Housing is not what it used to be. Bear skin prices going up!
U.S. INFLATION SLOWS
All measures of inflation were up 0.1% M/M in July and total CPI is up 2.0% Y/Y after two months at +2.1%. Core CPI, which had accelerated all year long from 1.6% to 2.0% in May, is back below 2.0% for the second consecutive month.
Home builders broke ground on 101,000 new projects in July, for a seasonally adjusted annual rate of 1.093 million units, according to the Commerce Department. That is a 16% improvement over June’s housing starts.
Those impressive numbers indicate the housing recovery is still on solid ground. That was thrown into doubt earlier this year by a startling plunge in housing starts. The decline took January’s starts down all the way to where they were a year earlier. (…)
So despite starting from a very low level of activity, 9.1% more homes have been built in this year’s first seven months than in the same period last year.
The reality is that single unit starts have been flat for 2 years. Single-family permits remain sluggish. Permits rose 1.0% M/M in July, this national average being the strange result of widely diverging regional trends: Northeast +20.0% M/M, South +3.6%, West -7.7% and Midwest -4.6%.
The rental market continues to boom. The annualized multifamily permit run-rate surged to 382,000 units in July, up 23.6% from June. According to Raymond James, the current multi-family permitting run-rate is about 35% above the 25-year average of 284,000 units/year.
Specifically, there are now 431,000 multifamily units “under construction,” the largest backlog since 2008 (which was only surpassed by the 1987 backlog). While we expect a significant chunk of that backlog will soon be ready for initial move-in later this fall, strong demand appears ready to absorb the resulting supply surge. Therefore, it seems the better-than-expected rent improvements seen year-to-date will continue. Furthermore, we believe social and demographic shifts among the millennial generation remain skewed heavily in favor of rental housing. Moreover, student loan debt is also a major driver of the propensity to rent as many potential buyers are unable to save enough money for meaningful down payments on new (or existing) homes.
Here’s the complete long-term picture from BloombergBriefs:
From the WSJ:
Still, the surge in apartments offers further evidence that job gains are boosting household formation and that the housing market faces a shelter shortage that will require more construction—for renting or for owning. The hope is that eventually more of these renters will buy homes.
Rising rents could eventually give potential homebuyers added urgency. A separate report Tuesday showed that rents were rising at their fastest pace in five years in July, up 3.3% from a year earlier. That compares to a 2.8% gain last July, according to the Labor Department.
The hope is that renters will, eventually, buy a house. This Canadian survey keeps that hope alive.
Only about 20 per cent of those surveyed by real estate firm Altus Group Canada said they actually chose renting for the lifestyle or because they didn’t want the responsibility of owning a home. Two per cent said they didn’t think buying a home was a good investment. And most – nearly 80 per cent – said they would like to buy but were holding back for a variety of reasons including saving for a down payment, fears about qualifying for a mortgage, or a sense that now is not the right time to buy (about 14 per cent said they don’t think it’s a good time given the economy).
But when will they start buying? Not quite yet as this CalculatedRisk chart shows:
The median size of U.S. homes on which builders started construction in the second quarter registered 2,478 square feet, unchanged from the first quarter but still close to the all-time high of 2,491 set in last year’s third quarter, according to Commerce Department data released Tuesday. (…)
The National Association of Home Builders forecasts that first-time buyers will account for 16% of new-home sales this year, down from 25% to 28% between 2001 and 2007.
Yet executives at builders KB Home, PulteGroup Inc., D.R. Horton Inc. andCentury Communities Inc. CCS +2.09%report that they’re seeing early signs of entry-level buyers returning to the market as mortgage standards ease slightly and job gains take hold. Sales of Pulte’s entry-levelCentex CTX -0.08% homes, priced at an average of $202,000, increased by 26% in the second quarter from a year earlier on a per-community basis, and by 29% in the first.
