Existing Home Sales Fell 5.4% in June, Are Down 14.2% Over Last Year… Sales dipped to an annualized rate of 5.12 million, the lowest since June 2020. Excluding the pandemic, it was the lowest sales rate since January 2019.
What it means— It is not surprising that substantially higher interest rates are eating into demand. It is surprising that, so far, prices continue to climb. The median existing home sale price set a record last month of $416,000, up 14.2% over last year.
Sales haven’t changed all that much since higher priced homes are still selling as lesser priced homes falter. The median moves higher while prices can remain stable.
As we’ve discussed for years, it’s all about supply. The existing-home inventory rose 9.6% last month, to 1.26 million units. That’s the ﬁrst year-over-year gain in three years, but it still brings inventory up to just three months of supply at the current sales pace. Homes were on the market an average of just 14 days last month, a new record low, although numbers go back only to 2011. Interestingly, ﬁrst-time home buyers made up 30% of sales last month, up from 27% in May but still well below the long-term average of about 35%. Owners of two homes waiting for higher prices to sell the previously occupied house are beginning to list their vacant properties as sales slow and prices soften. This will add to inventory.
While inventory is the key to the housing market on the supply side, rising rents are keeping pressure on the demand side. First-time buyers might be wary of high prices and rising mortgage rates, but they’re not getting any relief by remaining in rentals, where landlords are raising rents. The Millennials are getting squeezed.
Housing Starts Fell 2% in June, Are Down 6.3% Over Last Year…Single-family construction fell 8%, but multi-family construction increased 15%.
What it means— Home builders aren’t blind or stupid. They’re cutting back to match the uncertainty in the economy as we march toward a recession and the Fed raises rates. Builders are reporting falling trafﬁc in new homes for sale, and more contracts are falling through, but builders still have a backlog of orders.
The bottleneck in the new-home market is the same one in the existing-home market: inventory. If builders dramatically reduce the number of units they build, then we won’t create enough housing to meet current demand, which will keep prices from cratering.
Initial Jobless Claims Rise Above 250,000… Initial jobless claims rose from 244,000 to 251,000, a key psychological level.
What it means— Initial jobless claims edged higher, breaching the 250,000 mark for the ﬁrst time since dropping below that level last November. With companies from Ford (NYSE: F) to Tesla (Nasdaq: TSLA) announcing layoffs and with others, such as Apple (Nasdaq: AAPL) and Alphabet (Nasdaq: GOOGL), either slowing in hiring or initiating a hiring freeze, we can expect more initial claims in the weeks ahead.
With the unemployment rate around 3.6%, this isn’t a problem, as long as you’re not among those who lose their jobs. Initial jobless claims are a coincidental indicator, whereas the unemployment rate is a lagging indicator. We’ll have to see if jobless claims walk higher at a moderate pace, which the economy could tolerate, or if claims suddenly spike, which would be a bad sign.
European Central Bank (ECB) Raises Rates for the First Time in Eleven Years… to Zero… The ECB raised the large depositor rate from negative 50 basis points to zero and gave a few more details about the Transmission Protection Instrument (TPI). The ECB also quit giving any forward guidance opting to “wait for data.”
What it means— With inﬂation running above 9% because of soaring energy and food prices, raising the overnight rate to zero isn’t going to do anything. The more important part of the announcement was about the bank’s new TPI, which allows the ECB to use funds from maturing bonds to buy other bonds from speciﬁc countries, such as Italy, to even out rising interest rates across the continent.
This is a thinly veiled rescue plan for Italy, Greece, and other nations that have watched their borrowing costs soar because investors think they might go under. Italy’s government has collapsed in part due to inflation. As the third largest regional economy with a debt ratio of 150%. As the ECB hikes rates, the risk of an Italian bond default increase. Shades of Greek bonds!
The ECB will use funds that belong to the entire economic bloc to prop up the bad actors, which is exactly what German banking ofﬁcials said the ECB would do when they hesitated to join the monetary bloc more than 20 years ago. The more ﬁrepower the ECB uses to support the weak economies, the lower the euro will fall.
Irishman Buys a Plane Ticket Just to Search for his Luggage… Dermot Lennon ﬂew home from Australia to Dublin at the end of June, but the airline told him that his luggage didn’t make the trip. After waiting for hours, he went home, but he then found himself and his luggage in a sort of travel purgatory, just like many other passengers this summer. Lennon’s bag joined the thousands of other bags that currently are lost. Due to severe stafﬁng shortages, airlines aren’t making much headway in reuniting people with their luggage.
Lennon decided to take matters into his own hands. He returned to the airport a week later to search for his bag but wasn’t allowed into the baggage area, because he wasn’t a ticketed passenger. Lennon then purchased the cheapest ticket he could ﬁnd (an $18 ﬂight to Glasgow), passed through security, and went straight for the baggage area. After searching for hours, he found his luggage among thousands of other bags, many of which appeared to have been there for weeks. Perhaps the airlines could start a new service. For a fee, they could actually search for your bag that they lost.
Data supplied by HS Dent Research
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