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Headlines Belie the Reality of April Home Sales

  • Written by Syndicated Publisher No Comments Comments
    May 29, 2014

    We like everyone, were looking forward to the April housing reports to provide definitive evidence that the economy is recovering from its winter slowdown, to relieve concerns about GDP growth declining from 4.1% in the 3rd quarter, to 2.4% in the 4th quarter, to 0.1% in the 1st quarter of this year.

    The April reports did not perform that task well at all. So, must we wait for May reports?

    The headlines for the April reports looked exciting enough for investors who don’t look any deeper. But markets were not impressed at all.

    The headlines:

    ‘Existing-Home Sales Fastest Pace in Four Months’

    ‘Sales of Existing Homes Pick Up in April’

    ‘Housing Coming Out of its Deep Freeze’

    Yes, after declining since April of last year, there was supposedly pent-up demand due to winter weather that would come roaring into the market in the spring. It didn’t show up in March.

    But existing home sales were up 1.3% in April from March’s level.

    And yes, it was the fastest rise in four months.

    However:

    Existing home sales have been in decline since May of last year.

     

    And if the winter months created pent-up demand you would expect a big surge up in March and April when that demand flooded out into the market.

    But only a 1.3% uptick, not even meeting the cautious consensus forecast of 1.6%, with sales still 6.8% below April of last year? And from the looks of the chart the uptick was less than the spring uptick in 2013 when the previous winter weather was not a factor.

    The spin.

    Wall Street says Thursday’s report contained a couple of potential positives indicating an upturn is underway.

    1. Home prices are not rising as quickly, which may make would-be buyers “more comfortable” with entering the market.

    2. Inventories of unsold homes jumped 17% in April, giving buyers more choices.

    Okay, but couldn’t it just as easily be that if home prices are not rising as quickly, would-be buyers would be less interested in buying, the potential for profit, and the impulse to jump in before prices get away on the upside, being less compelling?

    And couldn’t the big increase in inventories be that more people want to sell than are interested in buying?

    Just asking. The market didn’t buy the spin, the Dow closing up just 10 points, or less than 0.1% on Thursday.

    Then there was yesterday’s report on:

    New Home Sales:

    The headlines:

     ‘April New Home Sales Point to Rebounding Housing Sector’

     ‘Housing Market Heats Up’

     

    The report was that new home sales rose 6.4% in April to a seasonally adjusted annualized rate of 433,000, just about on the consensus forecast for 429,000.

    However, markets also did not respond to any degree to that report either. Yes, the Dow closed up 0.4% yesterday, but with most of the positive move coming in the final hour to close the market positive going into the weekend.

    What didn’t the market like?

    New home sales reports are notoriously volatile, and in fact economists warned with this report not to read too much into it, as the reliability level in the reports is plus or minus 15.9%.

    The unreliability could be seen in the revision of the March report, originally reported as a plunge of 12.7% to an annualized rate of 384,000, down from 440,000 in February. That was revised yesterday to a decline of 7.5% to 407,000 in March from 440,000 in February.

    So the 6.4% increase in April to 433,000 reported yesterday, did not even bring sales up to the 440,000 level of February, which was a four-month low. It leaves new home sales still not only lower than in the winter slowdown, but still below the 452,000 pace of a year ago, when housing topped out.

    For context, the monthly sales pace for new homes was more than 900,000 in 2005.

    Also interesting in the report was that the Northeast, where the bitter winter weather supposedly had the greatest effect on creating pent-up demand, fared the worst as far as showing any bounce-back at all in April.

    New homes sales were up 47% in the Midwest, 3% in the South, and unchanged in the West. But they plunged 27% in the Northeast.

    I had been saying these two reports on home sales were likely to be market-movers that might break the market out of its funk.

    But the market had no reaction to either the headline numbers on existing home sales or new home sales.

    However, for whatever reason, the market was up enough in the afternoon yesterday to close the market positive going into the weekend.

    And it was enough to produce the exciting headline for the weekend that the Dow, S&P 500, and Nasdaq are now all up for the year-to-date.

    Year to date: Dow: + 0.2%    S&P 500: + 3.2%   Nasdaq: + 0.2%  Russell 2000: – 3.2%

    So has the market finally broken out of its sideways funk?

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    Other Voices:

    Stephanie Pomboy, economist and president MacroMavens: “Investors have underestimated the cost that tapering QE will have, and that is starting to come into focus. People will realize that the economy really has not achieved any self-sustaining momentum and that it requires continued stimulus. . . . . . If you look at a chart of nominal consumer spending, which is 70% of GDP, it has continued to decelerate, even in this period of unprecedented monetary accommodation and rampant financial-asset inflation. . . . . . QE had a legitimate, positive economic impact [on housing], to say nothing of the benefit to the financial sector. But all of that came to an end when Ben Bernanke just talked about the possibility of tapering last May. So a full year has gone by, and the housing market has yet to recover its footing from just the threat of tapering.“

    Rob Wile, Business Insider: It Is Officially Dangerously Quiet In Markets (The Economist). The VIX Index has dropped to its lowest since 2007. Bond volatility is creeping closer to the historic lows it reached a year ago. And foreign exchange volatility is back to the lows of 2007. This is all probably bad, says the Economist.

    Caroline Valetkevitch, Reuters: ‘There’s No Fear On Wall Street’. Whatever investors are worried about right now, those concerns are not showing up in the VIX, Wall Street’s fear gauge. That scares some.”

    To read my weekend newspaper column click here: Are Some Proven Investment Strategies Too Simple To Accept?

    Subscribers to Street Smart Report:

    In addition to the charts and signals in the ‘premium content’ area of this blog, there is an in-depth Markets Report (U.S. stock market, gold, and bonds) from Wednesday evening in your secure area of the Street Smart Report website.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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