U.S. Pending Home Sales Continue to Fall in March
The home buying market remains soft. The Pending Home Sales Index from the National Association of Realtors fell 1.2% in March (-8.2% y/y) following a 4.0% February fall, revised from -4.1%. It was the fifth consecutive monthly decline with total sales down 19.0% from the August 2020 peak.
Pending home sales declined throughout most of the country in March except the Northeast where they rose 4.0% (-9.2% y/y). Sales in the Midwest fell 6.1% (-4.8% y/y) to the lowest level since April 2020. In the West, sales eased 0.2% (-8.4% y/y) and were 21.7% below the August 2020 high. March sales in the South declined 0.9% (-9.5% y/y) to the lowest level since April 2020.
The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau’s new home sales data. In contrast, the National Association of Realtors’ existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.
So far, while volatile because of Covid, housing trend lines remained positive. This one, a true leading indicator for housing demand, is clearly crashing and is back to pre-Covid levels when the trend was downward. Recall that mortgage rates rose from 3.4% in mid-2016 to 4.9% in November 2018.
Mortgage rates are now 5.1%:
Not since the housing bubble of 2007 has there been such a big gap between the cost of a new house and the amount a two-earner household can borrow to buy it, Axios Capital author Felix Salmon writes.
Homebuyers are facing a double whammy of higher prices and higher mortgage rates, which reduce the amount of money they can borrow.
The average new single-family home sold for $360,000 in April 2020, according to Census Bureau data. Less than two years later, in March 2022, that number had risen by 45% to $524,000. (The median price rose 41%.)
At the same time, the mortgage available to two people making average hourly earnings has shrunk by $144,000 since August and now stands at a relatively low $469,000 — assuming they limit their mortgage payments to no more than 28% of their combined income.
Houses are still affordable if you’re already in one. But now you see why new transactions are slowing dramatically.
Affordability based on 30-year fixed-rate mortgage payment of 28% of the combined earnings of two 40-hr./week workers. Data: FRED, Census Bureau. Chart: Erin Davis/Axios Visuals
Less than half of Americans rate their financial situation as “good” or “excellent,” the lowest share since 2015, according to a Gallup poll released Thursday. Some 48% say it’s worsening, similar to levels seen in April 2020 and the financial crisis of 2008.
The survey conducted from April 1-19 found that a record 32% of Americans rank inflation and a high cost of living as the most important financial problem facing their family today.
While half of the roughly 1,000 polled Americans say rising gasoline prices have caused financial hardship for their families, 57% expect the high prices to be temporary.
- MIDDLE-INCOME HOUSEHOLDS SHOW THE STEEPEST DECLINE IN FINANCIAL WELL-BEING
Morning Consult’s financial well-being score for U.S. consumers — a reflection of their perceived security and freedom of choice based on their current financial situation — in January reached its lowest point (49.46) since Morning Consult began tracking it. February and March have not brought much improvement, as consumers have continued to grapple with rising inflation.
Middle-income adults, or those from households earning $50,000 to $99,999 a year, saw an especially steep decline from December to February, and only modest recovery in March.
By contrast, lower-income adults have been less impacted by inflation. According to Morning Consult’s economic analysis, their struggles have been offset by employment gains, specifically since the beginning of this year. (…)
No one in the United States — and few global respondents — has been immune to the impact of inflation, according to financial well-being scores that have been falling since the end of 2021. This drop is observed across diverse demographics and nearly all countries surveyed.
FYI, the Chase card spending tracker, through April 22, now suggests that control sales declined 0.3% in April, in current dollars.
New Era of Supply Shocks Risks Years of Inflation War, sanctions, export controls and natural disasters all threaten commodity supply chains, challenging central banks’ inflation goals (Greg Ip)
Inflation is the result of demand growing faster than supply. Central banks can deal with the demand part. The problem is that the world they confront in coming years might be one of recurrent supply shocks. (…)
Maybe this is a run of bad luck that will be behind us in a year or so. Or maybe it is a prelude to an era in which geopolitical tensions, protectionist policies and natural disasters repeatedly stress the world’s supply networks. Central banks, which spent the last decade fighting off deflationary headwinds, might spend the next battling inflationary headwinds. (…)
Even if these short-term disruptions soon recede, there are ample opportunities for more in coming years. As cold war sets in between Russia, China and the West, tariffs, sanctions and export controls will likely become more frequent. Climate presents another set of ongoing risks: Extreme weather can disrupt supply chains and electrical grids, while net-zero mandates can cut capacity of legacy power systems and spur bidding wars for minerals needed in renewable energy systems.
These need not keep a committed central bank from achieving low inflation. But they make the job harder, and the results a lot less pleasant for the public.
- Indonesia Bans Exports of Palm Oil The policy follows a sharp rise in cooking-oil prices at home, caused in large part by disruptions stemming from Russia’s war in Ukraine.
(…) Since the start of the war in late February, governments have placed 36 new curbs on food and fertilizer exports, not counting restrictions connected to sanctions imposed by various countries against Russia and Belarus, according to Global Trade Alert, an independent trade-monitoring organization. That is double the number of restrictions introduced before the war this year, its data showed. (…)
‘Dollar Is King’ Mantra Rings Across Currencies as Yen Drops
A Bloomberg gauge of the greenback climbed to its highest level in nearly two years and has risen 4.5% this month, set for its best performance since May 2012. (…)
“It’s clearly a ‘U.S. dollar is king’ world,” said Mingze Wu, a currency trader in Singapore at StoneX Group. “The dollar will continue to strengthen globally as long as rest of the world does not keep up in matching interest-rate hikes.” (…)
- Yen Hits New 20-Year Low After Bank of Japan Reinforces Low-Rate Policy Japan’s currency weakened to more than 130 to the dollar for the first time since April 2002, after the central bank reinforced its commitment to low interest rates despite rising inflation.
