Existing Home Sales Rise 6.1 Percent In March, Back to 1999-2001 Levels

Good news! Existing home sales rose 6.1 percent in March to reach levels from 1999-2001!

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From the National Association of Reators:

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 6.1 percent to a seasonally adjusted annual rate of 5.19 million in March from 4.89 million in February—the highest annual rate since September 2013 (also 5.19 million). Sales have increased year-over-year for six consecutive months and are now 10.4 percent above a year ago, the highest annual increase since August 2013 (10.7 percent.

Total housing inventory at the end of March climbed 5.3 percent to 2.00 million existing homes available for sale, and is now 2.0 percent above a year ago (1.96 million). Unsold inventory is at a 4.6-month supply at the current sales pace, down from 4.7 months in February.

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Getting back to 1999-2001 levels is no mean feat given that real median household income and average wage growth is lower today than in 1999-2001. Of course, The Federal Reserve has lowered its target rate for Fed Funds considerably as well.

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Yes, it has been a 2001-style Space Odyssey. We are finally back to pre-bubble existing home sales levels.

Below is a picture of The Federal Reserve Board of Governors discovering quantitative easing and Zero Interest Rate policies.

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S&P 500 Earnings Estimates Plunge Most Since Crisis (Running Out Of Energy?)

Analysts cut EPS estimates for S&P 500 companies by an average of 7.8 percent during the first quarter, the largest such decline since the financial crisis. Energy sector earnings were cut the most.

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Fed Chair Janet Yellen’s reaction? Whaaaat??

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Courtesy of Jesse’s Cafe Americain.

Bernanke’s Liquid Courage: The Race To The Bottom For Sovereign Yields (Mexico Goes For 100 Year Bonds)

Former Federal Reserve Chair Ben S. Bernanke is writing a book entitled “The Courage to Act: A Memoir of a Crisis and Its Aftermath.”

Courage? Courage to flood the global economy with liquidity? Courage to keep interest rates declining since 1981? Courage to create massive asset bubbles? Courage to distort financial markets to the point where down is up and up is down?

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With Janet Yellen at the helm along with ECB’s Draghi and UK’s Carney, sovereign interest rates are falling even further than Bernanke’s liquid courage.

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Now, Mexico is falling into the conga line with a 100 year sovereign bond as Switzerland goes negative on their 10 year sovereign debt.

Until Wednesday, no country had ever sold 10-year debt that gives investors a yield of below 0%. And no country had ever issued a 100-year bond denominated in euros.

But in the latest stark sign of how easy the era of easy money has become, Switzerland on Wednesday sold 10-year bonds that investors are actually paying to hold, while Mexico lined up a rare transaction to borrow euros it promised to repay a century from now—at a yield of 4.2%.

The two extraordinary milestones reflect Europe’s extraordinary environment.

Even as the U.S. Federal Reserve prepares to raise interest rates, the European Central Bank is forcefully driving them down. The Swiss National Bank, eager to keep its currency from soaring too far above its eurozone neighbors’, has itself shoved interest rates below zero.

The consequence is a strange collection of monetary phenomena: The ECB has begun charging commercial banks to keep money on deposit. Denmark’s central bank has furiously printed kroner to mitigate a flood of capital into the country. Even Spain, which once looked on the cusp of fiscal collapse, is able to sell short-term Treasury bills that give investors back less principal than they started with.

These plummeting yields—which mean higher bond prices—have delivered bumper returns for existing bondholders. And they have led to exceptionally cheap deals for borrowers. Also winning from the stimulus are stock investors: Most European indexes have rallied this year, and some are at or near record highs.

But the Swiss and Mexican deals push boundaries of yield and maturity even further. Several European countries inside and outside the eurozone have sold government debt with maturities of up to five years at negative yields, which means investors effectively pay for the privilege of holding it. They could profit if they sell the bonds at even higher prices.

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Why should investors purchase sovereign debt at negative yields or for 100 years? The answer is that 1) Central Banks like The Federal Reserve purchase much of the low/negative interest rate debt, 2) banking regulations often require lenders to hold own-country sovereign debt, 3) pension funds have rules requiring a certain a percentage of their assets in safe sovereign debt. Also, in a diversified portfolio, investors will want to hold a percentage in sovereign debt as a defense against a collapsing stock market.

Yellen along with other Central Bankers are continuing what Bernanke started in 2008, flooding the global economy with liquidity and creating asset bubbles and distortions.

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“It takes courage to do what I did. Why doesn’t anyone believe me?? BURP!!”

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Arthur Cutten at Jesse’s Cafe Americain worked his magic again.

