Existing-Home Sales Up 6.1% in March
Existing-home sales increased 6.1% last month from February to a seasonally adjusted annual rate of 5.19 million, the National Association of Realtors said Wednesday. That was the highest level since September 2013. The jump in March sales follows two lackluster months amid bad winter weather. The February sales pace was 4.89 million and January was only 4.82 million.
March sales were up 10.4% from a year earlier. The inventory of unsold homes increased 2.0% y/y.
The median sale price for a previously owned home was up 7.8% from a year earlier to $212,100 in March, NAR said. (Chart from Doug Short)
A rough estimate: Sales in March 2014 were reported at 4.70 million SAAR with 14% distressed. That gives 658 thousand distressed (annual rate), and 4.04 million equity / non-distressed. In March 2015, sales were 5.19 million SAAR, with 10% distressed. That gives 519 thousand distressed – a decline of about 21% from March 2014 – and 4.67 million equity. Although this survey isn’t perfect, this suggests distressed sales were down sharply – and normal sales up around 15%. (CalculatedRisk)
New-Home Prices Are on Fire
(…) New homes generally command a 10% to 20% premium over existing houses because new construction tends to be of higher quality and have more up-to-date amenities, the TD economists said. But by 2014, the price gap between new and existing houses had widened to 40%.
What’s behind the bigger spread? The housing bust and consumer preferences, says Gennadiy Goldberg, a U.S. strategist at TD Securities. After the financial crisis, “many existing homes were in foreclosure or in poor maintenance,†said Mr. Goldberg. “Buyers wanted a discount.â€
That bargain-seeking plus the flood of existing homes into the market caused the median resale price to plummet by about one third during the bust. In fact, even at $212,000 in March, the median resale price is below the $230,000 record set during the boom.
Meanwhile, the median price for a new home fell only about 25% during the bust and surpassed its boom peak way back in early 2013. That’s because home builders cut back drastically on single-family housing starts during the recession. Plus, as household finances stabilized, “consumer preferences changed,†said Mr. Goldberg. “Consumers wanted a new home.†More demand plus tight inventories allowed builders to lift prices.
If new house prices are 40% higher than existing ones, that must mean that new house affordability is substantially worse than that of existing houses:
Our son just bought a house in South Florida. Initially attracted by the idea of a brand new house, he quickly realized they were much too expensive compared with existing ones. He bough a nice row house built in 2008 at less than $140/sq.f.
Millennials Looking for a Home Might Try the Rust Belt
Young homebuyers in some of the biggest U.S. cities may be out of luck, regardless of their solid credit and the cash they’ve socked away, according to new research conducted for Bloomberg by Zillow. In three of the 10 largest U.S. metro areas, fewer than half of the homes for sale on Zillow during the fourth quarter of 2014 were affordable to typical 23- to 34-year-olds. So where can the typical local millennial afford the largest share of for-sale homes? Consider the Rust Belt. To define affordability, Zillow used the median income of young adults in a given metro and assumed buyers would put 5 percent down and spend 30 percent of their monthly income on mortgage payments. The data don’t factor in the cost of living, which may tilt the affordability equation in some cities. Read the full story here.
Italy’s Retail Sales Begin to Show Signs of Life
Italian retail sales continue to make some progress but are still falling year-over-year. The chart makes it clear that advances in confidence have preceded improvements in retail sales. And Italian consumer confidence is on a roll again in early 2015.
Yet, retail sales are still lagging. The chart shows that sales gains do tend to follow after increases in confidence and that confidence tends to move up in waves with retail sales gains lagging and following in a much smoother pattern of improvement. The relationship that used to exist between levels of confidence and the growth rate for retail sales has shifted with retail sales still piggybacking on confidence gains but with less vigor than before. (…)
But what is more encouraging is that in the quarter to date sales are actually showing gains. Retail sales less auto sales are up at a 0.3% annual rate. Food, beverage and tobacco sales are up in the quarter at a 1.3% annual rate. Clothing and furniture sales are up at a whopping 7.4% annual rate. In inflation-adjusted terms, retail sales ex-autos are rising at a 1.2% annual rate in the current quarter.
(…) having sales rising in the current quarter is a big change from the past because retail sales have been slipping since 2011.
Spain adds 500,000 jobs as recovery spreads
According to data released on Thursday, Spain’s recession-scarred labour market continues to show signs of improvement. Employment in the first quarter rose 3 per cent compared with the year before, while the number of jobless fell more than 8 per cent.
The unemployment rate also came down compared with the previous year, but rose slightly from the last quarter of 2014, to 23.8 per cent today. More than 5.4m Spaniards are currently out of work.
Spain is now in its second year of post-crisis economic expansion, with most forecasters expecting national output to grow at least 2.5 per cent this year. (…)
According to Wednesday’s quarterly labour market survey, employers created 289,700 open-ended jobs over the past year, compared with 174,800 temporary positions. (…)
We’re Just Learning the True Cost of China’s Debt
Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
Do read the full Bloomberg piece but here’s one more bit we’d like to pull out:
Chong said international investors should understand their rights as creditors in the event of default. “In almost all cases, onshore creditors will get their claims to assets first before offshore creditors, so the position of offshore creditors is deeply subordinated,†he said.
What’s the worry with this chart from Ed Yardeni?
Debt Builds in China Stock Rally
Margin lending has more than tripled in the past year to a record 1.7 trillion yuan ($274.6 billion), according to database WIND Info, echoing past investment crazes among Chinese speculators. Such investors have long shown a penchant for rushing into whatever is yielding the highest returns, from real-estate and wealth-management products, to bitcoin and online money-market funds.
The practice isn’t unique to China, where margin debt equals 3.2% of total market capitalization, compared with 2.3% in the U.S. But when looked at compared with the number of shares that are freely traded, the percentage for China rises because the country’s state entities own more than half of the market.
Research by Macquarie Securities Group shows China’s margin-debt ratio at 8.2% of the free float, a measure the securities house prefers, and a level that easily tops the peak levels in Taiwan during the late 1990s, and far exceeds levels in the U.S. during the dot-com frenzy when the market rose and then quickly fell. (…)
The turnover from margin financing accounts for 25% of daily trading volumes on the ChiNext, the market in Shenzhen where small Chinese startups trade, according to estimates from UBS AG. There, local investors have rushed to buy firms purported to have huge growth potential, pushing the ChiNext benchmark up nearly 80% this year to record-high valuations.
By comparison, the turnover from margin-financing accounts makes up 15% of daily trading volume in the total mainland market. (…)
China: North Korean Nuclear Threat Is Rising China increased its estimate of North Korea’s nuclear-weapons production well beyond most previous U.S. figures, suggesting Pyongyang can make enough warheads to threaten regional security.
EARNINGS WATCH
- 135 companies (34.6% of the S&P 500’s market cap) have reported. Earnings are beating by 5.3% (5.6% yesterday) while revenues have missed by -0.6% (-0.5%).
- Expectations are for a decline in revenue, earnings, and EPS of -3.2%, -2.8%, and -1.2%. Excluding Energy, growth would be 2.5%, 5.3%, and 7.1% (6.8% yesterday), respectively. This excludes the likelihood of beats, which have come in above 4% historically.
Bespoke
