Welcome back to Home Economics, a newsletter about the American housing market. This is The Week in Review, my weekly recap of macro and real estate news. Articles with a ◎ are free. Those with a ◉ have free previews but are only accessible in full for paying subscribers. Upgrade your subscription here:

In case you just fell out of a coconut tree, the word on the street is that social media melts your brain and makes you a bad person. Jonathan Haidt in particular has made this argument (eg, here ◎), especially with respect to young people.

That said, this week I got back on Twitter after a loosely enforced break for the past month or so—and remembered why I like it so much. I’ve had some really interesting conversations about affordability, why people are leaving New York City, how housing is priced, and zoning laws. I connected with some NYT journalists about their work that I am trying to build on. I lined up an interview with an upzoning advocate for later this summer. All to say—social media is bad, but also good.

Earlier this week, I published an article about the dislocation between rents and prices in New York and Los Angeles. The TLDR: prices are very high compared to rents, across the country. Last year (here ◉) I had forecast this dislocation normalizing—not by prices falling, but by rents (and incomes) catching up. And, at least in some big cities like New York and LA, this seems to now be happening.

You can read the full report here ◎.

Next week is data-heavy; there are 5 important releases:

• Case-Shiller home price index, on Tuesday: expect weakening. As you know, the Zillow index leads the Case-Shiller index by several months (see my analysis here ◉). The latest Zillow data points to a softening in y/y home price growth (I reported on this here ◉), suggesting the same for Case-Shiller.

• The Fed meets on Tuesday-Wednesday, and might give us a hint about forthcoming rate cuts. Inflation data has been encouraging, and the labor market is showing signs of moderation. A lot of this is already priced-in, of course (markets expect a 25bp cut in September, a 60% probability of another rate cut in November, and another 25bp cut at the December meeting). I still think we will get mortgage rates of 6% or below by year-end (explanation here ◉).

• On Thursday, we get Realtor.com monthly data, and construction spending. At last read, the single family market looked pretty normal, with permits, starts, and completions roughly in line with 2019 averages. The multifamily construction cycle looked wildly lopsided: permits and starts far below 2019 levels, but construction and completions close to all-time highs.

• On Friday we get the BLS employment report, AKA nonfarm payrolls. Last month’s report brought the rise in unemployment within a hair of triggering the much-watched Sahm-rule (an recession indicator).

Subscribers can download the housing economic data calendar here ◉

News: New home sales fell
Views: Inventory levels look concerning

Sales fell. Sales of new single-family houses in June 2024 were at a seasonally adjusted annual rate of 617,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This was 0.6 percent below the revised May rate of 621,000 and 7.4 percent below the June 2023 rate. That said, even if this is a cooling from 2020/21 levels, we are merely in the ballpark of pre-pandemic levels of sales.

But there are some worrying trends. There is a large and growing inventory of unsold homes (not started / under construction). Sales numbers are dropping despite builders constructing more affordable (read: smaller) homes, cutting prices, and offering other incentives.

Even so, homebuilder stocks continue to rip. Lance Lambert at ResiClub had a nice roundup of builder stocks recently (here ◎). And equity analysts are “overweight” the big firms like D.R. Horton and Lennar, based on orders forecasts and still-thick margins. Ultimately, builders are mostly an interest rate play, and rates are moving in the right direction.

News: Existing home sales fell yet again
Views: More listings and slower sales

Home prices don’t fall¹, outside of economic calamities (evidence here ◉). But sometimes prices get too high, compared to rents, incomes, and prices elsewhere in the economy. If home prices sometimes get too high, but they rarely fall, how does everything come back into equilibrium?

The adjustment happens through a few channels: a slowdown in sales, the passage of time, and economic growth pulling rents, incomes, and the rest of the economy into line with high prices.

There is now some evidence this normalization is beginning: transactions are very low; home price growth is slowing; and rents—especially in large, liquid markets like New York and LA—are rising (see my analysis from earlier this week, here ◎).

So another sluggish home sales report this week should be no surprise—and with prices still unusually high, especially given mortgage rates—we should expect more of the same in the future.

Business dad. Alexis Ohanian (Reddit founder, husband to Serena Williams) hosts this excellent series of interviews with creatives and businesspeople about how they integrate work and fatherhood. Listen here ◎.

Runway ML. I suspect I will become increasingly obsessed with this incredible AI video generation tool over the coming weeks. I read about it on the excellent Ethan Mollick’s X account (here ◎). Within one minute of going to the site, I had uploaded a photo of myself and Runway had followed my instructions, generating a video of me slowly turning into a rabbit (and I wasn’t even using the more advanced, paid model). Then I asked Runway to make the rabbit say hello to my wife. She was not amused. Runway ML AI video generation, here, ◎.

Mimestream. I love the look and simplicity of the Apple Mail app, but I have a Gmail account, and get frustrated by the crappy integration between the two. When someone sends me a Gcal invite, for example, Apple Mail doesn’t allow me to accept it easily. The search is slow and I can’t use my Gmail labels. Mimestream describes itself, accurately, as an email client that “combines the power of macOS with Gmail’s advanced features”. True story. Mimestream email client, here.

Have a great weekend!