New Home Sales
New US single-family home sales surged to a more than 8 year high in April, prices hit a record high as well offering further evidence of a pick-up in economic growth early in the second quarter. April’s annualized rate came in at 619,000, the highest rate since January of 2008.The data includes a large 39,000 net upward revision to the two months prior. The monthly gain of 16.6 percent is the largest monthly increase since January 1992. Prices also had a large upturn, increasing by 7.8 percent in the month to a record median price of $321,100, and up a plus 9.7 percent from last year. This surge in sales is a negative for supply as supply relative to sales fell sharply to 4.7 months from 5.5 months. The total number of new homes for sale was down only by 1,000 to 243,000. Year on year total sales are up 23.8 percent and the median price is now well above the 6 percent rate where housing appreciation has been trending.
Total mortgage application volume increased by 2.3 percent on a seasonally adjusted basis compared to the previous week. Year on year total applications are nearly 24 percent higher. Purchase applications increased by 5 percent from the prior week and were the driving factor in total volume this week. Refinancing activity managed to post a gain of 0.4 percent despite slightly higher rates. Purchase applications were 17 percent higher than they were a year ago, a gain that points to continuing strength of a very strong housing market.
FHFA House Price Index
After a strong new home sales report and the FHFA house price report the home price appreciation, which has been flat, now appears to be trending higher. The FHFA index for March rose a higher than expected 0.7 percent, for the best reading since September. The year on year rate jumped over the 6 percent line to 6.1 percent for the best reading since October. This report points to consumer strength in the market.
Initial jobless claims fell sizably in the week of May 21st, down 10,000 to a lower than expected 268,000. The 4-week average, however, reflects the prior three weeks of gains and is still rising up 2,750 to 278,500. This is more than 20,000 above the rate a month ago, this points to trouble for the May employment report. Indications from continuing claims are flat. In the lagging data for continuing claims in the week of May 14th, claims rose 10,000 to 2.163 million. The 4-week average was up 8,000 to 2.151 million. The unemployment rate for insured workers remains unchanged at a low level of 1.6 percent.
Pending Home Sales
After a very positive new home sales report, which showed new home sales surging in the month of April, the pending home sales index experienced a similar surge. Up for a third straight monthly gain, pending home sales increased by 5.1 percent in April to a level of 116.3. The index is up now 4.6% from April of 2015, and has had a year over year increase for 20 consecutive months. Gains in the South and West helped to propel pending sales in April to their highest levels since February of 2006 when they were at a level of 117.4. These positive reports point to greater acceleration for final sales of existing homes. This report has turned the housing outlook from modest to sharp growth, in the latest indication of household strength.
The first quarter GDP is now revised slightly higher to an annualized growth rate of plus 0.8 percent for a 3 tenths gain from the initial estimate. An upward revision to residential investments and exports are behind the small gain along with an unwanted upward revision to inventories. Nonresidential investments remain weak, personal consumption was soft unrevised at a plus 1.9 percent rate. Final demand is revised slightly higher by one tenth to a very soft 1.2 percent. Inflation data is weak with the GDP price index revised 1 tenth lower to an annualized plus 0.6 percent. Residential investment, boosted by home improvements, is the standout in this report of an otherwise soft opening to 2016.
Consumer sentiment came in at 94.7 for the month of May, down 1.1 points from mid-May but up a very strong 5.7 points from April. The final result for May is the best since June of last year and among the very strongest of the whole economic cycle. The expectations component, the standout in the report, was up 7.3 points from April to 84.9 for the sharpest monthly gain since May 2013. Strength in this segment reflects the strength in the jobs outlook. The current conditions component also helped add to May’s strength, up 3.2 points from April to a level of 109.9. The current conditions reading is the best in the whole cycle, since January 2007, it is a strong indication for current spending. A negative in the report is the inflation outlook where 1 year expectations are down another 1 tenth from the mid-month reading of 2.4 percent. This is a major decline from April, down 4 tenths. The 5-year expectations component is showing little change, down only 1 tenth from the mid-month reading of 2.5 percent which was unchanged from the previous month of April. This report is a positive indication for consumer spending which is showing resilience despite the concerns of slowing economic growth.
Existing Home Sales
The housing market is at its strongest in a decade. More than 6 million homes changed hands last year, marking the first time that’s happened since 2006. Three factors stand out as to why there has been a surge in rising home sales: rising US rents, loosening mortgage guidelines nationwide and historically low mortgage rates. The April 2016 Existing Home Sales report shows 5.45 million homes sold on a seasonally-adjusted annualized basis, a 6% increase from the year prior and the highest reading for an April since last decade. Demand for homes has been high; there are now just over 2 million homes for sale nationwide, this supply cannot keep up with the demand. At this current pace of sales, the entire stock of homes for sale would be sold out by September. In April, the report for median days on the market reached a total of only 39 days; this marks the lowest number of days for an April since this report has been tracking such data. The April Existing Home Sales report showed a 17% decrease of days on the market from the prior month.
Janet Yellen did not signal exactly when the FOMC will raise rates during her speech at a Harvard awards ceremony. She did, however, state that a rate increase will probably be appropriate in the upcoming months. Employment continues to be the strong suit of the economy, as Yellen described it as really improved and noted the gains in the participation rate. She warned that the unemployment rate is closing in on the Fed’s full employment goal, in a comment that points to an upcoming rate hike. A major negative in the economy is the ongoing struggle in productivity; she described the pace as a “serious negative” and “really miserable.” As for her overall outlook, she sees the economy continuing to improve and inflation to move back to its 2 percent goal over the next couple of years.