Monday, April 25, 2016

Dull Start As New Home Sales Fall For Third Straight Month

Wall Street wasn't particularly troubled over the fact that new home sales fell for the third month in a row, and by the end of the day, it hardly mattered, as stocks staged a mild comeback from opening losses.

The drop of 1.5% (511,000 annualized, seasonally adjusted) was led by a huge, 23.6% plunge in the West, according to the commerce department. The median home price also fell, to 288,000, a level many are finding difficult to justify.

For instance, even at today's low rates, a $250,000, 30-year mortgage runs $1,088 per month, with interest paid over the life of the loan of $141,686, making the total amount paid a stunning $391,686. With more than half the wage-earners in the United States making less than $30,000 per year, that's a price too high to bear, but, that's what the Fed has thrust upon would-be homebuyers in their quest to boost asset prices and inflation.

Many new-home buyers of today will find themselves stuck - like many home owners during the sub=prime bust - if interest rates rise over the coming years. Not only will these buyers be burdened by an enormous debt, their properties would become unsalable, due to a glut on the market and higher carrying costs. That same $250,000 mortgage, at, say 5%, would jump to $1,342, making the now-used home even less affordable and the current residents trapped in an underwater condition.

It's actually surprising that anybody is actually building and buying new homes. The prices are at astronomical levels. The median home price may actually have peaked a few months ago, hitting a record 317,000 in November, 2015, setting the stage for another round of hand-wringing by banks and homeowners alike when the next recession hits, something for which the US economy is now overdue. It's been eight years since the last one and the Fed has not convinced anyone that it has finally vanquished the business cycle; they've only managed to delay the inevitable.

Speaking of the Fed, the FOMC begins a two-day meeting at which they will do nothing other than remind the world that they are in control of everything and that the US economy is still not to their liking, meaning another rate hike is still months away, if at all. Normalizing rates may prove to be the undoing of central banking, because it will absolutely destroy many leveraged, hedged market constituents.

Monday's Mangled Mess:
S&P 500: 2,087.79, -3.79 (0.18%)
Dow: 17,977.24, -26.51 (0.15%)
NASDAQ: 4,895.79, -10.44 (0.21%)

Crude Oil 42.86 -1.99% Gold 1,239.10 +0.74% EUR/USD 1.1269 +0.42% 10-Yr Bond 1.90 +0.74% Corn 384.50 +2.40% Copper 2.25 -0.60% Silver 16.99 +0.53% Natural Gas 2.19 -3.22% Russell 2000 1,138.09 -0.75% VIX 14.08 +6.51% BATS 1000 20,682.61 0.00% GBP/USD 1.4483 +0.16% USD/JPY 111.1950 -0.56%

No comments: