U.S. New Home Sales Fall Sharply in April
Sales of new single-family homes declined 5.9% (+48.3% y/y) during April to 863,000 units (SAAR) following a 7.4% increase to 917,000 in March, revised from 1.021 million. The Action Economics Forecast Survey expected 970,000 sales in April.
Sales in the South fell 8.2% (+61.2% y/y) to 545,000 units after increasing 24.0% to 594,000 in March, revised from 694,000. In the Midwest, sales weakened 8.3% last month (+46.7% y/y) to 110,000 units following a 6.2% March rise to 120,000, revised from 132,000. Sales in Northeast weakened 13.7% to 44,000 units (+100.0% y/y) after a roughly one-third March rise. Increasing by 7.9% (11.6% y/y) were sales in the West to 164,000 units following a 31.8% decline during March.
The median price of a new home rose 11.4% (20.1% y/y) in April to $372,400 following two months of roughly 5.5% decline. Working 8.7% higher (20.8% y/y) to $435,400 was the average price of a new home, following a 0.5% easing in March. These prices are not seasonally adjusted.
The supply of new homes for sale rose to 4.4 months in April, the most since May of last year. The median number of months a new home stayed on the market was 3.8, after surging to 4.6 months in March.
Notes:
- The 863k new single-family homes sold were the highest sales rate for April since 2007.
- The sequential decline confirms many builders comments that they are limiting sales due to sharply rising costs.
- Most of the recent declines occurred in the West as Haver illustrates. The West is the only region where April’s sales rate is below its 2020 average (-25.8%). Northeast +18.9%, Midwest +17.0% and South +14.5%.
Zillow:
In order to account for uncertain prices and availability of materials, home builders are holding off on making homes available until further along in the construction process. But this restriction is not due to a lack of demand – in fact, it’s likely quite the opposite. Homes are selling about as quickly as ever, and many builders are expressing the fact that sales could be higher if materials-related constraints weren’t there. With so few existing homes available for-sale, would-be buyers continue to eagerly seek out newly constructed homes, even as prices rise. (…)
Some builders are reporting changed practices in response to the challenges, including limiting the sales of custom homes and capping volume so as to not burn through their existing inventory of materials. Others are pointing to a shortage of buildable lots as an increasingly binding constraint. And in an environment where starting construction on a home might be the most difficult step in the process, the share of homes authorized but not yet started surged to the highest level recorded since data collection began in 1999 — a sign that builders are waiting for some sales certainty before committing to put hammer to nail.
- U.S. Home-Price Growth Surges as Demand Overwhelms Supply March marked the highest annual rate of price growth—13.2%—since December 2005, according to the Case-Shiller index.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 13.2% in the year that ended in March, up from a 12% annual rate the prior month. (…)
Also on Tuesday, the Commerce Department said the median price of a new home sold in April was $372,400, up 20.1% from a year earlier, the strongest annual gain since 1988.
The median sales price for existing homes rose 19.1% in April to $341,600, the National Association of Realtors said last week. (…)
There were 1.07 million existing homes on the market at the end of March, down 28.2% from a year earlier, according to NAR. (…)
About 27% of new homes sold in April were priced under $300,000, according to the Commerce Department, down from 45% of sales a year earlier. The proportion is the lowest on record in data going back to 2002, according to the National Association of Home Builders. (…)
Sales of newly built homes fell 5.9% in April from March to a seasonally adjusted annual rate of 863,000, the Commerce Department said Tuesday.
Zillow:
The combination of rising prices and limited inventory may be starting to weigh on buyers, particularly lower-income households and first-time home shoppers who have a more difficult time saving increasingly lofty down payments. A report released last week showed that more people thought it was a bad time to buy a home than a good one – the first time since 2010 in which that’s been the case. But while buyer sentiment may be starting to waver, sellers appear to be growing more confident — a key development on the road back to a more balanced market that may be somewhat easier on buyers.
Fed’s Clarida Sees Time Approaching for Discussion on Cutting Asset Purchases Vice Chairman Richard Clarida said the subject of paring the Fed’s $120 billion-a-month bond-buying will likely arise at some point in coming policy meetings.
A top Federal Reserve official said central bankers may begin discussing a reduction in the central bank’s massive asset purchases at a coming policy meeting, as the economy recovers rapidly from last year’s pandemic-induced downturn.
