Meet the Author

Ed Nosal |

Senior Research Advisor

Ed Nosal was formerly a senior research advisor in the Research Department of the Federal Reserve Bank of Cleveland.

Meet the Author

Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.

03.05.07

Economic Trends

A Tale of Two Houses

Ed Nosal and Michael Shenk

For those of us waiting patiently to see what is going on in the housing market, January’s numbers offer more of a headache than a relief. First, existing single-family home sales increased 3.5 percent in January, bringing some hope that perhaps the worst is behind us. Then a day later, we learned that new single-family home sales fell a whopping 16.6 percent during the same period. What does this imply for the housing market? A look at some medium-term trends may help us get a better grasp on what’s going on.

Even though the housing numbers are seasonally adjusted, they still tend to be fairly volatile and are often affected by the weather. This can make it difficult to pick up an underlying trend by looking at just a few months’ data. By looking at a three-month moving average of the data, we are able to reduce the volatility somewhat without greatly disturbing the medium-term trend.

When adjusting new and existing single-family home sales and prices this way, we get very similar patterns. From the end of the last recession to midway through 2006, we see a fairly rapid increase in the median price of both types of homes. From there, prices have fluctuated some but overall have remained relatively flat. At the same time, sales, which previously had been increasing along with prices, began to decline. In recent months, the sales series seem to have bottomed out, and maybe even have increased a little.

The good news is that new-home builders have been able to sell off inventory in the last six months, well up through December at least. But January’s abysmal sales number significantly increased inventory. Even though inventory levels remain high when compared to the current sales pace, they should be more in line with demand going forward.