Pending homes sales figures were just released for December. Here’s what the numbers showed:
* Sales rose 1% between November and December. That was right in line with what economists were expecting.
* At 96.6, the index was up 10.9% from the year-ago level of 87.1.
* By region, pending sales were broadly higher. They climbed 2.2% in the South, 2.3% in the Northeast, and 5.2% in the Midwest. Sales fell 3.8% in the West.
The pending sales index stabilized at the end of 2009. That potentially sets the stage for a more positive spring selling season. Indeed, with mortgage rates low, house prices down, and the supply of homes for sale steadily falling, it’s easy to see why the market should stabilize.
At the same time, we lack a catalyst for a vigorous recovery. Unemployment remains a problem and the housing market is still dealing with the “hangover effect” from the bubble — too much foreclosure inventory, tighter lending standards, and so on. The result? We’ll likely just muddle through instead of witness a V-shaped recovery like those that followed previous housing busts.
We just got the latest new home sales figures for the month of December. Here’s what they showed:
* New home sales dropped 7.6% to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 in November. That missed expectations for a sales rate of 366,000, and it leaves sales at the lowest level since March. The regional figures were all over the map, with sales up 42.9% in the Northeast, down 41.1% in the Midwest, up 5.2% in the West, and down 7.3% in the South.
* The supply of new homes for sale dropped again to 231,000 from 235,000. That’s the 32nd consecutive monthly decline and it leaves the raw number of homes for sale at the lowest level since April 1971. But due to the decline in the sales rate, the “months supply at current sales pace” indicator of inventory rose to 8.1 from 7.6. That’s the highest since June.
* The median price of a new home rose 5.2% to $221,300 from $210,300 in November. That was still a decline of 3.6% from the year earlier level, however.
The new home market continued to wilt late in 2009. Sales slipped to the lowest level in nine months, while pricing remained weak. Ongoing labor market malaise and the tax credit “hangover” effect are two headwinds. Another is aggressive competition from banks and other lenders buried in foreclosures. The buyers who are willing and able to buy are flocking to cheaper, distressed, “used” homes because — to paraphrase Willie Sutton — “That’s where the bargains are.”
I still believe the “three steps forward, two steps back” recovery is in place. But as I’ve said all along, it will NOT be a vigorous, V-shaped affair like we’ve seen in past housing recoveries. We experienced a once-in-a-lifetime housing bubble, not a traditional expansion. That means we shouldn’t expect a traditional, vigorous, cyclical recovery.
Earlier this morning, I published a piece predicting that the Fed under “Helicopter” Ben Bernanke won’t tighten rates until the cows come home.Today’s jobs report only underscores my certainty in this matter.
The currency and bond markets are getting the message loud and clear, with breakouts, breakdowns, and crazy activity visible all over the place. A sampling:
* Forget the yen and the euro. Look at the Korean won, the Indonesian rupiah, the Indian rupee, or the Philippine peso. They’re all breaking out against the buck. You can see the same thing happening in South America, with the Brazilian real and Chilean peso about to blow the doors off the dollar.
* Back-month Eurodollar contracts are flying. December 2010 EDs up 9 ticks to 98.78 at last check, for instance. That means Fed tightening is being priced OUT of the market.
* The yield on the 2-year Treasury Note was recently down 7 basis points to 0.95. Meanwhile, the yield on the 30-year Treasury Bond was recently UP about a bp to 4.69%. Result: The 2s-to-30s spread just hit 373.8 basis points, the highest in the history of my data, which goes back to 1980.
* And inflation concerns? Well, the 10-year TIPS spread has jumped to 246.5 bps. That’s the highest going all the way back to July 2008.
What’s the umistakably clear message from the capital markets: ‘Fed — wake up! Start hiking rates.” But as I noted, they won’t … until it’s too late.
The December jobs report was disappointing, with the economy shedding 85,000 jobs against expectations for an unchanged reading. November’s reading was revised to +4,000 from -11,000. But the unemployment rate held at 10%, which has to be disappointing, and the separate household survey showed a nasty loss of 589,000 jobs.
Some slight positives: Average hourly earnings were up 0.2% and average weekly hours held at 33.2. Temporary help agencies added 47,000 jobs, the fifth positive reading in a row and a potential precursor to gains in full-time jobs. The private nonfarm diffusion index, which measures how many industries are shedding workers vs. how many are adding them, ticked up ever so slightly to 38.7 from 38.5.
This report virtually guarantees the Fed will keep flooding the markets with easy money. That seems to be the knee jerk reaction in the marketplace, too. The Dollar Index has given up early gains … gold has swung from early losses to small gains … and deferred-month eurodollar contracts are surging. That’s the market pricing OUT Fed tightening.
The National Association of Realtors came out with its pending home sales data for November a little while ago. Here’s what the numbers looked like:
* Pending sales plunged 16%. That compared with an expected decline of 2%. Yikes!
* On a year-over-year basis, the pending sales index actually rose 15.5% to 96 from 83.1.
* Regionally, sales fell across the country. Sales dropped 2.7% in the West, 15% in the South, and 25.7% in both the Northeast and Midwest.
Pending home sales plunged by a much larger than expected margin in November. That’s the bad news. The good news? It’s largely tax credit related. Since the period covered in this report, the first-time buyer credit has been expanded and extended. We’ve also seen indicators of unemployment and economic growth stabilize over the past few months. So after we work through this period of housing indigestion, we’ll likely see sales rates gradually pick up again and home inventories gradually decline.
The latest existing home sales figures hit the tape today. Here’s what they showed:
* Existing home sales jumped 7.4% to a seasonally adjusted annual rate of 6.54 million in November. That was up from 6.09 million a month earlier and well above forecasts for a reading of 6.25 million.
