recession." Stay vigilant and only invest in the dollar what you can afford to lose in devaluation. The stimulative efforts on the other side of what's coming will be like nothing we've ever seen before.

Final thought: a fresh 26-month high for bitcoin. Are you feeling it?

Have a fantastic week everyone,

Joe Consorti

Theya is an app for simplified Bitcoin self-custody. With its 2-of-3 multisig custody solution, you can enjoy maximum security for your Bitcoin and the peace of mind that comes with it.

Download Theya on the App Store and declare your sovereignty today.