U.S. New Home Sales Surge in March
New home sales surged last month to the highest level since August 2006. Sales of new single-family homes surged 20.7% (66.8% y/y) to 1.021 million units (SAAR) during March after declining 16.2% to 846,000 in February, revised from 775,000 units. January sales were revised to 1,010 million units from 948,000. Earlier figures also were revised. The Action Economics Forecast Survey expected 885,000 sales in March. (…)
The median price of a new home fell 4.4% (+0.8% y/y) in March to $330,800, the third consecutive monthly decline. Working 0.9% higher (6.0% y/y) to $397,800 was the average price of a new home, following a 4.3% February drop. These prices are not seasonally adjusted.
The supply of new homes for sale fell to 3.6 months in March and reversed the rise to 4.4 months in February. This equaled the Q3’20 low which was the lowest figure since March 2004. The median number of months a new home stayed on the market after completion held steady at 3.6, after surging to 4.5 months in both August and September of last year. The figure has been trending sideways since 2013. (Haver)
Strange and totally odd that February and March sales in the West, the second largest region, are below their 2020 average contrary to other regions which are substantially above. The chart below displays quarterly sales, revealing that total new home sales have peaked in Q3 of last year but only because sales in the West have declined 23%. The 3 other regions have seen sales rise 6.4% since Q3’20.
Meanwhile, permits have soared 15.5% since Q3’20. A similar pattern was seen in 2005. Sales turned down after mortgage rates rose from 5.5% in July 2005 to 6.4% in December and to 6.8% in July 2006. The rest is history.
The weakness in the West may have some responsibility in the recent drop in the median house price sold. It may also be a first symptom of eroding affordability; the median price of new houses sold declined 9.4% in Q1’21, back to its level one year ago.
John Burns Real Estate Consulting observes:
- Inventories are at all-time lows resulting in massive home price appreciation that is threatening affordability. Public builders have 10% fewer communities to sell from than during this time last year, and the number of inventory homes for sale in actively selling neighborhoods is dwindling. Resale home inventories are down 45%. The result is historic home price appreciation.
- Land supplies are limited and competition for lots is intense. In JBREC’s newest land survey (1Q2021) 99% of brokers we surveyed rated their markets as “Hot” or “On Fire” and 96% of brokers reported rising lot prices quarter over quarter.
- Competition for land between for-sale and build-for-rent land buyers will increase significantly.
- Lot to home price ratios are up everywhere by about 20% (four percentage points), and this is true across all price niches.
John Mauldin’s recent “Tiny Housing Bubbles” piece included interesting charts from David Rosenberg:
Apartment Rents Rise, Ending Many Perks for Renters Americans are paying more to rent homes again, ending a stretch during the pandemic when they enjoyed flat or falling rental prices and widespread landlord concessions.
(…) Median asking rent rose 1.1% on an annual basis in March to $1,463 a month across the country’s 50 largest markets, according to a report from Realtor.com. That marked the first month where the pace of rent growth had increased since last summer, the report showed. (…)
Rent accounts for about one-third of the consumer-price index, which economists expect to tick higher in the months ahead. (…)
Rent increases could further strain the one in six American tenants who are in debt because of missed rent payments. (…)
The hottest home-sales market in 15 years is also expected to prop up rents. As more people are priced out of the for-sale market, they will flock to the only other option: renting. (…)
Rent increases now span the income spectrum and blanket much of the country. (…)
Asking rents in traditionally lower-cost, midsize cities like New Orleans, Memphis, Tenn., and Richmond, Va., are up, too. They have risen 10% or more in the past year, according to Realtor.com.
Even in New York City and San Francisco—where rents tumbled by double-digit percentages last year over 2019—there are signs of a turnaround. San Francisco rent rose 3.4% in March over the month prior, according to listings website ApartmentList, the largest monthly rental increase in the city since the pandemic began. And in Manhattan, though there is conflicting data, some reports point to the beginning of a recovery, with rental prices rising modestly since the fall and high vacancy rates slowly starting to reverse, too. (…)
Rent (7.8%) and Owner-Equivalent Rent (24.1%) account for 31.9% of total CPI. Shelter inflation has declined from the 3.5% range to the 2.0% range during the pandemic while house prices (black) exploded.
These 3 lines will eventually meet again, but likely only after the next recession which Biden and Powell are totally trying to avoid. In the meantime, the odds are that the red and blue lines will try to reach up.
Also from John Burns Real Estate Consulting:
We also comb through the public single-family rental REIT earnings calls / press releases, and capital interest has not waned during COVID-19. In fact, the SFR REITs have said the following:
- Tricon Residential (TCN)
- May 2020: “Single-family (rental) comes out as a winner, and demand for this asset class is absolutely going to explode. We’ll have to duck, there’ll be so much money coming at us. We’re getting inbounds all the time. Even in the last 2 or 3 weeks, people who want to just give us money.”
- March 2021: “We expect to raise $1.2 billion of third-party equity capital across all our rental businesses in ’21, which would make this the most prolific year of fundraising in Tricon’s 33-year history.”
- American Homes 4 Rent (AMH)
- February 2021: “We expect to invest between $1.2 billion and $1.6 billion of total capital into our combined growth programs this year, adding approximately 3,500 homes to our wholly owned and joint-venture portfolios, including 1,900 to 2,200 homes that we expect to deliver through our AMH Development program.”