Vice Chairman Richard Clarida, the central bank’s No. 2 official, joined a growing number of officials who have said publicly in recent weeks that the time is nearing for a shift in the Fed’s guidance around its easy-money policies.
“There will come a time in upcoming meetings, we’ll be at the point where we can begin to discuss scaling back the pace of asset purchases,” Mr. Clarida said in an interview on Yahoo Finance. “It’s going to depend on the flow of data that we get.”
The Fed’s next policy meeting is scheduled for June 15-16. (…)
“Obviously the CPI number that we got recently was a very unpleasant surprise,” Mr. Clarida said. “I continue to believe as my baseline case that this will prove to be largely transitory … But let me also emphasize that we’re going to be looking at the data very closely in coming months.”
First data set to get scrutinized will be on April consumer spending and PCE inflation on Friday.
Spending on goods continued strong through May 21 according to the Chase card spending tracker, up 13.2% over 2 years ago and nearly back to pre-Covid trends in spite of lower spending in restaurants (-10.2%), on airlines (-38.3%) and lodging (-36.2%) and other Travel and Entertainment (-18.2%).
The Fed Is Suffering From Tantrum Paranoia The dangers of losing the market’s confidence on inflation are worse than those from cutting back the flow of quantitative easing.
(…) The Fed isn’t alone in this dilemma but it’s the only one suffering institutional paranoia because of the 2013 taper tantrum. It needs to get over this: The levels of stimulus and the upswing in inflation were much lower then. The Bank of Canada has started tapering without any discernable impact on yields and the Bank of England will almost certainly end its QE program at the end of 2021. The grumblings from hawks on the European Central Bank’s governing council are getting louder but it’s in no shape to front run the Fed. Inflation is a collective global problem but where the U.S. goes the rest largely follow. (…)
Slowly But Surely, Central Banks Are Signaling Policy Shifts
New Zealand followed in the footsteps of Canada to flag a potential interest-rate increase next year as central banks begin to tip toe away from their emergency monetary settings.
Markets seized on the tightening narrative Wednesday, jolting New Zealand bond yields and its currency higher. As vaccines roll-outs continue and economies reopen, traders have been slowly dialing up expectations on rate hikes or a slowing of asset purchases elsewhere too. (…)
Financial markets have already brought forward pricing of the Federal Reserve’s first rate hike by almost a year since early February. Over the same period, market expectations from the Bank of England have switched from rate cuts by late 2022 to a rate increase, while investors have almost abandoned bets on further European Central Bank reductions to instead price in a 10 basis-point upward move by the end of 2023. (…)
The BOE has slowed bond-buying and signaled that it’s on course to end that support later this year.
Australia’s central bank has set July as a deadline for deciding on whether to extend purchases. Norway is on track to start a hiking cycle, and Iceland has already begun. The Bank of Canada announced last month a reduction in debt purchases as it forecast a faster economic recovery that may pave the way for rate increases next year. (…)
In emerging markets, the shift is splintering. Hungary’s central bank said this week it was ready to deliver monetary tightening, and Russia, Turkey and Brazil have already hiked. The People’s Bank of China is holding the line with relatively disciplined stimulus, while others continue to support growth as the virus continues to spread.
“There is growth divergence due to a much slower vaccination process in the emerging world and renewed waves,” said Garcia-Herrero. “They will suffer from a double whammy as the Fed starts moving towards tapering.”
Icahn on Inflation, Investing
(…) You made a bet against malls heading into the pandemic by shorting an index designed to reflect the creditworthiness of certain commercial mortgage-backed securities. Do you still think that’s the right vehicle for that view?
My “big bet” against these malls still stands. In fact, it is currently one of our largest positions. On a risk-reward basis, I believe my short bet on these malls is about as good a bet you can make in today’s dangerous markets.
The bet is that the malls and other questionable real estate represented by the CMBX 6 will not be able to refinance and pay off their mortgages, which include a large number of mall mortgages due in 2022. We believe these mortgages will have the same disastrous fate as mortgage-backed securities had in the 2008 debacle.
We’ve effectively purchased billions of dollars of insurance on these mortgages by entering into credit-default swap contracts. The CDS contracts require us to pay a small fixed amount annually to counterparties who agree basically to insure that a certain level of these mortgages get paid at par. As it becomes more and more apparent that a number of these malls and other distressed properties will not be able to pay these mortgages, the value of this insurance increases in value.
