U.S. Home Prices Rise at Fastest Pace in 15 Years S&P CoreLogic Case-Shiller index increased 11.2% in year ended in January, highest rise since February 2006
(…) Some housing markets hard hit by the pandemic are showing renewed signs of strength. In Manhattan, contract signings in March have been the highest for that month since 2007, according to data tracker UrbanDigs.
Small cities like Pittsfield, Mass., also posted median-price increases of more than 30% in the fourth quarter, according to NAR. The median sales price for existing homes in each of the more than 180 metro areas tracked by the group rose in the fourth quarter from a year earlier, signaling the widest breadth of home price gains in recent memory. (…)
Affordability is a growing concern, especially for first-time buyers. In the four weeks ended March 21, 39% of homes that went under contract sold for more than their list price, up from 23.9% a year earlier, according to real-estate brokerage Redfin Corp. (…)
Data: More up-to-date data from Redfin:
- The median home-sale price increased 16% year over year to $331,590, an all-time high.
- Pending home sales were up 28% year over year.
- New listings of homes for sale were down 12% from a year earlier.
- 58% of homes that went under contract had an accepted offer within the first two weeks on the market This is a new all-time high for this measure since at least 2012 (as far back as Redfin’s data for this measure goes) and well above the 46% rate during the same period a year ago. During the 7-day period ending March 21, 61% of homes sold in two weeks or less.
- 45% of homes that went under contract had an accepted offer within one week of hitting the market, an all-time high and up from 33% during the same period a year earlier. During the 7-day period ending March 21, 48% sold in one week or less.
- 39% of homes sold above their list price, an all-time high and 15 percentage points higher than the same period a year earlier.
- The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, increased to 100.2%, an all-time high and 1.9 percentage points higher than a year earlier.
- For the 7-day period ending March 21, the seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other services from Redfin agents—was up 149% from the same period a year ago, when housing demand was near the lowest point it would hit during the pandemic.
- Mortgage purchase applications increased 3% week over week (seasonally adjusted) and were up 26% from a year earlier (unadjusted) during the week ending March 19. For the week ending March 25, 30-year mortgage rates increased to 3.17%, the highest level since June.
- America needs an audacious goal to increase the housing supply, given the U.S. is short 2.5 million homes.
BMO report calls on policymakers to ‘douse the fire’ on rapidly rising real estate prices
With home prices spiking across the country and houses selling well over asking prices, BMO’s economic team said policy makers need to take action to immediately break “market psychology and the belief that prices will only rise further.”
“That would dampen the speculation and fear of missing out that those expectations are creating,” BMO senior economist Robert Kavcic and macro strategist Benjamin Reitzes wrote in a special report titled Canadian Housing Fire Needs a Response.
The report, issued on Tuesday, said the price increases are going “parabolic” and that the housing market has long been “smouldering” because of rabid competition for properties. (…)
- Canada: No interest-payment shock in sight (NBF)
The success of the economic recovery will depend on Canadian consumers in the coming months. There are several reasons to be optimistic. Households enjoyed the steepest jump on record for real disposable income in 2020 (+9.0%) and a record increase in the savings rate. Excess savings – which we currently peg at 8% of GDP – are currently hibernating in deposit accounts and are ready to be tapped by households once free of COVID-related restrictions according to research conducted by our colleague Warren Lovely (see report). In addition, households have enjoyed the strongest positive wealth effect since 2009 amid strong financial asset performance and surging home prices.
The drop of debt service cost for homeowners is another important factor contributing to consumer strength. Indeed, Statistics Canada published this month data indicating a cumulative drop of 50 basis points over a year for the effective interest rate on mortgage debt. Can this trend endure? We think so. Despite the recent run-up in interest rates, it is important to keep in mind that mortgage loans maturing in 2021 have a contractual rate of 2.71% that is 60 basis points above the current market rate of 2.10% available for a 5-year mortgage. As today’s Hot Chart shows, the contractual rates of loans maturing in 2022 and 2023 are even higher, averaging 2.86% and 3.29% respectively. Despite our forecast of higher interest rates, we do not expect an interest-payment shock for current homeowners through 2024.
Biden Set to Unveil $2 Trillion Infrastructure Plan The proposal would increase corporate taxes to pay for fixing roads and bridges, boosting research and development and tackling climate change.
(…) A second plan focused on child care, healthcare and education will be released in April. The president’s advisers have said the Covid-19 pandemic shifted American attitudes about the role government should play in their lives, making political space for once-in-a-generation federal investments that could reshape the country.
