Senior Investment Strategist, @MacroInstitute
Garden City, NY
Joined December 2013
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This morning's April U.S. Existing Home Sales data showed the largest Y/Y increase in unsold inventories since 2007. This isn't going to be good for home prices, especially as we move past peak selling season.
Great update, as usual, from @mikesimonsen at @AltosResearch. High interest rates slow the economy, as you can see in this chart of listed home price reductions. Right now, more sellers are reducing their asking prices than at any time in the last decade.
Price Reductions
📍34.4% of the market has taken a price cut from original list price. That’s up 70bp from last week.
📍It looks like we’re on track to see more price cuts late this fall than in 2022. Those cuts led to YoY home price declines in Q1 2023.
📍The slope is lower now than in 2022. Meaning the market isn’t changing as abruptly now as it was then. 📍Both the total level and the slope matter for understanding what happens next to home prices.
📍Price reductions are localized. Florida is leading the country now. In 2022 it was the Western US boomtowns like Boise and Salt Lake City.
2/7
Lack of supply will likely prevent a total home price collapse in most parts of the country, but with demand for homes still impaired, we're missing out on all the downstream economic benefits of high home sales. Just today, Lowe's reported fewer customers doing DIY projects.
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Two thoughts on the GDP report, one of which I've seen covered elsewhere but is worth reiterating, the other of which I haven't seen mentioned this morning.
First, final sales to private domestic purchasers were solid at 3.1%. Consumption and investment growth continue apace.
Second, there was a wide gap last quarter between market-based inflation and overall inflation. The PCE Price Index rose at a 3.4% rate in Q1, but market-based prices rose at only a 2.8% rate. There's a similar gap for core prices.
It’s almost as if fictitious/interpolated/administered prices are keeping PCE and CPI elevated while prices subject to market forces are falling or, at least, in disinflation.
$BX From the Blackstone earnings call - "“In terms of inflation, despite the recent U.S. CPI readings, we're seeing decelerating wage growth and minimal input cost increases across many of our companies. In real estate, we see shelter costs moderating, contrary to government data"
Existing home sales came in pretty close to expectations for March. But the details were quite interesting and consistent with a coming decline in construction activity and prices.
Higher interest rates mean more homes are sitting on the market unsold:
Inventory growth will slow price gains and eventually push prices lower as buyers stay away but many sellers are compelled to bring their homes to market. The annual increase in existing home prices slowed last month:
By the way, I find @mikesimonsen at @AltosResearch to be indispensable for understanding how the housing market outlook is forming week-to-week.
But Shelter is the main event for CPI each month. The Cleveland Fed's Rent Indexes for Q1 show New Rents essentially flat over the past year. It will take Average Rents a few more quarters to catch up, but there's no reason to think they won't:
Inflation is a lagging indicator, and some of the leading indicators for its major components are showing continued disinflation or outright deflation in the coming months.
Looks a little like Sucker Punch?@SonnyBunch
He's not alone anymore. Joker: Folie à Deux – only in theaters and @IMAX, October 4. #JokerMovie #FilmedForIMAX
The “soft” components of the NFIB Small Business survey are prone to political partisanship and can safely be ignored. But the drop in the harder components should worry bulls.
