Home prices and building on the move? Your Weekly Update

For those who believe that U.S. markets follow home building, there has been some recent heartening news.

This week’s Update take a look at what appears to be a strong trend in new and existing home sales. And what it can mean for the economy and markets.

We think you’ll enjoy taking a look at some “foundational” thoughts!

All the best,
Lee and Jeremy


This Week’s Quote:

“He is the happiest, be he king or peasant, who finds peace in his home.”
― Goethe


JL Davis Thoughts This Week:

Like us, you probably read the headlines the last couple of months about the drop in home sales and housing starts. Much of the media did, and drew conclusions. Their point of view in some cases was that the harbinger of a downturn had arrived.

Apparently not so.

A little more than a month later, the toughest winter in some time is getting further and further from view. Recent reports peg existing home sales as being up 1.3% in April. They look to be up even stronger for May. And by the way, new home sales jumped in April too.

So while nationally, existing home sales are still off relative to historic norms, it could well be a temporary phenomenon. Based on population growth and the “scrappage” rates (fires, floods, hurricanes, tornadoes and knock-downs), experts estimate the United States needs somewhere near 1.5 million new homes annually. In the last 12 months, only about 943,000 were started. In other words, in the last year alone, we built only about 60% of what’s needed. Moreover, the U.S. has been producing homes at under the scappage rate for over 7 years now.

Not surprisingly, limited inventory along with what many view as pent up demand seems to be driving prices. The Case-Shiller index of prices in the 20 major U.S. markets shows prices up 12.4% over just a year ago. Other reports show similar growth. Whether prices moderate a bit from here isn’t clear, but one thing seems sure. More homes are needed, especially new homes.

America has a remarkable way of balancing things over time. In regard to housing, we could be seeing signs of a long term recovery…perhaps even a heating up of the sector yet again.**

Lee & Jeremy

http://us.spindices.com/indices/real-estate/sp-case-shiller-20-city-composite-home-price-index/
http://money.cnn.com/2014/05/29/real_estate/affordable-housing-markets/index.html


Market Week: June 2, 2014

The Markets
Equities took a downward revision to the U.S. GDP figure in stride; the Nasdaq continued to rebound while the S&P 500 and Dow industrials both hit new all-time closing highs. The recent rally in bonds continued as the benchmark 10-year Treasury yield hit its lowest level since last June. And after bouncing around for several weeks on either side of $1,300, the price of gold plummeted almost $50 an ounce last week, leaving it at roughly $1,245 an ounce and down almost 10% since spiking in mid-March.

Last Week's Headlines
• Rather than stalling, as previously estimated, the U.S. economy actually contracted at an annualized rate of 1% during 2014's first quarter. The Bureau of Economic Analysis said businesses' investment in building up inventories was lower than previously estimated and was a major factor in the downward revision of its GDP estimate, which was widely expected to be disappointing. It was the weakest growth rate in three years. Consumer spending was up 3.1%, but couldn't offset the cost of higher imports and declines in capital investments and spending by state and local governments.
• Durable goods orders rose 0.8% in April--the third straight monthly increase. The Census Bureau said the 2.3% increase in defense-related spending on transportation equipment was the most significant factor; business spending on capital equipment was down 1% for the month.
• Home prices were up 0.9% in the 20 cities measured by the S&P/Case-Shiller 20-City Composite Index for March.
• After a strong March, consumer spending slid 0.1% in April; the Commerce Department said it was the first monthly decline in a year. However, at least part of the decline was the result of lower heating costs as winter finally wound down. Personal income rose 0.3%, but that was the smallest monthly gain so far in 2014. However, coupled with the decline in spending, that allowed people to save more; the savings rate for individuals was 4% compared to March's 3.6%.
• The average rate for a 30-year fixed-rate mortgage fell to 4.12% last week. Mortgage giant Freddie Mac said that's the lowest it's been since last October; however, it's still higher than last May's 3.81%. Mortgage rates have been cited as one reason for recent sluggishness in the housing market's recovery.

Eye on the Week Ahead
As always, unemployment numbers will be of interest, as will Institute for Supply Management reports on both the manufacturing and services sectors. Investors also will watch to see whether the European Central Bank follows through on hints it might adopt measures to stimulate the economy there.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2014