U.S. Existing Home Sales Rebound as Prices Fall Again
Sales of existing homes increased 4.7% (8.0% y/y) during September to 5.550 million and recouped the August decline to 5.300 million, revised from 5.310 million. The latest figure beat expectations for 5.35 million sales in the Action Economics Forecast Survey. Single-family home sales recovered 5.3% last month to 4.930 million (8.6% y/y). Condo and co-op sales remained unchanged (3.8% y/y) following two months of decline.
The median sales price of an existing home fell 2.9% to $221,900 (+6.1% y/y) and was down from June’s record $236,300. The average sales price fell 2.3% to $265,000 (3.9% y/y).
By region, sales in the Northeast were strongest m/m and rose 8.6% to 0.760 million (10.2% y/y) after remaining unchanged in August. Sales in the West improved 6.7% (8.5% y/y) to 1.270 million following a 7.8% fall. In the South, sales rose 3.8% (5.5% y/y) to 2.210 million after a 7.0% August decline. In the Midwest, sales rose 2.3% (10.9% y/y) to 1.310 million and recovered the August drop.
The composite index of home affordability rose 2.1% to 157.7 (-1.6% y/y) in August but remained near its low for the economic recovery. Payments as a percent of income eased to 15.9%, up from 11.7% in January 2013.
The inventory of unsold homes declined 3.1% y/y to 2.210 million. The months’ supply of homes on the market declined to 4.8 months, down from the 11.9 month high in July 2010.
The existing housing market is back to normal if one considers the 2004-05 period as abnormal.(Charts from CalculatedRisk)
From the WSJ:
- The share of such purchasers fell to 29% of sales in September from 32% in August.
- Redfin said sellers of 25% of homes on the market in September dropped their asking prices, up from 20% a year ago, suggesting the strong market has swelled sellers’ expectations.
RECESSION WATCH
Really no sign of that:
The Latest Conference Board Leading Economic Index (LEI) for September is now available. The index decreased 0.2 percent from a revised August 123.5 to today’s 123.3. The latest indicator value came in below the 0.0 percent forecast by Investing.com.
Here is an overview from the LEI press release:
The Conference Board LEI for the U.S. decreased in September with stock prices, building permits and average weekly hours making large negative contributions. Despite the slight decline in the LEI, in the six-month period ending September 2015, the leading economic index increased 1.5 percent (about a 3.0 percent annual rate), slower than its growth of 1.9 percent (about a 3.9 percent annual rate) over the previous six months. The strengths among the leading indicators remain more widespread than the weaknesses. [Full notes in PDF]
For additional perspective on this indicator, see the latest press release, which includes this overview:
“Despite September’s decline, the U.S. LEI still suggests economic expansion will continue, although at a moderate pace,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The recent weakness in stock markets, the manufacturing sector and housing permits was offset by gains in financial indicators, and to a lesser extent improvements in consumer expectations and initial claims for unemployment insurance. The U.S. economy is on track for moderate growth of about 2.5 percent in the coming quarters, despite the mixed global economic landscape.”
The Chicago Federal Reserve reported that its National Activity Index (CFNAI) during September remained fairly constant at -0.37. The last two months were down sharply, however, from July. For Q3 as a whole, the index remained steady with Q2 at -0.09. During the last ten years, there has been a 77% correlation between the Chicago Fed Index and the q/q change in real GDP.
The Production & Income component improved to -0.18 following its sharp August deterioration to -0.21. The Sales, Orders & Inventories series rose to neutral from -0.03. Moving lower, the Personal Consumption & Housing series eased slightly to -0.08 from -0.06. The Employment, Unemployment & Hours was much weaker as it declined to its lowest point since February 2010. The Fed reported that 26 of the 85 component series made positive contributions to the total while 59 made negative contributions.
From Doug Short:
When the CFNAI-MA3 value moves below -0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun. Conversely, when the CFNAI-MA3 value moves above -0.70 following a period of economic contraction, there is an increasing likelihood that a recession has ended.
The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recession that during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level.
CHINA WATCH
China’s home prices rose in September in more than half of the 70 major cities monitored by the government for the first time in 17 months, as home-purchase restrictions were loosened and interest rates cut.
