Is housing weakness just a seasonal blip?

Analysts lean towards optimistic view

Tuesday morning’s mixed news on housing sales and home prices in January and February may come down to an issue of inventory, according to some economists and analysts.

The Federal Housing Finance Agency House Price Index reported a 0.3% increase in U.S. house prices in January from the previous month.  From January 2014 to January 2015, house prices were up 5.1%. 

Sales of new single-family houses in February 2015 picked back up to a seasonally adjusted annual rate of 539,000, 24.8% above last year’s estimate of 432,000. This is 7.8% above the revised January rate of 500,000. It was originally posted at a seasonally adjusted annual rate of 481,000, only 5.3% January 2014’s estimate of 457,000, which was considered a weak level.

Looking back at the start of the year, January was a bad month for housing starts, completions and permits, with privately-owned housing units authorized by building permits in January coming in at a seasonally adjusted annual rate of 1,053,000.

But industry watchers said this haphazard start could be short-lived.

“February’s bump in new home sales is definitely encouraging when compared to the lackluster numbers we’ve seen recently in existing home sales,” said Quicken Loans Vice President Bill Banfield. “We’re a bit low on the supply-side which could force prices up for buyers, further hammering home that we’re in a seller’s market.”

Lindsey Piegza, chief economist for Sterne Agee, noted that price growth is slow across the board – pointing out that the consumer price index rose just 0.2% in February, which was expected. Year over year, headline inflation has pushed out of the red and is flat over the past 12 months.
“This morning's report suggests a slightly stronger hint of inflation, relative to deflation that is. Compared to historical bouts of inflation, however, the question remains, what inflation?,” she said. “Also this morning, new home sales are expected to fall 3.5% in February to a 464k unit pace, following yesterday's 1.2% rise in existing home sales.”

Paul Stansfield, chief property economist for Capital Economics, said that housing should pick up as spring takes off.

“Together with the rise in existing home sales reported yesterday, the surge in new home sales, to a seven-year high in February, appears to confirm that the weakness in housing activity at the start of this year was just a blip,” Stansfield said. “An eventual loosening in supply conditions should in turn stimulate sales, as more potential buyers are attracted by a wider choice of homes for sale. Along with our bullish forecasts for the labor market, this supports our view that new home sales in particular have significant scope to rise further over the next two years.” ?

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