Interestingly, large mutual funds such as AllianceBernstein and Putnam have taken the other side of my “bet” in that we believe the sellers of billions of dollars of this distressed mall insurance have been these two funds. It appears, based on their most recent data, that Putnam may have sold approximately $1.8 billion and AllianceBernstein may have sold approximately $3.5 billion (including CMBX 6 BBB- and CMBX 6 BB).
The current situation is eerily analogous to what happened in 2008, when billions and billions were lost by average Americans who placed their trust in well-respected firms and purchased mortgage-backed securities believing they were as safe as Treasuries. Last year, Putnam, in offering materials on their website, in effect told potential investors that the fund making these risky bets is consistent with the preservation of capital by comparing the funds to a benchmark index based on U.S. Treasuries.
If an investor sold this type of insurance in January of 2020, that investor would have lost over 20% at today’s valuations, while Treasuries would have returned over 4% with taking much less risk.
However, AllianceBernstein and Putnam still collect their fees. Today, money still flows into AllianceBernstein and Putnam bond funds. Many believe that these malls and other distressed properties will never be able to pay their mortgages. How can any adviser put clients into a transaction where, for only receiving a small return over treasuries, they take the very real risk that malls and other questionable real estate cannot pay off their mortgages and that these investors therefore might lose a great deal of their principal.
It is highly probable that inflation will soon rear its ugly head causing interest rates to meaningfully rise and therefore make it literally impossible for these malls to have any chance of refinancing so that they can pay the mortgages. However, it is true that highly respected firms advise their clients to do things that were just as stupid in 2008. As the old saying goes, where are the customers’ yachts? (…)
Half of U.S. Adults Are Fully Vaccinated
(…) Twenty-five states and the District of Columbia have fully vaccinated 50% or more of their adult population, Mr. Slavitt said. In nine states, at least 70% of the adult population has gotten at least one dose, he said. (…)
The current seven-day average of new confirmed infections is 22,877 cases a day, a decrease of about 25% from the prior seven days. In early January, the seven-day average of daily new cases peaked at more than 250,000.
Hospitalizations and deaths have also steadily declined, with the seven-day average of daily deaths at 501 deaths a day.
D.C. Sues Amazon, Alleging Monopoly That Raises Prices District of Columbia Attorney General Karl Racine alleged in an antitrust lawsuit that Amazon blocks sellers on its marketplace from offering lower prices elsewhere to stymie competition.
The lawsuit targets contracts between Amazon and its sellers, which D.C. Attorney General Karl Racine said prevent the sellers from offering lower prices on any other website, including their own.
“Amazon wins because it controls pricing across the online retail-sales market, putting itself at an advantage over everyone else,” Mr. Racine said on a call with reporters. “These restrictions allow Amazon to build and maintain monopoly power.” (…)
The agreements lead to higher prices for consumers, Mr. Racine said, because Amazon levies fees as high as 40% of the product price, and Amazon sellers can’t offer lower prices on other websites.
Until 2019, Amazon explicitly prohibited U.S. sellers from offering their products at a lower price or better terms elsewhere online, the lawsuit says. Amazon removed that policy but replaced it with a new “Fair Pricing Policy” that was an “effectively identical substitute,” the lawsuit says. (…)
The Fair Pricing Policy allows sellers to set their own prices, according to Amazon. The company also monitors prices elsewhere on the web. If a seller offers a product on Amazon for a higher price than listed elsewhere, Amazon may not feature that seller’s offer. The company may send the seller a warning to that effect.
Amazon has said the policy is designed to protect consumers from being overcharged, as well as to give sellers information so that their offers can be featured. The company says it decides which offers to feature based on price, delivery speed and other factors.
Mr. Racine said the policy ends up hurting consumers because it leads sellers to choose not to offer lower prices on websites not named Amazon, even when the sellers may want to do so.
For example, a seller might want to offer a product on Walmart Inc.’s WMT 0.41% website at a lower price than on Amazon if Walmart took a lower cut of each sale.
“Walmart routinely fields requests from merchants to raise prices on Walmart’s online retail sales platform because the merchants worry that a lower price on Walmart will jeopardize their status on Amazon,” the lawsuit alleges. (…)
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