Home prices rose 4.97% YoY in June, according to Case-Shiller's 20-City index, missing expectations for the 3rd month in a row. Price appreciation has now been flat for 5 months - despite surging home sales - as bubblicious San Francisco saw price depreciation once again. Portland amd Denver saw the most appreciation in June. This is the second month in a row of sequential seasonally-adjusted declines in home prices, and along with TOL's dismal report this morning, suggests maybe another pillar of the 'strong' US economy meme is being kicked out... and Case-Shiller warn more than one rate hike by The Fed (or a stock market plunge) will stymie housing considerably.
The PBOC cut itself was not surprising, considering the PBOC now has to juggle and micromanage every aspect of the economy, from its sliding currency, to the bursting stock bubble, to record capital outflow, to soaring real interest rates, to the slowing economy. In fact, bulls around the globe will welcome the latest central bank bailout. Which also happens to be the worst aspect of today's intervention, because one can once again toss all the talk that China would finally stop intervening in asset pricing, with today's decision merely perpetuating the market's reliance on central banks. As a reference, this was the second time China cut both RRR and interest rates in 2 months: the last time it did so was during the depths of the financial crisis.
Housing is a very important component of any economy, and often an indicator of the well-being of a society. In the US, housing has been deteriorating since the sub-prime crisis. The changes are not only cyclical but structural. Past experiences need to yield to an objective analysis of where we are heading. Here is the way we see it...
Both bubbles (rents and housing) are vulnerable to popping. The real test of valuation is: what's it worth in a recession, after all the easy money and the jobs that depended on easy money have vanished?
The 0.18% month-over-month decline in Case Shiller home price index is the biggest since July 2014 which confirms the David Blitzer's view that "over the next two years or so, the rate of home price increases is more likely to slow than to accelerate." His biggest fear is that "first time homebuyers are the weak spot in the market," adding that prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust - housing starts are only at about 1.2 million units annually, and only about half of total starts are single family homes. Sales of new homes are low compared to sales of existing homes.
For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.
The U.S. economy is growing at a painfully slow pace. Greece still threatens the euro. Chinese stocks have just pulled out of a frightening free-fall. Big companies in the U.S. are struggling to boost profits. You might think it's been a rough year for investors, but it's mostly been a smooth ride - and a profitable one. "Things have worked out," scoffs one analyst "and that has emboldened investors." Maybe too much...
Speculative bubbles that burst are often followed by an echo bubble, as many participants continue to believe that the crash was only a temporary setback. But, echo bubbles aren't followed by a third bubble.
So much going on that by the time an article is prepared, everything has changed and it has to be scarpped. But, in any event, here is an attempt to summarize all that has happened in another turbulent overnight session.
While the 20-City index rose 4.9% YoY (but missed expectations by the most since July 2014), Case-Shiller's US Home Price Index dropped 0.02% in April - the first MoM drop since May 2014. Of course, all real estate is local and we note Denver and San Francisco reported the highest year-over-year gains with price increases of 10.3% and 10.0%, respectively, over the last 12 months. As S&P's David Blitzer warns, "home prices continue to rise across the country, but the pace is not accelerating."
The Greek D-(efault) day has arrived, and with it so has quarter-end window dressing for many underwater hedge funds (recall the S&P is now red for the 2015) which means the rumor mill today will be off the charts. And sure enough, less than an hour ago, futures exploded higher as did the EURUSD, following another "report/rumor" of a last minute detente between Greece and the Troika when Greek Ekahtimerini said that "Tsipras is reconsidering the last-ditch offer made by European Commission President Jean-Claude Juncker, sources have told Kathimerini."
In recent years, home price indices have seemed to proliferate. Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down. This is a rather odd way of looking at the price of a basic necessity.
It had been a painfully quiet session in Asia (where Chinese levitation continues with the Shanghai Composite up another 0.6% oblivious of yesterday's rout in the US, because as we explained for China it is now critical to blow the world's biggest stock bubble) and Europe, where the only notable news as that for the first time in months the ECB had not increase the Greek ELA, keeping it at €80.2 billion on conflicting reports that Greek deposit withdrawals had halted even as Kathimerini said another €300MM had been pulled just yesterday, suggesting the ECB has reached the end of its road when it comes to funding nearly two-thirds of what Greek deposits are left in local banks. But the punchline came moments ago when Bloomberg reported that "Greece will likely miss a deadline for a deal with creditors by the end of the week as the two sides have made little progress during talks in recent days."
Despite stagnating incomes, record low home-ownership, surging interest rates, and stalling employment data, home-prices in America rose 5.04% YoY in March - the biggest jump since August - as overseas money floods into American real estate and crushes the affordability dream for Hillary's 'everyday American'. No surprise, San Francisco and Denver reported the highest year-over-year gains, with price increases of 10.3% and 10.0%, respectively, over the last 12 months. This is the highest home price index since Feb 2008.