“The expectation will be, whenever we see an increase in first-time buyers, that will put downward pressure on the trend” of new-home sizes, said Robert Dietz, an economist with the home builders group. “Then it will be a question of whether we’ll see some actual decreases in the median as the market mix [of buyers] changes over the next two years.” (…)
The company said it now expects sales to grow 4.5% the fiscal year, down from its earlier outlook of 5%. It also trimmed its same-store sales projection to 3.5% growth from 4%. Same-store sales rose 4.4% in the most recent period, while Home Depot had posted an overall 5.8% increase Tuesday.
Interestingly, HD only raised its year guidance of an amount equal to its Q2 beat.
Germany Pays No Return on Debt Germany paid no return at an auction of a new series of two-year debt, in a sign that the search for havens remains a priority for investors.
Europe’s Brewers Hurt by Russia Some of Europe’s biggest brewers are being walloped by lower consumer spending in Russia, amid its standoff with the West over Ukraine and in the wake of Moscow’s recent drive to restrict beer marketing.
Risks of dining on a new derivatives menu New and more complex credit products are flourishing
(…) “We’ve reformed nothing,” says Janet Tavakoli, president of Tavakoli Structured Finance. “We have more leverage and more derivatives risk than we’ve ever had.”
Proponents say bespoke instruments are playing a prime role in allowing investors to “hedge”, or offset, increasingly large positions in the debt markets. But in the current environment of low volatility and meagre returns, the risk is that the strong growth in the use of complex derivatives may compound the next major market reversal. (…)
Is this capitulation? Will we ever see Zerohedge turn bullish?
Another Bear Bites the Dust One of Wall Street’s biggest bears–Stifel Nicolaus equity strategist Barry Bannister–just pulled an about-face on his views about the stock market.
Stifel Nicolaus stocks strategist Barry Bannister, who had been among the most pessimistic prognosticators on the Street, threw in the towel this week on his bearish forecast. He lifted his S&P 500 year-end price target to 2300—the highest among prominent strategists–from 1850, which had been tied for the lowest, according to research firm Birinyi Associates.
In a chat with MoneyBeat, Mr. Bannister said the five-year bull market has one final push higher left in it before the rally runs out of steam. As long as the Federal Reserve maintains its “lower for longer” monetary policies, there’s little reason why the market won’t continue rallying throughout the rest of the year and through 2015, he said.
After that, watch out.
“This is probably a finale for the market,” Mr. Bannister, a managing director at Stifel, told MoneyBeat. “This will be the big move that usually accompanies the end of bull markets…We’ll worry about 2016 when it comes.”
The 18 Wall Street strategists tracked by Birinyi Associates expect the S&P 500 to finish the year roughly around current levels. Though Mr. Bannister abandoned his earlier 1850 projection, two other strategists currently maintain year-end targets at that level. Other estimates vary, but Mr. Bannister’s new 2030 year-end forecast is by far the highest.
Throughout the past 18 months, several prominent strategists who had been bearish have since turned more optimistic as stocks have kept rallying to new records. Mr. Bannister’s call comes as the market has been in rally mode over the past several days. (…)
In a note to clients, Mr. Bannister used an illustration of Russian artist Viktor Vasnetsov’s 1887 piece “Four Horsemen of Apocalypse” to prove his point. He said the market is weathering the four horsemen – the Fed, geopolitical turmoil, risk of recession and lack of bear markets – better than he originally anticipated. That’s why he figured now was as good a time as any to lift his forecast.
“We think this is the stage when stragglers to the bullish case take stocks higher,” he said. The past three secular bull markets that lasted more than six years apiece witnessed hiccups similar to the current one, he added, before each one moved higher.
As long as interest rates and the risk of recession both remain low, Mr. Bannister said he’ll remain bullish on stocks.
“The Fed is clearly willing to overshoot,” he said. “The risk/reward looks pretty good.”
There is a pattern here: the recent bear turncoats all keep warning that hell is not very far and will be terrible, yet they “admit” that the shorter term looks pretty darn good. After this?You must admit that it takes guts to do what they are doing… or is it that the pressure from clients and partners has become unBEARable . Sometimes, one is better to keep one’s job…
The problem is that the public is not capitulating, not at all! Look at the pathetic volume. Can’t be only the summer.