The Japanese central bank said it would purchase 10-year Japanese government bonds at a yield of 0.25% every business day to ensure that the yield doesn’t exceed that level. It has already intervened frequently this month to preserve the cap.
On Thursday afternoon in Tokyo, the dollar was changing hands at more than 130 yen, compared with 115 yen as recently as early March. That means the yen has lost more than 10% of its value in less than two months as investors look to move their money to currencies such as the dollar that offer higher yields.
Before the central bank’s announcement sent the yen to a 20-year low, it was trading at about 128.70 to the dollar.
The Japanese central bank is coping with rising prices, a weak yen and a sluggish economy all at once. (…)
In the BOJ’s quarterly outlook released Thursday, the policy board projected core inflation excluding fresh food would reach 1.9% in the year ending March 2023, close to the BOJ’s 2% target and up from its previous projection of 1.1%. (…)
BOJ Gov. Haruhiko Kuroda has described this as cost-push inflation, meaning it is caused mainly by higher costs of energy and raw materials rather than robust consumer demand.
Because this type of inflation can reduce households’ real income after adjustment for price increases, hurt corporate profits and ultimately limit the economy’s growth, the central bank needs to keep interest rates low, Mr. Kuroda has said. (…)
In its economic outlook, the bank said it expected inflation to slow down to 1.1% in the year ending March 2024 as well as the following year.
The bank forecast the Japanese economy would expand 2.9% in the current fiscal year ending March 2023, down from 3.8% growth projected in the previous report. It said it expected 1.9% growth in the year ending March 2024 and 1.1% growth in the following year. (…)
- The BoJ reinforced its determination to support the economy and pushed back harder than expected on market speculation that the BoJ should ease upward pressure on JGB yields to protect against currency weakness. At the press conference, Governor Haruhiko Kuroda expressed some concern over the rapid pace of Japanese yen (JPY) weakness but reiterated that FX reflected the fundamentals of the economy and the weak JPY would be positive for Japan’s economy as a whole. We think USD/JPY might have to get closer to the 135 area (in a disorderly manner, e.g. one-month USD/JPY volatility near 18/20% versus 12% today) before FX intervention could be justified on market conditions. Certainly, FX intervention cannot be justified on macro fundamentals. As for FX forecasts, USD/JPY is already at our forecast high of 130 and we will be minded to revise the profile higher given it looks like the dollar can stay strong/strengthen further over the next three to six months. (ING)
- Yen’s Historic Fall Signals Rewrite of Global Currency Playbook The yen’s plunge to a 20-year low threatens to leave it significantly weaker for years to come, shaking up global money flows and undermining Japan’s efforts to get its fragile economy back on track.
The speed of the decline — it’s slumped more than 10% against the dollar in seven weeks — has caught policy makers off guard and exposed divisions between a central bank intent on stoking inflation and a government facing a backlash over rising prices. (…)
But it’s also clear that forces beyond differences in interest rates have intensified the currency’s rout. When the Fed embarked on its last hiking cycle through late 2018, the yen didn’t see a comparable decline.
This slump — which has coincided with Russia’s invasion of Ukraine — has spurred global fund managers to question the long-held view of the yen as a haven in times of trouble. If they’re right, more money may head to places like North America, Europe and China during future crises. (…)
Indeed, investors may be late in their judgment of the yen rather than wrong.
An inflation-adjusted measure of the yen’s strength against a basket of currencies shows it in broad decline since the mid 1990s, around the time Japan’s economic bubble burst. It’s now at levels last seen half a century ago, when the dollar’s convertibility to gold ended, ushering in a new era for foreign exchange markets.
“The yen has become such an easy target to sell,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. Investors are confident that policy will stay loose in Japan and there is little sign of an end to the strong dollar, she said.
While the average forecast of Japanese companies for the current fiscal year is for the yen at 111.93, Kuroda shows no signs of adjusting monetary policy to address their concerns.
His tolerance of a weak yen is longstanding, having stood by when he was the Finance Ministry’s top currency official in 2002 and it slumped to 135.
Global Bonds Set for Worst Ever Month Before Burst of Rate Hikes The Bloomberg Global-Aggregate Total Return Index has lost 4.9% in April, putting it on track for the biggest monthly drop since its inception in 1990. Australia’s three-year yields climbed as much as seven basis points to 2.74%.
FYI, the TLT 20+Y Treasury ETF is down 30% since August 2020.
EU energy groups prepare to meet Putin’s terms for Russian gas Germany’s Uniper and Austria’s OMV plan to use rouble accounts for payments while Eni of Italy weighs options
(…) Unemployment could rise over 7% by mid-2022 [from 4.1%] for the first time in over a decade, Renaissance Capital economist Sofya Donets said in a report this week. Over 750 foreign companies have announced they are voluntarily curtailing operations in Russia to some degree, according to the Yale School of Management.
Real disposable incomes fell an annual 1.2% in the first quarter, the Federal Statistics Service reported Wednesday. The Economy Ministry warned this week that Russia’s gross domestic product could contract as much as 12.4% in 2022, according to Vedomosti.
Outpouring of Resentment on Chinese Social Media Is Overwhelming Censors Netizens are hijacking official hashtags to sound off on Covid Zero and other government policies.
(…) China largely outsources censorship duties to online platforms themselves, but this has become an overwhelming job, because the number of posts has proliferated as Chinese turn to social media to plead for assistance for themselves or for relatives who are running short of medicine or food. (…)
Now, increasingly, it’s the zero-tolerance stance that’s coming in for criticism. (…)