New-home prices rose in 39 cities, compared with 35 in August, the National Bureau of Statistics said Friday. Prices dropped in 21 cities, fewer than the 25 in August, and were unchanged in 10.
The recovery in prices last month extended to a larger number of smaller cities, underpinned by five rate cuts since November and easing of property curbs as the government is dealing with the slowest economic expansion since 2009. To further boost the recovery in less prosperous regions, China cut the deposit for first-time homebuyers in those cities for the first time in five years on Sept. 30, as it tries to revive property investment that’s been a drag on growth.
“More second-tier cities saw prices reversing a decline last month, as a string of policies to boost the market start to show accumulated effects,” Bai Yanjun, Beijing-based director of research at consultant SouFun Holdings Ltd., said before the data. “However, we are unlikely to see prices rise in almost all 70 cities next year. There is still a vast inventory overhang in the third- and fourth-tier cities.”
New-home prices in the southern business hub of Shenzhen jumped 4 percent from a month earlier, slower than the 5.1 percent increase in August. Shanghai trailed Shenzhen to gain 1.6 percent, the second-fastest pace in China. The pace of growth in China’s financial hub prompted the city government to halt land auctions earlier this month in an effort to rein in the market.
Prices gained 0.9 percent in Beijing, slowing from the previous month, while they increased 1.4 percent in Guangzhou, faster than in August.
Nationwide, price growth is weakening as values in first-tier cities that have led the recovery are softening, the statistics bureau said in a statement released with the data. The strong sales in the May-to-August period, after some home-purchase rules were eased in March helped release pent-up demand, may be hard to sustain, according to some analysts. (…)
China excluded first-tier cities including Shenzhen, Beijing and Shanghai when on Sept. 30 it cut the minimum down payment first-time homebuyers in a bid to prop up the residential market. (…)
Housing sales nationwide gained 16 percent in September from a year earlier, narrowing from monthly growth of more than 30 percent in the May-August period, according to Bloomberg calculations based on official data released Oct. 19. The stock of unsold new homes increased 13 percent to 425 million square meters (4.6 billion square feet) as of Sept. 31, the statistics bureau said on Monday.
Year-on-year, new-home prices rose in 12 cities in September, compared with nine in August. Prices surged 38 percent in Shenzhen, the fastest year-on-year pace since 2011 when the statistics bureau changed the way it compiles the data.
The average price of the 70 cities rose 2 percent in September from August, gaining for a fifth consecutive month, according to Bloomberg calculations based on official data. Existing-home prices rose last month in 39 cities, compared with 43 in August. They dropped in 18 cities and were unchanged in 13.
China’s central bank cut interest rates for the sixth time since November on Friday in another attempt to jump start a slowing economy.
The People’s Bank of China (PBOC) said on its website that it was lowering the one-year benchmark bank lending rate by 25 basis points to 4.35 per cent, effective from Oct. 24.
The one-year benchmark deposit rate was also lowered by 25 basis points to 1.50 per cent. (…)
The central bank on Friday also cut the reserve requirement ratio (RRR) for all banks, for the fourth time this year.
The bank said it would cut the RRR by 50 basis points for all banks, taking the ratio to 17.5 per cent for the country’s biggest lenders.
South Korea GDP rebounds in third quarter
Gross domestic product rose 1.2 per cent quarter on quarter — slightly higher than market forecasts, the Bank of Korea said on Friday.
That was the strongest quarterly growth since 2010, reflecting a rebound from the second quarter in which it slumped to 0.3 per cent, with consumer spending and tourism depressed by concerns about an outbreak of Middle East Respiratory Syndrome.
Private consumption rose 1.1 per cent in the third quarter, buoyed by tax breaks on cars and a nationwide government-organised sale event as well as an increase in the number of workers.
A further boost came from rising government spending as part of a fiscal stimulus package, as well as a 4.5 per cent quarterly rise in construction investment spurred by a strong property market. House prices have risen for 25 consecutive months, according to Kookmin Bank. (…)
However, the quarter’s year-on-year growth of 2.6 per cent means the economy will have to expand about 3.4 per cent in the fourth quarter to hit the BoK’s full-year forecast of 2.7 per cent — a highly unlikely prospect, economists said on Friday. (…)
Investors Bet on More ECB Easing Investors doubled down on bets that the European Central Bank will beef up its stimulus efforts later this year after the strongest hint yet that the central bank is prepared to do more to boost sagging inflation.
