New home sales increased to a three month annualized high of 923,000 in January. This is of a piece with the positive news last week on housing permits. At the same time, the pace remains below the recent high of 979,000 annualized set six months ago in July. The below graph compares housing starts (blue) with the much less volatile single family permits (red) and the even more volatile, and heavily revised, new home sales (gold), normalized to 100 as of January 2020:
The reason to pay attention to new home sales is that, despite their volatility, they tend to peak and bottom before any other housing metric including permits and starts. So the fact that they have not made a new high in 6 months adds a note of caution to the otherwise sizzling housing market.
New home sales also tend to be more responsive to changes in mortgage rates. Recently these have begun to increase, following longer-term US treasury rates (shown inverted YoY% change) higher:
Note that in 2014, when mortgage rates rose by about 1%, permits never declined significantly YoY. But new home sales did.
If interest rates plateau, or continue to rise, this is the first yellow flag that permits and starts may stall as well – and, based on historical trends, will do so while home prices are still rising.