U.S. Existing-Home Sales Slip Sales of previously owned homes fell slightly in March, a sign the shaky U.S. housing market has continued to struggle into the spring but may be stabilizing.

Existing-home sales fell 0.2% from February to a seasonally adjusted annual rate of 4.59 million, the National Association of Realtors said Tuesday. Economists surveyed by The Wall Street Journal had expected sales to fall a steeper 0.7% to an annual rate of 4.57 million.

Sales were down 7.5% in March from a year earlier and were at their slowest pace since July 2012. (…)

Most of the housing market’s weakness reflects non-weather factors like surging prices in the western U.S. that are discouraging first-time buyers, said Jed Kolko, chief economist at real-estate website Trulia Inc. “The weather has a modest effect on housing activity, but the swings that we saw this winter were bigger than could be explained by the weather,” he said.

But it’s not all bad news, he said. Distressed sales, such as foreclosures and short sales, are down from a year ago. “The decline in existing-home sales overall is partly a shift away from foreclosures, and that’s a necessary part of the housing recovery,” Mr. Kolko said.

The spring buying season is critical for the U.S. housing market because families typically want to lock into a school district by the end of summer, and existing homes account for more than 90% of total sales. Sales last month rose in the Northeast and Midwest, but fell in the South and West. Single-family home sales were flat and condo sales fell 1.8%.

(…) The median sale price of a previously owned home in March was $198,500, up 7.9% from a year earlier, according to the National Association of Realtors. (…)

A 30-year fixed-rate mortgage had an average interest rate of 4.27% last week. The average rate so far this year has been 4.36%, up from 3.45% in April 2013, according to Freddie Mac.

There was a 5.2-month supply of unsold previously owned homes on the market in March at the current pace of sales, up from 5 months in February. Mr. Yun said a faster pace of new-home construction is needed to help bring down rising prices, but he said many home builders are facing financing difficulties and labor shortages. (…) (Chart above from Haver Analytics, below from CalculatedRisk)

Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The 4-week average of the purchase index is now down about 18% from a year ago.

QE SERA, SERA

(…) Speaking last week, Mario Draghi all but announced a Quantitative Easing policy for the euro area. So QE will be, or so it seems. But how much will the ECB buy? And what will it buy?

According to Germany’s FAZ newspaper, a leaked ECB report claims that, through mimicking the Fed and buying around €80 billion of assets up to €1 trillion, the ECB could add 0.2 to 0.8 percentage points to inflation by 2016. However, the article gave few details. It was not clear if the range of outcomes related to purchases of different assets, to purchases of different combinations of assets, or to different underlying models.

But what will the ECB buy, and how much will it buy? The FAZ article (…) finished by arguing that Mr Draghi had already suggested a solution to the dilemma posed by an insufficiently big private bond market, and to the Bundesbank’s reluctance to engage in government bond purchases – namely reviving the ABS market. Interestingly, since then the ECB has underlined the importance of reviving the ABS market on several occasions. More significantly, according to other media reports, Mario Draghi has hinted that if there was sufficient liquidity in the ABS market the central bank would be prepared to buy them to counter the risk of deflation.

However, the European ABS market totals only €920 billion, of which 30% are Dutch securities, and a further 20% from each of Italy and Spain. The limited size of the market, which is further reduced when separating out junk-rated ABS (as per the ECB’s collateral eligibility criteria), implies that the ECB will face constraints in buying purely ABS – hence government bond purchases become inevitable. Even if the ECB bought 50% of the entire stock of non-junk ABS that would account for just 42% of the target amount of €1 trillion of QE, leaving 58% to be filled by government bond purchases.

In terms of timelines, we think the ECB’s first move will be to end the sterilisation of its SMP purchases. The next stage will involve purchases of European ABS and of government bonds – focusing on Bunds in particular. The imposition of negative deposit rates is also a strong possibility. We estimate that a cut in the deposit rate from 0% to -0.25% would take a little over 10 basis points off the EONIA rate.

But, with much of the impact of QE coming from the announcement effect, the ECB may try to get more bang for its buck, and implement all three measures at once.

EARNINGS WATCH

Early Read on Earnings Season

Earnings season is just a couple of weeks old, and things really didn’t kick into gear until this week.  That being said, more than 200 companies have already reported, which gives us enough data to get an early read on how the season is shaping up.  The chart below shows the percentage of companies that have beaten consensus earnings estimates for each earnings season going back to 2001.  So far this season, 62% of companies have beaten earnings estimates.  This is right inline with the reading from last earnings season, and it’s right inline with the average beat rate that we have seen since the bull market began in March 2009.

While the bottom line beat rate has come in okay so far, top line revenue estimates have been a bit weak.  So far this season, 50% of companies have beaten revenue estimates.  Last earnings season, the revenue beat rate was very strong at 63.8%, so a beat rate in the 50s would represent a pretty big quarter-over-quarter decline.  Since the bull market began, the revenue beat rate has been 59%, so we’re about 9 percentage points weaker than average right now.

David Einhorn: ‘We Are Witnessing Our Second Tech Bubble in 15 Years’ Hedge-fund manager David Einhorn just joined the growing list of market watchers warning about a market bubble.

(…) He described the current bubble as “an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm.”

There are three reasons he cited in an investor letter that back his thesis: the rejection of “conventional valuation methods,” short sellers being forced to cover positions and big first-day pops for newly minted public companies that “have done little more than use the right buzzwords and attract the right venture capital.” (…)