New Home Sales
It was about a year ago when we noted a core component of the US housing non-recovery: the time to sell foreclosed homes had just hit a record of 400 days across the nation. Fast forward to today when even the last traces of the lie that sustained the housing recovery myth are being swept away, and we get the following article from Bloomberg titled "Foreclosures Surging in New York-New Jersey Market." The good news (according to some): thousands of people could live mortgage free for years until the bank delays obtaining the keys to the foreclosed property. This was money which instead of going to the mortgage owner, would instead go to buy Made in China trinkets and gizmos and otherwise keep the US retail party humming. Which brings us to the bad news: the party - retail and otherwise - is ending, as courts and banks finally catch up with inventory levels on both sides of the foreclosure pipeline, and those who lived for years without spending a dollar for the roof above their head are suddenly forced to move out and allocated the major portion of their disposable income toward rent.
Despite the surge in "seasonally-adjusted new home sales", un-seasonally-adjusted mortgage applications tumbled 8.5% this week, the biggest drop in 3 months as the modest January bounce has been almost entirely unwound. This pushes the broad MBA mortgage applications index down to near its lowest in 14 years. However, the home-purchase index continues to collapse. Purchase applications are down 30% from their May highs plunging in the last few weeks to their lowest level since 1995. Must be the weather, eh? Or is it like Bob Shiller warned yesterday, the unwind of "bubble thinking," especially as "gains are slowing from month-to-month and the strongest part of the recovery in home values may be over."
Following last month's biggest miss in 5 months, New Home Sales were revised higher in Jan and rose 9.6% in February to 468k (beating the 400k expectations by the most in 13 months). This is a new five-year high for new home sales. The "catastrophic" storm-battered NorthEast had new home sales of 33k - the highest since June; and the Snow-covered South saw huge sales. Home prices are up year-over-year by 3.4% but dropped to their lowest since August. If this does not entirely dismiss the 'weather is to blame' meme for any other macro weakness, then what does?
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For the second night in a row, China, and specifically its currency rate which saw the Yuan weaken once more, preoccupied investors - and certainly those who had bet on endless strenghtening of the Chinese currency - however this time it appeared more "priced in, and after trading as low as 2000, the SHCOMP managed to close modestly green, which however is more than can be said about the Nikkei which ended the session down 0.5%. Still, the USDJPY was firmly supported by the 102.00 "fundamental" fair value barrier and as a result equity futures, which had to reallign from tracking the AUDUSD to the old faithful Yen carry, have been propped up once more and are set to open at all time highs. If equities fail to breach the record barrier for the third time in a row and a selloff ensues after the open in deja vu trading, it will be time to watch out below if only purely for technical reasons.
The last 3 days have seen China's Shanghai Composite index tumble over 3% - its largest drop since October as sentiment comes under pressure from concerns about tightening in the real estate sector. The pace of price appreciation has slowed notably - especially 'existing' apartment sales (i.e. the speculators are exiting) - as it appears houing demand is cooling off with the number of cities with falling MoM home prices rose to six in January from two in December.The PBOC has jawboned as much and real estate sector financial condtions are tightening is slowing as a number of banks curb lending to developers. This is weighing on copper prices also as construction activity slows (exacerbating problems in the shadow banking system's collateral pools). The PBOC is getting what they wanted - but may regret it.
Asian equities are trading lower across the board on the back of some negative credit stories from China. Shanghai Securities News noted that ICBC and some other banks have curbed loans to developers in sectors such as steel and cement. Slower gains in home property prices in China’s tier 1 cities are also not helping sentiment. Beijing and Shenzhen prices rose 0.4% in January, which looks to be the slowest monthly gain since October 2012 according to Bloomberg. Elsewhere there are reports that a property developer in Hangzhou (Tier 2 city in China) is reducing its unit prices by 19%. Our property analysts noted that given the strong gains seen in Tier-1 and some bigger Tier-2 cities in 2013, a slowdown or negative trends in price growth should not be a surprise. Nevertheless, it has been a very weak day for Chinese and HK markets with the Shanghai Composite and the Hang Seng indices down -2.0% and -1.2% lower as we type. Across the region, bourses in Japan and Korea are down -1.0% and -0.6%, respectively.
The divergence between the NAHB index and other housing indicators has continued to suggest that sentiment was “getting ahead of itself" and as Citi's Tom Fitzpatrick warns would suggest that the qualitative nature of the overall housing recovery is less robust than one would like. Housing should pause/consolidate possibly even for most of this year as the weather argument that is trotted out by so many commentators does not seem to hold up to even a basic examination with the worst data coming from the West Coast. Simply put, Citi warns, we think housing sentiment got carried away as it did into 1994 and 1998 post the housing/savings and loan crisis of 1989-1991.
A dispassionate and analytic of the macro developments for the week ahead.
While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014, the data suggests otherwise. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief is that the current push in housing is a side-effect of a recovering economy, the reality may be a function of the speculative rush into buying rental properties for cash which created a temporary, and artificial, inventory suppression. The real driver of an economic recovery is full time employment that leads to rising wages and savings. Unfortunately, this is something that eludes the current Administration that is focused on creating new regulations on the average of every 8 minutes, raising the cost of healthcare and increasing taxes. Call us crazy, but maybe its time to try something different.
When you have one after another "polar vortex" out there, and feet of snow covering the country and supposedly crushing economic activity, what do you do? Why you hire construction workers of course. As the following breakdown of the best and worst jobs of December shows, the one job category to benefit the most from January's horrifying weather which was the reason for all those weak January numbers (if one listens to the propaganda pundits and other TV anchors) was construction workers, which saw 48K jobs created. Which in some parallel universe surely makes sense. Just not this one.
This morning's utter collapse in pending home sales - a 6-sigma miss by 'economists' unaware that it was cold in December - has been ushered away on the back of "weather" reasoning. However, a glance at the chart below confirms this is total bullshit. As Goldman Sachs admits "broad-based declines by region suggest that colder-than-average weather was likely not the primary driver."
The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.
The taper-driven rate-rise scare mid-summer that stalled home-buyer (speculator) confidence has been matched by the Decmeber 2013 numbers. New Home sales plunged 7.0% against expectations of only a 1.9% drop as total sales (seasonally adjusted and annualized) dropped to 414k - the biggest miss (against 455k exp.) since July 2013. Of course the data is dreadfully sparse and noisy, as we note a mere 1,000 (non-seasonally-adjusted) homes were sold in the Northeast. Notably, the exuberant levels of the last few months have also been revised markedly lower.