But the measure faces clear obstacles. Among them: opposition from Republicans to significant tax increases, concern from moderate Democrats about big spending and stirrings from progressives that Mr. Biden’s plan isn’t ambitious enough.
The White House said the proposal will cost $2 trillion over eight years and would be paid for over 15 years by raising the corporate tax rate to 28% from 21% and increasing taxes on companies’ foreign earnings. The tax changes would revamp or replace much of the international tax structure that Congress built just four years ago in the law signed by then-President Donald Trump. (…)
Combined, Mr. Biden’s economic proposals are expected to cost between $3 trillion and $4 trillion over a decade, according to people involved in the discussions. It is unknown how much of the second package will be paid for through tax increases, but White House officials are weighing additional proposals.
The first package contains corporate tax proposals and none of Mr. Biden’s main campaign proposals to raise taxes on top earners’ individual income, capital gains, estates and noncorporate businesses. (…)
Notably, the plan would set the minimum tax on U.S. companies’ foreign income at 21%, up from 10.5% today, and it would set that tax so it applies to profits earned in each country, rather than letting companies combine their income globally. Administration officials said that would limit companies’ ability to book profits in tax havens, while companies warn of complexities and unforeseen consequences. (…)
The plan would also change how the U.S. taxes foreign companies’ U.S. operations, with the aim of preventing them from shifting their U.S. profits to low-tax jurisdictions. On top of all that, the plan would impose a 15% minimum tax on companies’ income as reported on financial statements. Depending on how that provision is written, such a tax could effectively claw back other tax breaks.
White House aides said the proposal is paid for, but not in the way that Congress typically measures such things. It would take 15 years of the corporate tax increases to cover the one-time infrastructure expenses over eight years, though after that point, the tax increases would remain. (…)
Some of Mr. Biden’s advisers and congressional Democrats are weighing options for using a budgetary maneuver to move the measure without Republican support—as they did with the Covid-19 aid package—which would require almost every Democrat to stick together. (…)
“This is not nearly enough,” Rep. Alexandria Ocasio-Cortez (D., N.Y.) wrote on Twitter on Tuesday evening in response to news reports about the package, adding, “Needs to be way bigger.”
U.S. Consumer Confidence Hits Highest Point Since Pandemic Started The Conference Board on Tuesday said its consumer-confidence index increased to 109.7 in March from 90.4 in February. The reading marked the third-consecutive monthly increase.
(…) “Consumers’ assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months,” said Lynn Franco, senior director of economic indicators at the Conference Board. (…)
The expectations index, which gauges the short-term outlook for income, business and labor-market conditions, increased to 109.6 in March from 90.9 in February.
Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and other big-ticket items, Ms. Franco said. (…)
(Haver Analytics)
Small Business Jobs Index
The latest Paychex | IHS Markit Small Business Employment Watch shows notable increases in jobs growth in March across all four U.S. regions and nearly all states and metros analyzed in the report. The Small Business Jobs Index increased to 94.25 in March. While the index remains 4.03 percent below its March 2020 level, last month’s 0.30 percent increase has been the most significant one-month gain since 2013.
Another leading indicator of economic strength, hourly earnings, reached 2.98 percent, its fourth month of growth. Weekly earnings also increased, rising to 3.58 percent, a result of growth in weekly hours worked.
Hourly earnings are up 3.0% YoY but 3.6% annualized in the last 3 months. Note the sharp acceleration in Leisure and Hospitality and Manufacturing.
12 months
Last 3 months annualized
Goldman Sachs’ composition-corrected wage tracker has risen 3.2% YoY and its wage survey leading indicator has rebounded to 2.8%.
A Million More Student-Loan Holders Gain Relief The Education Department, led by Miguel Cardona, is suspending collections on defaulted loans that are guaranteed by the federal government but held by private lenders.
(…) The move extends relief to 1.14 million students who borrowed under an older loan program known as the Federal Family Education Loan Program, and then defaulted on those loans. This group hadn’t been covered by prior coronavirus-related adjustments to collections and payment requirements. (…)
FFEL borrowers whose loans are owned by private lenders and who are not in default aren’t affected by Tuesday’s announcement. A senior agency official said there are a couple million borrowers in that category, and the Education Department is “still looking at what our options are there” for extending debt relief to them.
The Education Department on Tuesday also set interest rates on privately held defaulted FFEL loans at 0%, effectively suspending interest payments. The collections pause and adjusted interest rate are both retroactive to March 13, 2020, when the nation first declared a national emergency for the Covid-19 pandemic. Any loans that went into default since that time will also be restored to good standing, which could help repair borrowers’ credit scores. (…)
According to the Education Department, more than 800,000 borrowers in the FFEL program were at risk of having their federal tax refunds seized to repay defaulted loans.