- Invitation Homes (INVH)
- February 2021: “You just keep hearing about more capital wanting single-family rental exposure, which we, quite frankly, view as a positive.”
U.S. Flash PMI: Private sector output growth reaches fresh series high, but supply chain disruption continues to hamper goods production
U.S. private sector businesses registered a survey-record expansion of output during April, as looser COVID-19 restrictions and strong client demand boosted business activity. A steep upturn in manufacturing production occurred despite unprecedented supply chain disruptions, while services activity growth hit a new high.
Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 62.2 in April, up from 59.7 in March, to reach the highest since data collection began in October 2009. The overall upturn was supported by quicker increases in services and manufacturing output amid looser COVID-19 measures and the reopening of many service sector businesses. The rise in manufacturing production was, however, weighed down by difficulties sourcing raw materials and ongoing supplier delivery delays, which were the most extensive on record.
New order growth accelerated again in April, with firms noting the strongest upturn on record. The reopening of large portions of the economy following an easing in lockdown measures led to firmer client demand. At the same time, total new export orders rose at the fastest pace since the composite data series began in September 2014, as many export markets reopened.
As a result of the surge in demand, backlogs of work rose at the joint-fastest pace since September 2014.
Pressure on capacity at manufacturers and service providers led to the sharpest rise in employment since November 2020. Although some firms reported the rehiring of employees let go during the depths of the pandemic, many noted the need for additional new staff.
Unprecedented supply chain disruptions pushed input costs higher once again in April. That said, the rate of inflation eased slightly amid softer increases among service providers. Nonetheless, the rise was the second-fastest on record, with many firms seeking to pass on greater costs to clients. The pace of output price inflation for goods and services accelerated to a series high.
Firms remained strongly upbeat regarding the outlook for output over the coming 12 months in April, albeit less so than in March. Optimism reportedly stemmed from looser COVID-19 restrictions, the continued vaccine roll-out and greater client demand.
The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index registered 63.1 in April, up from 60.4 in March to signal the fastest expansion in service sector activity since data collection for the series began in October 2009. Growth was reportedly driven by stronger client demand and the reopening of many businesses amid the easing of restrictions.
New business growth accelerated notably to the sharpest on record, with total sales supported by a solid increase in new export orders.
Average cost burdens continued to rise markedly in April, as higher fuel, wage, shipping and PPE costs drove inflation. The rate of increase softened slightly, but was still one of the fastest on record. The rate of charge inflation quickened, however, as stronger client demand allowed firms to pass on a greater proportion of hikes in input prices to clients.
In line with an uptick in customer demand, the level of outstanding business rose at the steepest rate since September 2020. In turn, firms raised staffing numbers at the fastest pace since last November.
Business expectations remained optimistic in April, as hopes of an end to COVID-19 measures as 2021 progresses drove confidence in future activity.
Manufacturers registered the strongest improvement in operating conditions since data collection for the series began in May 2007 in April, as highlighted by the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posting 60.6, up from 59.1 in March. The uptick in the headline figure was partially linked to an unprecedented deterioration in vendor performance (ordinarily a signal of improving operating conditions). Capacity issues at suppliers and ongoing port delays reportedly exacerbated supply chain disruptions.
Manufacturers signalled a sharp rise in output during April, but many firms stated that production capacity was hampered by an inability to source raw materials and inputs in a timely manner. Although the rate of expansion quickened, it remained slower than those seen at the turn of the year.
Subsequently, backlogs of work rose markedly. The rate of accumulation in outstanding business eased slightly, however, as firms expanded workforce numbers at a strong pace.
Meanwhile, input costs increased at the sharpest rate since July 2008. Higher input prices were reportedly due to severe supplier shortages and marked rises in transportation fees. In contrast to their service sector counterparts, manufacturers registered a slight softening in the rate of charge inflation. Nevertheless, the increase was the second-fastest on record as firms continued to partially pass-through costs to clients.
Output expectations regarding the year ahead were markedly upbeat in April. Hopes of an end to the COVID-19 crisis and the release of further client demand as markets reopen reportedly drove confidence.
The Grocery Price Shock Is Coming to a Store Near You
This week, the Bloomberg Agriculture Spot Index — which tracks key farm products — surged the most in almost nine years, driven by a rally in crop futures. With global food prices already at the highest since mid-2014, this latest jump is being closely watched because staple crops are a ubiquitous influence on grocery shelves — from bread and pizza dough to meat and even soda. (…)
Overall, global food costs have surged for 10 straight months, the longest rally in more than a decade, according to a UN gauge. The surge is stirring memories of 2008 and 2011, when spikes led to food riots in more than 30 nations across Africa, Asia and the Middle East, and contributed to political strife and uprisings in the Arab Spring.
CPI-Food-at-Home prices have been stable after their surge last spring. They were up 3.3% YoY in March.
TECHNICALS WATCH
Warning: my favorite technical analysis service, spot on so far in the past 18 months, has turned cautious over the shorter term. It says no reason to throw the towel, just be more cautious short-term given that the market has narrowed as small caps have not participated in the recent surge led by the more defensive sectors.
Other indicators I follow remain positive, albeit extended.
- Gold vs USD (The Market Ear)
