Home Sales Gains Show Ongoing Housing Market Recovery
- New Home Sales for April increased by 2.3 percent to a 454,000 unit annual rate.
- April Existing Home Sales increased slightly, by 0.6 percent, to a 4.97 million unit sales rate.
- Initial Claims for Unemployment Insurance for the week ending May 18 fell by 23,000 to hit 340,000.
Housing‐related data continues to be positive. New home sales for April increased by 2.3 percent to hit a 454,000 unit sales rate. This is still shy of the 458,000 unit sales rate of January, but the trend in new home sales looks positive. The months’ supply of new homes remained tight at 4.1 months’ worth; many local markets are tighter. Existing home sales for April increased slightly by 0.6 percent to hit a 4.97 million unit sales rate, the highest sales rate since October 2009. The months’ supply of existing homes has increased to 5.2 months, up from a low of 4.3 last January. There are forces at work in the existing home market beyond traditional buyers. Sales of foreclosed homes are falling, but remain elevated. Also single‐family aggregators are active in large markets. According to the National Association of Realtors, the median sales price of an existing home is up 11.0 percent in April from a year earlier. Initial claims for unemployment insurance fell by 20,000 for the week ending May 18 to hit a level of 340,000. The series has exhibited increased volatility this year, but the trend still looks good. Initial claims in the range of 340,000 are consistent with moderate job creation. The May payroll employment data will be released on June 7. I expect to see about 175,000 net n ew jobs created in May and no change to the 7.5 percent unemployment rate.
FOMC officials are increasingly anticipating the turn in monetary policy. In his regularly scheduled testimony before the Joint Economic Committee yesterday, Federal Reserve Chairman Bernanke discussed the “calibration” of the Fed’s current program of asset purchases, known as QE3. The Fed wants maximum flexibility to adjust QE, up and down, once the taper begins. Bernanke cited improving housing markets and the declining unemployment rate as positives in his current condition analysis, but he also balanced his assessment by discussing the drag from fiscal tightening and ongoing poor conditions in Europe. For now, it appears that the FOMC is not yet ready to remove the punch bowl of QE. I expect the FOMC to maintain the current level of QE through their July meeting and to begin experimenting with a taper in the fall, possibly beginning at their September 17/18 meeting. This expectation is contingent on continued moderate job gains and moderate improvement in the unemployment rate in the presence of low inflation. The minutes of the April 30/May 1 FOMC meeting showed that the FOMC is undertaking a review of their exit strategy principles as defined in their June 2011 meeting. At the June 2011 meeting the Fed outlined a three‐part strategy, First asset purchases would end. Second, the fed funds rate would be raised. Third, agency securities would be sold. The Fed wants to have more flexibility in their exit strategy. Particulars were not discussed in the minutes, but it appears that the FOMC wants flexibility in terms of eventual sales of the agency bonds that it now holds. We could see revised forward guidance about the exit strategy soon.
Market Reaction: U.S. equity markets remain down after yesterday’s selloff. Treasury yields are up. NYMEX crude oil is down to $92.81/barrel. The dollar is down against the yen and the euro.