INDICATOR: May Existing Home Sales and Chicago Fed National Activity Index
KEY DATA: Sales: -9.7%; Over-Year: -26.6%; 1-Family: -9.4%; Condo: -12.8%; Prices: +2.3%; Condo: -1.6%/ CFNAI: +2.61 (up 20.5 points)
IN A NUTSHELL: “The reopening is accelerating, so don’t fret the existing housing number as closings will likely pick up soon.”
WHAT IT MEANS: The economy started reopening in May, so don’t expect every report to be great. Sometimes, there is a lag in the numbers and the existing housing sales decline may be just that. These sales numbers are for closings, which in May came from contract signings that mostly occurred in March and April, when little was happening in the economy. In comparison, the new home sales, which rose in May, are contracts. Still, the huge decline, especially when compared to May 2019, reflects the massive negative impact that the virus had on housing demand. Sales fell pretty evenly across the nation, with the largest drop of 13% in the Northeast and the smallest of 8% in the South. Condo and Coop demand declined somewhat more than single-family purchases and their prices are down over the year. Single-family prices continued to rise. The breakdown between single-family and condo/coop will be interesting to watch over the next year or so as it could signal whether the talked-about change in preferences away from multi-family housing is long-lasting or just a knee jerk reaction.
The Chicago Fed’s National Activity Index surged in May, which is hardly a surprise. This is one of the broadest-based indices compiled as it contains eight-five indicators. In April, everything was falling apart and the index hit its lowest level on record. Thus, any improvement in the numbers, even if they came in at low levels, would cause the index to rise, which it did. Even with the reopening accelerating in June, it is likely the three-month average for this index will be the lowest on record, which would signal the largest decline in GDP since the Great Depression.
IMPLICATIONS: At least for now, we should discount the existing home number. It is a lagging indicator in that closings can occur from one to three months after contracts are signed. Sales should start jumping in June and take off in July and August. After those reports come out, we can make a better determination on the state of the existing home market. The markets are not likely to react much to today’s reports. Investors have bought into the V-shaped recovery and are largely discounting any major impacts from the virus resurgence. It may take some re-closings to change that attitude. It is also hard to fight the Fed, which is buying equity indices. The next real test for investors may not come until the end of July, when the government has to decide whether and/or how much to continue supporting households. The extra $600 per week unemployment stipend has added a massive amount of income to household bank accounts and is supporting consumer spending. But that runs out at the end of July. There doesn’t seem to be any desire to continue that in the Senate or the White House, but the suggested alternatives don’t seem to have any support in the House. In other words, Situation Normal, All Fouled Up (I used the G-rated form). I assume something will be done, since failing to continue pumping funds out to the unemployed would slow the economy, something that would not work well for those running for election (or re-election).
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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