Is Housing Bottoming?

Feb. 27, 2019 3:02 PM ET7 Comments
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Specializing in economics, Macro, Portfolio Strategy, Bonds

Contributor Since 2017

Eric Basmajian is an economic cycle analyst and the Founder of EPB Macro Research, an economics-based research firm focusing on inflection points in economic growth and the impact on asset prices.

Prior to EPB Macro Research, Eric worked on the buy-side of the financial sector as an analyst at Panorama Partners, a quantitative hedge fund specializing in equity derivatives. 

Eric holds a Bachelor’s degree in economics from New York University and is also a Managing Partner at Animas Capital. 

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Is Housing Bottoming?

Today, the pending home sales data was released which gives a lead measure on existing home sales and general housing market activity. 

I updated members of EPB Macro Research on this data earlier today. 

Here is a brief excerpt from that update. 


Also released today was the report on pending home sales.

"The Pending Home Sales Index (PHS), a leading indicator of housing activity, measures housing contract activity and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. Because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing-Home Sales by a month or two."

- National Association of Realtors

The pending home sales index popped to a reading of 103.2, a drop of 2.27% year over year. While pending home sales were down year over year, the rate of change (down less than last month) is a positive sign.

US Pending Home Sales:

Source: NAR, EPB Macro Research

In yesterday's report, I wrote that I expected the declines in housing data to continue but for the rate of decline to moderate and that is what is suggested in today's pending home sales report.

The housing market is likely to remain soft but the speed of the contraction will more than likely moderate due to lower interest rates and easier comparisons.

The Midwestern region declined just 0.30% year over year, up from -7.23% last month.

Midwestern Pending Home Sales:

Source: NAR, EPB Macro Research

Activity in the Northeast appears to be picking up, rising 7.55% year over year. One month does not make a trend but this is a positive sign.

Northeastern Pending Home Sales:

Source: NAR, EPB Macro Research

The Southern region, the largest market for residential real estate, also popped this month, declining -3.07% year over year compared to -13.25% last month.

Southern Pending Home Sales:

Source: NAR, EPB Macro Research

The Western market remains the weakest with pending home sales still down over 10% year over year.

Western Pending Home Sales:

Source: NAR, EPB Macro Research

Overall, the trend is the same across the country. As of this latest report, housing is still declining on a year over year basis but the declines are much less than in previous months.

I expect this trend to continue. A continued slowdown in the housing market but at a much more moderated pace compared to the sharp declines we were seeing a few months ago.

If housing growth starts to pick up to the downside again, that would be a major red flag for the economy as housing would be slowing faster with lower interest rates and easier comparisons.

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