Vacation-Home Sales Hit High As Fed Policies Keep Rates Low And Stock Market Returns High

According to an article in the Wall Street Journal, “Vacation-Home Sales Hit High.”

Continued stock-market gains and low interest rates drove sales of vacation homes to the highest level on record last year, putting one segment of the housing market above its prerecession peak.

The National Association of Realtors estimates that vacation-home sales amounted to 1.13 million properties last year, up a robust 57.4% from 2013, which itself marked a 30% increase from 2012.

Last year’s estimated tally topped the previous high from 2006 to become the biggest year for vacation-home sales volume since the Realtor association started tracking the market in 2003. Vacation homes accounted for 21% of all sales last year, the highest share since the survey’s inception.

You can thank The Federal Reserve and Chair Janet Yellen for more market distortion. Between super low interest rates and a booming stock market, investors have benefited in terms of stock market gains and now vacation homes!

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Bear in mind that the NAR used a small sample size to come to their conclusion, so don’t get too excited. But with wage growth at a miserable 2.1 percent YoY, it isn’t middle America buying vacation homes for the most part.

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Mighty Janet Strikes Out: Q1 GDP Growth At Zero, Value of New Orders For Consumer Goods Back To 2008 Crash Levels

Fed Chair Janet Yellen spoke this morning in Washington DC on the importance of labor mobility. Here is an exclusive video of her speech.

My favorite title from the conference is “The Role of Central Banks in Promoting Equality and Equality of Opportunity” by Joseph E. Stiglitz — University Professor, Columbia University. Yellen-Agenda-4-2-2015 (1) I didn’t realize that the conference featured stand=up comedy.

But getting back to more mundane topics like the US economy ….

As I have discussed before, the Atlanta Fed has their excellent GDP NOW page that tracks GDP growth within a quarter so there is no “surprise” on release. Q1 GDP growth is currently … zero.

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Citi’s economic surprise index for the US confirms that things are not joyous in Mudville, at least since January 1.

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And now we have more somber news supporting the Atlanta Fed’s GDP NOW analysis. The Value of Manufacturers’ New Orders for Consumer Goods Industries has fallen by an amount similar to the 2008 decline.

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While Bloomberg’s Rupkey says the labor market is “red hot” and Yellen babbles about labor mobility, I think of “Casey at the Bat: A Ballad of the Republic Sung in the Year 1888″, a baseball poem written in 1888:

“Oh, somewhere in this favored land the sun is shining bright;
The band is playing somewhere, and somewhere hearts are light,
And somewhere men are laughing, and somewhere children shout;
But there is no joy in Mudville — mighty Casey Janet has struck out.”

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Mortgage Purchase Applications Rise 7.6 Percent YoY (Good) But Remain 66 Percent Below 2005 Peak (Not So Good) Despite Fed “Magic”

Things are getting better in the residential mortgage market at least compared to last year, one of the worst ever.

Mortgage applications increased 4.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 27, 2015.

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The unadjusted Purchase Index was 7.6 percent higher than the same week one year ago.

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The seasonally adjusted Purchase Index increased 5.71 percent from one week earlier, but remains 66 percent below the peak years of 2005.

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The Refinance Index increased 4 percent from the previous week. Things have not been the same since the mortgage rate surge in May 2013.

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“There was a broad based increase in mortgage applications last week relative to the week prior. The increase in purchase volume was led by a nearly 6 percent increase in both conventional and government markets, perhaps signaling that households are finally ready to begin the home-buying season,” said Lynn Fisher, MBA’s Vice President of Research and Economics.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.89 percent from 3.90 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

So, despite Magic Janet and The Federal Reserve, mortgage purchase applications remain stalled.

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The Keep: All Households Created During “Recovery” Were Renters

There was a movie from 1983 called “The Keep” with Scott Glenn, Gabriel Byrne, Jürgen Prochnow and Ian McKellen. A great cast, to be sure, but the nemesis in the movie was … a man in a rubber suit.

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The title “The Keep” is more appropriate for the NON recovery of the US economy and housing in particular. That is, did The Fed’s monetary policy help KEEP households in rentership mode? (And its another name for The Federal Reserve building on Constitution Avenue in Washington DC).

If we look at households created during “the recovery” and all The Fed’s monetary stimulus, all households created were renters.

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This is not all that surprising since home price growth is 13.3X wage growth.

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But the US is not alone in poor wage growth. Europe, UK, Japan and the US are all suffering stagnant wage growth. While house prices are booming in many countries.

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The US homeownership rate keeps falling despite The Fed’s massive intervention.

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Any wonder why the M1 Money Multiplier and M2 Money Velocity are so low?

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Like in the movie “The Keep” you will have to rent.

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