Takeaways from Today’s Late-Morning U.S. Economic Reports

Today’s U.S. reports revealed a slightly larger than expected weather-led March pullback in existing home sales of -3.7% to a 6.01 mln clip. Yet, the median sales price surged 5.9% to a new all-time high of $329,100, leaving a record-large y/y gain of 17.2%. Home inventories rose to just 1.07 mln from an all-time low of 1.03 mln in January and February, leaving a -28.2% y/y drop, as families are hesitant to give up their homes despite outsized price gains in the face of the current housing market frenzy.

We also saw a 1.3% March leading indicators bounce after a -0.1% (was 0.2%) February drop that marked the first decline since last April. Rising optimism, despite February weather disruptions that hit existing home sales with a lag, was captured by a fifth consecutive gain in the weekly Langer consumer comfort index.

• Existing home sales fell -3.7% to a 6.01 mln clip, after a 2k February boost.
• Home inventories rose to 1.07 mln from an all-time low of 1.03 mln in January and February, leaving a -28.2% y/y drop.
• The months’ supply of homes rose to 2.1 from 2.0 in February and a 1.9 all-time low in January and December.
• The median sales price surged 5.9% to a new all-time high of $329,100 from $310,700 (was 313,000), leaving a record-large y/y gain of 17.2%.
• Leading indicators rose 1.3%, after a -0.1% (was 0.2%) February drop.
• All ten LEI components contributed positively, led by a 0.35% boost from initial claims.
• The six-month annualized LEI rose to 7.8% from 7.1% (was 7.7%) in February.
• The y/y LEI soared to 7.8% from -1.4% (was -1.2%) in February, thanks to an easy comparison.
• The Langer (was Bloomberg) weekly consumer comfort index rose to 54.2 from 53.9, versus a 49.5 average in March.

Bottom line

The housing sector is exploding with growth, though with restraint from rising mortgage rates and elevated construction costs that have capped affordability, alongside a historic housing shortage despite soaring prices thanks to remarkably inelastic supply.

There is an opportunity for investors in purchasing stocks and ETFs in the building industry.  In addition to the popular ISHARES TRUST GLOBAL TIMBER & FORESTRY ETF (Wood), here are a couple of stocks we recommend looking at: Here are a couple we recommend looking at:

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages.  We are very worried about the effect it could have on real estate investment trusts (REITS) value.  Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Existing-Home Sales

Existing home sales slightly undershot estimates with a -3.7% March drop to a 6.01 mln pace that marks a 7-month low, after a 2k boost in the February rate to 6.24 mln from 6.22 mln, with a likely lagged hit in March from bad February weather and the Texas freeze. The sales rate has moderated from 6.66 mln in January, a 15-year high of 6.73 mln last October and a 7.253 mln all-time high in September of 2005. The prior cycle’s high was a 5.70 mln pace in February of 2020, and sales in each of the last nine months were at rates not seen since 2006, despite the pull-back into 2021.

Sales are tracked at closings, sales through March were hit by bad February weather, alongside the impact from rising mortgage rates, and limited new home availability due to soaring construction costs. The housing market is much stronger than sales indicate, given the dramatic inventory plunge to record lows that are capping sales, alongside outsized price gains.

Regionally, sales fell in all four regions, after February declines in every region but the west, leaving a mix that tracks the massive February weather hit across the central and eastern swaths of the country. We saw declines of -8.0% in the west, -2.9% in the south, -2.3% in the midwest, and -1.3% in the northeast.

Single family sales tumbled -4.3% to 5.300k, after a -6.3% slide to 5.540 mln (was 5.520 mln). Condo/coop sales rebounded 1.4% to 0.710 mln, after a -6.7% fall to 0.700 mln.

Home inventories rose to 1.07 mln from an all-time low of 1.03 mln in January and February, capping a string of new lows since November, leaving a -28.2% y/y drop.

The months’ supply of homes rose to 2.1 from 2.0 in February and a 1.9 all-time low in January and December, following a string of prior all-time lows of 2.3 in November, 2.5 in October, 2.7 in September and 3.0 in August. We saw a 4-year high of 4.6 with the pandemic in May. The series extends back to 1982.

The median sales price surged 5.9% to a new all-time high of $329,100 from a trimmed $310,700 (was 313,000) in February, leaving a record-large y/y gain of 17.2%. The prior all-time high of $313,000 last October capped a string of four consecutive new highs.

The winter NSA median price climb bucked the usual pull-back from a June high to a January trough, as the school calendar and the holidays have been less seasonally important with the pandemic.

Existing home sales contracted at a -20% rate in Q1, after 2020 rates of 42% in Q4 and 276% in Q3. We expect a -3% contraction rate in Q2, as families are hesitant to leave their homes. We saw a 6% rise for existing home sales in 2020 and we expect a 13% rise in 2021.

We expect GDP growth of 5.6% in Q1 and 8.5% in Q2, with real residential construction growth of 13% in both Q1 and Q2. We expect growth for nonresidential construction of 1% in Q1 and 7% in Q2. We expect flat growth for government purchases in both quarters.

For other reports, housing starts surged 19.4% in March to a 15-year high pace of 1.739 mln, beating a 14-year high clip of 1.670 mln in December. Building permits rose 2.7% to a 1.766 mln pace from a 1.720 mln clip, versus a 15-year high of 1.886 mln in January. We also saw 14-year highs in March for starts under construction and completions.

The NAHB housing index fell to 82 in March from 84 in February, before bouncing to 83 in April. We saw an all-time high of 90 in November of 2020. Despite the pull-back since November, we have a 9-month stretch of the highest readings ever. Before this boom, the all-time high was a 76 figure in December of 2019.

The MBA purchase index has followed a disappointing path since the big -15.4% pull-back in February, with a 3.6% March gain but an unfolding -5% April drop.

Leading Indicators

The leading economic index (LEI) posted a 1.3% March gain after downward revisions, leaving mostly outsized increases in 10 of the last 11 months. We saw recent prior swings of -0.1% (was 0.2%) in February, 0.5% in January, 0.5% (was 0.4%) in December, 0.9% in November and 0.7% in October. The decline in February was the first drop since last April. The 11-month LEI rebound after last year’s March-April plunge hit a speed bump in February before the March surge, with a likely recent lift from two rounds of stimulus, vaccine distributions, and a post-February weather rebound.

All of the 10 components posted gains, led by jobless claims (0.35%), ISM new orders (02.6%), and the interest rate spread (0.17%). The laggard was consumer goods orders (0.02%).

The LEI now sits at 111.6, which is just below the all-time high of 112.0 seen in both January of 2020 and July of 2019, leaving a seven-month plateau in advance of the global pandemic. The 96.9 trough in April of 2020 marked the weakest reading since September of 2014.

We expect the restrained 2.5% Q1 growth rate for industrial production to be followed by a 17.0% clip in Q2, alongside projected GDP growth of 5.6% in Q1 and 8.5% in Q2. In 2020 we saw Q4 rates of 9.5% for industrial production and 4.6% for GDP, respective record gains of 43.3% and 33.4% in Q3, and record declines of -42.6% and -31.4% in Q2.