New one family homes sold for the month of May 2020 was reported today and it looks like the low has been reached. The year-over-year perspective belies the image conveyed in the absolute change which is far from the 2005 peak.
Absolute Change
There is little need to expect that the prior absolute increase needs to be achieved (1,389 on July 2005). However, it is no coincidence that we see some kind of reaction within a long-term rising trend at a similar level during the 1990 to 2005 increase. The two prior reactions broke the rising trend into three separate periods as noted by Edson Gould’s Three Steps Rule:
Three steps up in an advancing market and three steps down in a declining market usually exhaust the bullish potential accumulated at the bottoms and the bearish potential accumulated at tops- but sometimes there is a fourth step (Edson Gould Reports. Edson Gould’s 1975 Forecast. November, 1974. page 8. ).
When we speak of the “long-term” rising trend, we’re referencing our December 9, 2010 article titled “Real Estate: The Verdict Is In” and the subsequent updates since 2010 which is primarily based on the work of Roy Wenzlick.
Year over Year Change
The year-over-year (YoY) change shows that a reversal of the trend within a NBER recession has typically meant a reaction to a 27%-30% change at some point down the road. We’re currently at 12.66% in the YoY change in New One Family Homes Sold so there should be some room to the upside before the current recession ends and the next recession begins.
As always, prepare for the worst as the current pandemic will not start the second wave until after the one year anniversary of the first wave.
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