* Regionally, sales were strong across the board. They rose 4.8% in the South, 6.6% in the Northeast, 8.4% in the Midwest, and 10.6% in the West. By property type, single family sales surged 8.5%, while condo and coop sales were flat on the month.
* The raw number of homes for sale slipped to 3.518 million from 3.565 million in October. That was down 15.5% from a year earlier. The months supply at current sales pace indicator of inventory dropped to 6.5 from 7. That’s the lowest since December 2006. Median prices were roughly unchanged — $172,600 in November vs. $172,200 in October. That was a decline of 4.3% from a year earlier.
Santa delivered more good news for the housing market today. November home sales easily topped estimates, with strength evident in all regions of the country. Moreover, the inventory of homes for sale continues to dwindle. That shows that distressed properties are being snapped up by investors and single-family buyers, an encouraging sign.
In the big picture, I’ve been saying for a long time that falling home prices would eventually “fix” the housing crisis. We needed to see prices fall to make ownership competitive with renting again, and to restore the normal relationship of house prices to income. That has now happened, and you’re seeing buyers come out of the woodwork as a result. The home buyer tax credit and the Fed’s meddling in the mortgage market are also helping the process along.
In short, my call in the spring that the housing market was bottoming out appears right on target. We have since seen sales rise, inventories decline, and construction activity stabilize. Look for pricing to follow later in 2010.
The Federal Open Market Committee just concluded its policy meeting. As expected, interest rates were left unchanged in a range of 0% to 0.25%. The Fed reiterated that several special support programs for commercial paper, primary dealers, and other constituencies will end on February 1, 2010. The Fed will continue to buy mortgage backed securities and agency debt through at least Q1 2010, however. And it kept its pledge to keep rates “exceptionally low” for an “extended period” of time, despite generally upgrading its view of the economy’s performance. The full FOMC statement can be found here.
Housing starts and permits data for November were released this morning. Here’s a recap of the numbers:
* Overall housing starts rose 8.9% to a seasonally adjusted annual rate of 574,000 in November from 527,000 in October. That was exactly in line with the forecast of economists. Permitting activity gained 6% to 584,000 from 551,000. That was a bit better than the 570,000 figure economists were expecting.
* By property type, single family starts gained 2.1% while multifamily starts soared 67.3%. How’s that for volatility? Permitting activity was up 5.3% in the single-family market and 8.8% in the multifamily.
* The regional breakdown was positive across the board. Starts rose 1.9% in the West, 3% in the Midwest, 12.3% in the South, and 16.4% in the Northeast. Permits were up in three out of four regions — by 2.7% in the West, 4.7% in the Northeast, and 10.7% in the South. They slipped 1.9% in the Midwest.
Another month, another sign of a bottom in construction activity. That’s my read on the latest stats. We got positive news across the board, with starts and permitting activity increasing in both the single-family and multifamily markets. Strength was geographically broad-based as well, with healthy growth in the South region, the largest U.S. market for home building.
At the same time, you’d be hard-pressed to describe the improvement as dramatic. Unlike the “V”-shaped recoveries we’ve seen after previous housing busts, this one is much more anemic. Why? Even though builders are running with very lean inventories, they don’t need to ramp production up aggressively. For one thing, demand remains relatively weak despite very low mortgage rates. For another, so much foreclosed and distressed inventory is hitting the market that it makes it tough for builders to compete. Tighter financing conditions are an important headwind, too. Even those builders who want to build more homes, townhomes, and apartment complexes are having a difficult time getting the money to do so.
Bottom line: The “three steps forward, two steps back” recovery in housing remains on track. But it remains a weak one.
The National Association of Home Builders released its latest builder sentiment index this afternoon. A look at the numbers follows:
* The overall index registered 16 in December. That was down from November’s reading of 17 and below the 18 that economists were expecting.
* Among the sub-indices, the one measuring present single family sales slipped to 16 from 17. The prospective buyer traffic sub-index held steady at 13, while the sub-index measuring expectations about future sales fell to 26 from 28.
* Regionally speaking, we had a mixed bag again. The Northeast index rose to 23 from 20, while the West index climbed to 19 from 18. The Midwest index dropped to 12 from 14, while the South index held at 17.
It looks like the housing industry got a lump of coal in its stocking this year. The NAHB’s index of builder sentiment slipped to its lowest level since June, with both current sales and expectations about future sales declining. Buyer traffic held steady. But it’s still only a few points above the all-time low set in late 2008.
These figures underscore the gradual, tentative nature of the housing recovery. Elevated unemployment, tighter credit standards, and shaky buyer confidence are offsetting near-record affordability and low mortgage rates. The result is somewhat of a “push” — with the housing market neither plunging to new lows nor experiencing a “V”-shaped recovery typical of what we’ve seen in past housing cycles.
Readers, you should be aware that the 30-year Treasury Bond auction today stunk up the joint. $13 billion in 30s were auctioned off at yield of 4.52%, 4 basis points worse than pre-auction talk.
Despite the recent rise in yields, demand was relatively punk, too — with indirect bidding falling to 40.2% from 44% in the prior month’s auction. The bid-to-cover ratio was up slightly to 2.45 (meaning there were $2.45 in bids for every $1 in bonds being offered). But that’s still low given the recent cheapening of the bond. Rick Santelli on CNBC gives this auction an “F+” I agree.
The key message from the bond market: Investors will buy short-term Treasuries six ways ’til Sunday. But amid record and rising debt issuance, Fed monetization of U.S. debt, and rising inflation fears, buyers just are NOT all that willing to lend Uncle Sam money at these yields for the long term. Indeed, the yield difference between 2-year and 30-year Treasuries blew out on the news to 372 basis points. That is the highest in the history of the Bloomberg data I have, which goes back to December 1980.
