CALCULATEDRISK
Early Read on Existing Home Sales in January
By Bill McBride
First, from housing economist Tom Lawler:
Early Read on Existing Home Sales in January
Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.02 million in January, up 6.3% from December’s preliminary pace and up 0.5% from last January’s seasonally adjusted pace. Unadjusted sales should show a slightly higher YOY gain, reflecting this January’s higher business day count compared to last January’s.
Note that this month’s NAR release will incorporate updated seasonal adjustment factors for the previous few years.
Local realtor/MLS reports suggest that the median existing single-family home sales price last month was up by about 5.4%
Update on “Is the “Natural” Rate of Interest Back to Pre-Financial Crisis Levels”
Last year, Tom Lawler wrote: Is The “Natural” Rate of Interest Back to Pre-Financial Crisis Levels? This is an update from Lawler to that article.
Below is an updated chart on two Federal Reserve generated estimates of the “natural” real rate of interest: one from the New York Fed (the “Holston-Laubach-Williams” (HLW) model) and one from the Richmond Fed (the “Lubik-Matthes (LM) model). Both are only available through the third quarter of 2023.
Both measures showed sharp declines in the “natural rate” (R*) around the time of the financial crisis that was followed by the “Great Recession,” a period of great fear and uncertainty both here and abroad. It should be noted that the sizable declines in estimated R* starting in late 2007/2008 that lasted for years was not mainly attributable to “demographic” trends or wealth inequality trends.
Most recently, however, the measures have diverged substantially, with the LW estimate rising to slightly above 2% for two quarters while the HLW estimate, after increasing slightly in 2021, starting to move back down.
In re the HLW estimate, the recent downward move in R* occurred despite an increase in estimated trend “real” growth, reflecting downward pressure from “other factors” not specified but instead regurgitated by the econometric “model.
It is worth noting that a few economists have argued that there is an econometric “issue” with the HLW that results in a downward bias in the HLW’s estimate of the impact of “other factors” on R*.
In addition, it should be noted that the R* estimates from the HLW model have consistently been revised upward over time. E.g., here is a chart showing the R* estimates from the Q4/2019 version versus the latest estimates. (The NY Fed suspended releasing R* estimates from 2020 to the spring of 2022 because the pandemic wreaked havoc on its time-series model, and the relaunched estimates included some “quick-and-dirty” adjustments for the pandemic.)
This pattern of upward “revisions” has continued since the NY Fed relaunched its R* estimates.
With respect to “market” signals on R*, some analysts have suggested that forward TIPS rates might give a “signal” of where “the market” views R*. Indeed, in the HLW paper “Measuring the Natural Rate of Interest after Covid-19” the authors include a table entitled “Natural Rate of Interest Estimates” that compares the HLW R* estimate with the TIPS 5-year forward rate five-years ahead derived from 5- and 10-year TIPS yields.
Here is an excerpt from that table (Note: the table shows years averages).
Here is that table with updated data.
As this table shows, forward TIPS yields have increased significantly since 2022, and are currently about 2%.
Net, my own view is that one should place very little weight on the HLW estimates of R*, and should also expect that they will be revised upward later this year.
While I’ve more on this topic next week, right now it appears as if the “best estimate” of the “natural” real rate of interest is about 2%.
For folks interested in the Lubik-Matthes estimates, they had a podcast that is available (with a transcript) at Charting the Path of Interest Rates
