Implications: Existing home sales increased 1.3% in April to a 4.65 million annual rate, but are still hovering around the lowest levels in about two years. However, this should not change anyone's impression about the overall economy. Remember, existing home sales contribute almost zero to GDP, so there will be no noticeable negative effect to GDP from the tepid level of sales. The best news in today's report is that a lack of inventory has been a major culprit behind slower sales and that seems to be changing. Inventories increased by a whopping 330,000 units in April, the third largest monthly increase on record back to 1999. This jump suggests the pace of sales will pick up this spring and contracts signed in April will show up in May and June sales. Expect more inventory to come onto the market in 2014 as home prices continue to move higher (median prices for existing homes are up 5.2% from a year ago). However, credit remains tight, making it hard to get a loan to buy a home. This explains why 32% of all sales in April were all-cash transactions. However, we do not believe higher mortgage rates are noticeably holding back sales. The US had a bubble in housing during 2003-05, when 30-year mortgage rates averaged 5.8%. Today they are 4.2%. In other news this morning, initial claims for unemployment insurance increased 28,000 last week to 326,000. Continuing claims declined 13,000 to 2.653 million. Plugging these figures into our employment models suggests payrolls increased 195,000 in May, another solid month for job gains.
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Posted on Thursday, May 22, 2014 @ 1:05 PM
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