Following yesterday’s relatively weak existing home sales numbers from NAR, December new home sales posted at at seasonally adjusted annual rate of 625,000. That was a 9 percent drop from the euphoric November new home sales numbers, which were revised sharply lower along with October numbers. The median price of a new home in the U.S. hit a new high of $335,400 while the average price rose to $398,900.

Existing home sales continue to suffer from an acute shortage of inventory and inflated prices. New home sales, while still growing, are even more expensive compared to previously built homes despite 5.7 months of supply of new home inventory. Depending on the market you are in, inventory may be available, but at a price that’s likely not to the liking of most American’s budgets. This is the new housing market created by the Fed’s artificial inflation of assets, particularly U.S. real estate.

NAR chief economist, Lawrence Yun, continues to talk about rising wages and an “expanding economy” but he is no different than many of the  Fed’s economic pundits who are playing up the “recovery” as though it is benefiting the majority of Americans. It’s not, not by a long shot! The unfortunate reality is that American’s paychecks have not been keeping up with asset inflation. Home builders enjoyed a stellar year in 2017 as their share prices soared, but they are likely going to receive another dose of reality as the rubber hits the road.

In order to keep the upward sales trend going, new home builders need rates to stay low and they need to build more affordable homes rather than the luxury sheetrock palaces that fueled their growth in recent years. This is no easy task when every piece of real estate under the sun is getting some sort of bid from the sea of central bank liquidity. It’s that sea of liquidity that has turned some real estate markets like San Francisco or Toronto into ridiculous speculative bubbles, but that chase for yield has also hit the DFW housing market as well.

DFW home builders fared much better in December than the Census numbers are indicating. MLS numbers for new construction sales show a gain of 47% with 1762 closings. Pending sales for new construction were up 35% in December. Average prices for new sold new construction were down about 1 percent in December, which explains the increase in volume quite well. Denton County saw a 23 percent rise in new construction sales in December with pending sales up 18%. Average prices for a new home in Denton County were up 7.8 percent in December at $438,610.

The housing market in 2018 is definitely shaping up to be a story of affordability, or the lack thereof. Fasten your seat belts, because it could be a bumpy ride. The latest System Open Market Account Holdings report from the Fed shows another weekly INCREASE in the Fed portfolio (a rise of $705 million). Apparently normalizing for the Fed means going backwards and talking out of both sides of your mouth. What I’m more interested in is the rise in agency mortgage-backed securities (MBS) holdings. The Fed’s “unwind” may be more difficult than they bargained for.

As a reminder Census counts new home sales at the time of contract signings. As such they offer a decent leading indicator on economic activity. When I reference closed new construction sales on the local level, those are actual closed and funded sales.