Real Estate Prices Begin to Contract

Political  Calculations
Posted: Apr 21, 2014 12:01 AM
Real Estate Prices Begin to Contract

According to preliminary data published by the U.S. Census Bureau, the trailing twelve month average of median sale prices for new homes fell in February 2014 after peaking a month earlier.

The preliminary new home sale price for February 2014 was $261,800, which was up from January's revised $260,800. However, the trailing twelve month average for median new home sale prices, which smooths out seasonal variations in the data, fell to $265,100 in February 2014 from January's 265,375 - the first contraction we've observed in the data for some time.

The Census Bureau's monthly data is typically revised upward for several months after it is first reported, as it takes time for larger sales occurring in a given month to be recorded.

Our chart below shows how the trailing year average of median new home sale prices have evolved with respect to median household income in the U.S. over the last 15 years. Note that the falling housing prices came as median household income saw its biggest increase since August 2012.

U.S. Median New Home Sale Prices vs Median Household Income, 1999-Present, through February 2014

Unless upcoming revisions to the preliminary data change this result, February 2014 would mark the first time since June 2012 that the trailing year average of median new home sale prices declined from the previous month. July 2012 marks Month 0 of the period that coincides with the inflation of a new bubble in the United States according to the data we track.

The 19 month long period of month-over-month price increases in the twelve-month average from July 2012 through January 2014 would be the longest recorded since the 32 months of steady month-over-month increases recorded between January 2004 and September 2006, which coincides with the peaking of the first U.S. housing bubble.

As noted in other analysis, the ISM Non-manufacturing Report on Business for March 2014 indicates that the real estate, rental and leasing industry contracted in March 2014. If so, we may now be witnessing a peak in the second U.S. housing bubble.

Previously on Political Calculations

We were among the first to declare that a second housing bubble was forming in the U.S. economy, and we were the first to back it up with an objective framework of analysis and data. Our ongoing analysis is chronicled below....

Data Sources

U.S. Census Bureau. Median and Average Sales Prices of New Homes Sold in the United States. [Excel Spreadsheet]. Accessed 24 March 2014. [Note: All this data is reported in terms of current (nominal) U.S. dollars.]

Sentier Research. Household Income Trends: February 2014. [PDF Document]. Accessed 11 April 2014. [Note: We've converted all data to be in terms of current (nominal) U.S. dollars.]