The Dow Jones Industrial Average rose 320.55 points, or 1.9%, to 17489.16 after ECB chief Mario Draghi said Thursday that “monetary policy accommodation will need to be re-examined at our December policy meeting.” The euro tumbled, while stocks and bonds in the eurozone surged. (…)
The euro fell 2% against the dollar to $1.1110, its biggest one-day drop since Jan. 22. (…)
Mr. Draghi’s language Thursday about a reassessment in December was more direct than many expected.
In a news conference following the ECB’s regular policy decision, Mr. Draghi also said officials have discussed pushing interest rates further into negative territory.
“The expansion of QE is certainly not a surprise, but the fact that they discussed further cuts in negative interest rates suggests that the internal economic analysis is worsening,” said Sanjay Joshi, head of fixed income at London & Capital, which oversees $3.6 billion in assets. (…)
“We are in a kind of silent currency war,” (…)
(…) The first was from weak demand, which has left what central bankers dub “the output gap” wide open. This gap threatens to fuel deflation as lacklustre trading forces businesses to respond by cutting prices. Falling oil prices, which the ECB now thinks may reflect weak demand and not just oversupply, were another concern — as was the euro’s appreciation in value against the US dollar.
The ECB is also concerned by the degree to which falls in headline inflation — mostly driven by lower oil prices — are adversely impacting expectations for eurozone inflation over the medium term of two to three years from now. The interconnectedness between the headline rate, now minus 0.1 per cent, and those expectations suggests markets are doubtful the ECB can return inflation to its target any time soon.
“Given the fragile state of the economy and inflation expectations . . . wait and see would be the far more risky strategy than erring on the side of doing too much,” said Richard Barwell, economist at BNP Paribas Investment Partners.
Mr Draghi gave a clear signal the ECB was likely to bolster its €1.1tn quantitative easing programme in December. The 25-strong governing council could also break a promise to keep borrowing costs unchanged by pushing one of the central bank’s key interest rates further into negative territory. (…)
“The credibility of a central bank is measured by its ability to comply with its mandate [on inflation],” he said.
An advantage of a rate cut is that it would almost certainly weaken the euro, raising prices for imported goods and helping out the region’s exporters.
SENTIMENT WATCH
Rally in Stocks on Shaky Ground
The S&P 500’s most beaten down sectors are leading October’s revival and that doesn’t bode well for stocks heading into year end.
Major indexes have rallied in October after a tumultuous end to summer. The biggest winners this month are the S&P 500’s worn down energy and materials sectors, both up about 12%.
Over the last year, energy stocks have fallen 18% and materials stocks have slipped 7%, marking the two biggest sector declines.
“This is not a rally that’s driven by fundamental improvement,” said Mike O’Rourke, chief market strategist at JonesTrading. That gives him less confidence that stocks can push significantly higher, he added.
A brighter profit picture is not behind the rally in the energy sector. Earnings from energy companies in the S&P 500 are on track to slump 65% from a year earlier, according to FactSet. (…)
So what’s changed since August when the major indexes fell into correction territory, defined as a drop of 10% from a recent high? The increasing belief the Federal Reserve won’t start tightening this year. (…)
Something more fundamental has changed after nearly half the S&P 500 companies have reported:
- 161 companies (42.7% of the S&P 500’s market cap) have reported. So far, companies have reported earnings upside of 4.1% (3.6% yesterday, 2.8% the previous day). Results for Financials have been lackluster, beating by just 0.3%, while the rest of the market has surpassed expectations by 5.7%.
- The beat rate on EPS is 68%, 74% ex-Financials.
- Expectations are for a decline in revenue, earnings, and EPS of -3.9%, -4.1%, and -3.0% (-3.5% yesterday). Ex-Energy, these would be +1.6%, +3.2%, and +4.5% (+3.9% yesterday, +3.4% two days ago). This excludes the likelihood of beats, which have been above 4% over the past three years.