The government said it would work to automatically return funds to borrowers who have already had tax refunds seized or wages garnished, and those who made voluntary payments during the past year will have the option of being refunded the money.
The Biden administration has extended to at least Sept. 30 a general pause on interest payments and collections on most federal student loans, a move first instituted by the Trump administration last year. (…)
China’s Consumers Boost Its Economic Recovery After a year in which manufacturing drove the rebound, services and construction activity jumped in March.
The country’s official manufacturing purchasing managers index, a gauge of factory activity, hit a three-month high of 51.9 in March, topping February’s reading of 50.6 and the 50 mark that separates expansion from contraction, according to data released Wednesday by the National Bureau of Statistics. (…)
Total new orders increased to 53.6 from 51.5 in the previous month.
The official nonmanufacturing PMI surged to 56.3 from February’s 51.4 reading, the statistics bureau said Wednesday. That is the highest reading in four months. (…)
Markit’s PMIs will be released tomorrow.
Germany: From 1 to 2, to 3, to…German inflation counting
German inflation in March came in at 1.7% year-on-year, from 1.3% in February. The harmonised index, relevant for ECB policymaking increased to 2.0%, from 1.6% in February. (…) In our view, German headline inflation could eventually range between 3% and 4% in the second half of this year.
(…) it would need significant second-round effects on wages for the ECB to become more concerned. (…)
In this context, [Monday’s] IG Metall wage deal in North Rhine Westphalia is noteworthy as it is normally a deal which is applied to other regions as well. Employers and the labour union agreed on a 2.3% wage rise, starting in July but which will only be paid out in February next year. In addition, all 700,000 workers will receive a one-off coronavirus bonus of €500. IG Metall entered the negotiations demanding a 4% wage increase. It might be too early for a final verdict as the reflation story has just started but the IG Metall wage settlement illustrates that, for the time being, a price-wage spiral looks highly unlikely.
Since the last press conference, the ECB has further clarified its reaction function and its commitment to maintaining favourable financing conditions and to look through (temporarily) higher inflation. Today’s German inflation numbers suggest that this commitment has not come a moment too soon.
How Japanese Investors Accelerated the Treasury Selloff The sharp rise in Treasury yields looked like a test of whether the Fed can keep rates low. One factor driving the selloff was heavy selling by investors in Japan who were locking in investment returns for their year-end.
(…) Banks and insurers in Japan put extra impetus into a wave of global selling in February, according to investors and analysts. It was prompted by efforts to finalize their investment returns for their financial year ending Wednesday. (…)
Large Japanese investors have collectively made net sales of ¥2.815 trillion, equivalent to $25.5 billion, worth of foreign bonds since the start of February, according to Ministry of Finance data up to March 20, the most recent available. (…)
Foreign investors’ share of the Treasury market has fallen in recent years as issuance has grown. At the end of 2013, foreign investors owned more than 43% of all Treasurys, according to data from the Securities Industry and Financial Markets Association, a trade body. Their share was less than 30% by the end of 2020. (…)
The good news for Treasury markets is that Japanese investors’ sales have slowed. They could also start buying again when the new financial year begins in April. It might not happen straight away, though the extra yield that U.S. Treasurys offer over Japanese government debt has grown. (…)
“Japanese insurers or Asian central banks won’t look at recent performance and think: ‘We’ll buy German bunds instead,’” he said. “Negative yields are a big problem for central banks as owners.”
THE RETAIL MOB IS STILL ACTIVE
From SentimenTrader:
Buying mainly low quality stocks (via The Market Ear)
Oups!
Deliveroo Shares Plunge in Market Debut Shares of food-delivery startup Deliveroo dropped as much as 30% on their first day of trading, as investors shunned a landmark offering from the Amazon-backed firm amid concerns about its profitability.
(…) Shares of DoorDash have fallen by around 40% since its February high of $250. Shares in Just Eat Takeaway.com NV, which bought U.S. rival Grubhub last year for $7.3 billion, have declined by a third since their record high in October.
The opening day fall for Deliveroo prompted consternation among some investors, particularly since the offering had been oversubscribed. (…)
Really!!
Meanwhile:
Bloomberg
Pfizer, Moderna Vaccines Stop Infections in Real-World Study
(…) The rally of the last 12 months has in many ways been a “dash for trash,” in which companies with weak balance sheets did better as fears of a widespread bankruptcy crisis receded.
(…) interest cover for smaller companies looks barely better than at the worst points of the last two bear markets, as this chart from Lapthorne of SocGen shows:
