U.S. Existing Home Sales Tumbled 7.1% in February Sales of previously owned homes sank in February, a sign that demand for housing could be cooling amid rising prices and low inventory.
Sales fell 7.1% in February from the prior month to a seasonally adjusted annual rate of 5.08 million, the National Association of Realtors said Monday.
Lawrence Yun, the association’s chief economist, called February’s numbers a “meaningful slowdown,” but said the 5.25 million average for January and February was comparable to the same period a year ago.
Despite the fall, February’s sales are still 2.2% higher than February a year ago.
Sales of previously owned homes dropped in November, but surged back in December and continued to tick up in January, reaching 5.47 million, the fastest sales pace since July 2015.
The inventory of existing homes available for sale in February rose 3.3% from January, but fell 1.1% from a year earlier to 1.88 million. The national median sale price for a previously owned home last month was $210,800, up 4.4% from a year earlier, marking the 48th straight month of year-over-year gains.
Sales fell dramatically in the Northeast, dropping 17.1% from the prior month to an annual rate of 630,000. Sales also dropped in the Midwest, falling 13.8% from January to an annual rate of 1.12 million.
In the West, where the median home price rose 7% in the past year, sales declined 3.4% in February from January. The South also saw sales fall by 1.8% from January. (…)
Real-estate brokerage Redfin noted that the number of listings surged 12% in its major metro areas in February, signaling a stronger spring selling season on the horizon.
Even trying hard to find an uptrend, I only see a flat market at best. (chart from Haver Analytics)
Sales of U.S. commercial real estate plummeted in February, sending the clearest signal yet that a six-year bull market might be coming to an end.
Just $25.1 billion worth of office buildings, stores, apartment complexes and other commercial property changed hands last month, compared with $47.3 billion in the same month a year earlier, according to deal tracker Real Capital Analytics Inc. In January, sales were $46.2 billion.
Prices, which had been on a steady march higher since 2009, are beginning to plateau, and have started falling in certain sectors and geographies, according to analysts and market participants. An index of hotel values compiled by real-estate tracker Green Street Advisors, for example, was 10% lower in February than it was a year earlier, due in part to reduced business and international travel.
Overall, commercial-property values are leveling off. Green Street’s broad valuation index in February was 8.7% higher from one year earlier, but in the previous year the index rose 11%. (…)
The question is whether February was a temporary blip or the beginning of a more lasting pullback. The Green Street index, which tracks higher-quality property owned by real-estate investment trusts, is 24% above its 2007 peak and 102% higher than the trough it hit in 2009.
Mr. Gray and others emphasize that the commercial-property market is much healthier than before the 2008 crash. Rents, occupancies and other fundamental factors are improving for most property types, analysts say. New supply growth has been limited, they point out. (…)
The market has slowed primarily because of forces at work in the global capital markets rather than problems stemming from real estate itself. These forces, which also caused global stock markets to plummet in the first two months of this year, have made debt—the lifeblood of real estate—more expensive and more difficult to obtain.
The most dramatic sign has been the sharp decline in bonds backed by commercial mortgages. In 2015, about $100 billion of commercial mortgage-backed securities were issued. This year experts believe volume will fall to $60 billion to $75 billion.
Banks and insurance companies are filling part of the void. But they can charge more and be more selective, making loans primarily backed by trophy and fully leased buildings in strong markets. Borrowers in the riskiest deals, such as land purchases and new construction, are having a more difficult time finding financing. (…)
As yields of junk bonds soared, real estate became a less attractive investment. At the same time, the spreads between real-estate borrowing rates and Treasury bonds widened greatly.
Today loans that would have been made with interest rates in the 4.5% to 5% range are now being made above 5%, market participants say. Borrowers who would have lent up to 75% of a property’s value have reduced their so-called loan-to-value ratios to between 65% and 70%.
Those changes mean that many real-estate investments that would have made sense before no longer do. Higher rates and tougher standards also make it more difficult for prices to continue rising. (…)
Fed’s Lockhart: Economy Could Justify Rate Increase in April Steady U.S. economic growth could justify increasing short-term interest rates as soon as next month, Federal Reserve Bank of Atlanta President Dennis Lockhart said.
“In my opinion, there is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April,” Mr. Lockhart said in a speech. (…)
Mr. Lockhart is seen as a reliable centrist among central-bank officials. He told reporters after Monday’s speech that “the center of the committee is pretty uniform at the moment,” reflecting a similar assessment of the economy and risk environment among voting members.
The official said he supported the Fed’s decision last week to leave short-term interest rates unchanged given recent financial-market volatility and signs of global weakness. The environment for policy setting has changed enough since mid-December to justify exercising patience regarding the next rate increase, he said, adding the central bank will closely monitor global and financial developments. (…)
“I would argue that the real economy—the Main Street economy—remains substantially on the path envisioned and by committee participants at the time of the liftoff decision in December. However, the context of risks and uncertainties has shifted somewhat,” he said. (…)
Here’s a brief rundown of the some of the key economic news since early March. Presumably, Lockhart would have seen the “sufficient momentum evidenced by the economic data to justify a further step” from this list:
In reality, Lockhart admits that the Fed is very sensitive to moody financial markets, trying as hard as it can to maintain any kind of wealth effect and keep Americans’ spirits up. Pretty much akin to cheerleaders in a lousy team stadium.
Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.29 in February from +0.41 in January. All four broad categories of indicators that make up the index decreased from January, and three of the four categories made negative contributions to the index in February.
The index’s three-month moving average, CFNAI-MA3, edged up to –0.07 in February from –0.12 in January. February’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
The CFNAI Diffusion Index, which is also a three-month moving average, ticked down to –0.10 in February from –0.07 in January. Twenty-seven of the 85 individual indicators made positive contributions to the CFNAI in February, while 58 made negative contributions. Twenty-nine indicators improved from January to February, while 55 indicators deteriorated and one was unchanged. Of the indicators that improved, 17 made negative contributions. [Download PDF News Release]
The previous month’s CFNAI was revised upward from 0.28 to 0.41.
“Economic indicators this week may show the U.S. economy experienced a mild slowdown but is not headed for a recession,” Richard Turnill, the global chief investment strategist, wrote in a report Monday on the company’s website. Investors should have an “underweight” position in Treasuries, according to the report. (…)
From the report:
Market segments leading the rally still look cheap. Despite the stampede into value, global value stocks trade at around a 35% discount to the broader market, BlackRock analysis shows. This compares with an average 20% discount over the last decade. A weaker U.S. dollar, following the Fed’s more tempered rate-rise outlook, should help support EM and other risk assets. Many currencies have attractive values after multi-year declines.
The rally appears to be more than a technical bounce. U.S. data have improved enough to ease recession fears, and inflation expectations have picked up. The BlackRock Business Sentiment Index, which measures what corporate managers are saying about their countries’ economies, has improved since the start of the year.
Flows into global equity exchange traded products accelerated in March and are now in positive territory for the year, according to BlackRock research. Investors have started to reduce long-held underweights in EM and commodity assets, our analysis shows, but we think there is more to come.
We like value, which has outperformed over the long run. Many BlackRock fund managers have raised EM allocations. Yet we are not all in. Many things could go wrong. The Chinese economy and currency could slip again. U.S. growth could accelerate, forcing the Fed to tighten more quickly than expected and sparking a dollar rally. For a hedge, we like exposure to gold and inflation-protected bonds.
Looser purse-strings: Canada’s budget
Today Justin Trudeau’s newish Liberal government will abandon the austerity favoured by its Conservative predecessor—and by most rich countries’ finance ministries—and embrace stimulus. The deficit is likely to soar to about C$30 billion ($23 billion) in 2016-17 from around C$2.3 billion. Canada has been hit hard as commodity prices, especially oil, have tumbled: GDP is forecast to grow by a languid 1.4% this year. Expect a boost to spending on social, green and public infrastructure, which Mr Trudeau says will help the middle class. The finance minister, Bill Morneau, has already cut income taxes for 9m Canadians and raised them for the richest. With interest rates at 0.5%, after two cuts in 2015, Mr Trudeau says that monetary policy alone can’t revive the economy, so fiscal policy must do its bit. Net debt is the G7’s lowest. With borrowing cheap, why not take advantage? (The Economist)
Saudi Arabia is prepared to join an oil output freeze next month without Iran taking part, a senior Opec delegate said, making a deal among big producers more likely. (…)
Abdalla El-Badri, Opec’s secretary-general, said on Monday at a news conference in Vienna: “Maybe in the future they will join the group. They [Iran] have some conditions about their production.”
About 15 Opec and non-Opec countries — accounting for two-thirds of global oil output — support an oil freeze, Mohammed Bin Saleh Al-Sada, Qatar’s energy minister, said last week.
Oil-rich Gulf governments will be forced to rely on debt markets as their fiscal deficits rise to $270bn amid an extended period of low oil prices over the next two years, Moody’s has said. (…)
Last year, the Gulf states largely used reserves and local banks to finance the deficits that are the largest in their history, widening from from 9 per cent of gross domestic product last year to 12.5 per cent this year. (…)
Saudi Arabia, for example, faces a forecast deficit of $88bn this year and $65.3bn in 2017, according to Moody’s. In 2009, the deficit was $23bn and the previous oil slump of the late 1990s saw the deficit peak at $13bn in 1998. (…)
Moody’s forecasts that the kingdom, which has had negligible debt levels for years, is expected to see government debt rise to around 20 per cent of GDP by next year.
(…) Overall, a land ministry report issued Tuesday found the average price of land nationwide rose by 0.1% in the year to Jan. 1, 2016, the first increase since the global financial turmoil in 2008 and only the third annual rise since the collapse of Japan’s land-price bubble in the early 1990s.
“There is strong demand for retail, hotels and the like in the central areas of major cities,” the land ministry’s report said. (…)
Commercial land prices in Tokyo increased by an average of 2.7% in 2015. The commercial centers of Osaka and Nagoya, two other large metropolitan areas, recorded similar gains. Residential land prices in Tokyo also rose slightly but not enough to prevent a decline in the national average. (…)
China moved quietly to encourage investors to buy stocks using borrowed money in an effort to push a nascent stock market recovery into a stronger rally, following last summer’s debt-fueled market meltdown.
China Securities Finance Corp., a state lender tasked with providing funds to brokerages for margin finance, which allows investors to borrow cash for stock purchases, resumed offering several short-dated loans and cut the interest rate it charges on a longer-dated one.
The company published its latest interest rates for these loans on its official website on Friday.
Among them, interest rates on the seven-day, 14-day, 28-day and 91-day loans hadn’t been published since August 2014, according to records on the company’s website. The company has also cut the interest rate on the 182-day loan to 3% from 4.8%. (…)
Mining corporations with assets of $50 million or more recorded a collective $227 billion after-tax loss last year, according to Commerce Department data released Monday. That loss essentially wipes out all the profits the industry had made since 2007. (…)
This lesson will never be learned…
Retail sales rose sharply this month [March], driving the index to 36 from February’s reading of 18. Big ticket sales also strengthened, bringing the index to 18 from 11. Shopper traffic was heavier; the indicator added three points to end at 35.
But, as shown in this chart, courtesy of Yardeni Research, Inc. nearly 60% of stocks in the S&P 500 have topped their 200-day moving averages as of the end of last week. That compares with 20% in mid-January.
That said, skeptics will still find reason to doubt the sustainability of the rally. Yardeni notes that for the 200-day average, “the good news for the bearish technicians is that most of those averages are still in downtrends.”
