Home Sales and Unemployment

Sales of all existing homes fell 0.8% to an annual rate of 505,000 in April, while sales of existing single-family homes edged down 0.5% to 4.42 million homes.  Sales of single-family existing homes are still down roughly 30% from the peak in September 2005 (see Chart 1).  According to the National Association of Realtors, strict underwriting standards for loans and low appraisals have held back sales of homes.  The trade association reported that 11% of realtors indicated that home sales were cancelled as appraisals were below the negotiated price, 10% noted that sales were delayed for the same reason, and 14% said contracts were negotiated to reflect the lower price of the appraisal.  Also 37% of home sales were that of distressed properties, down from the March tally of 40% but higher than a year ago reading of 33%.  These disappointing metrics of the housing market suggest that stability of the housing market is not here, yet. 

The median price of a new single-family home rose to $163,200 in April from $160,600 in March.  However, the median price fell 5.4% from a year ago, which is the largest decline since December 2009 (see Chart 2). 

The inventory of unsold existing single-family homes rose in April and explains a part of the downward trend in home prices in addition to the fact that the large pool of distressed properties continues to play a role in holding down prices of existing homes.  The seasonally adjusted inventory-sales ratio of existing single-family homes rose to 8.9-months in April from 8.6 months in March.  The April reading of the inventory-sales ratio remains above the historical median of 7.5 months. 

Philly Fed Survey and Leading Index Send Bearish Message

The Federal Reserve Bank of Philadelphia's factory survey shows a slowing pace of factory activity in May.  The overall business conditions index declined to 3.9 in May from 18.5 in the prior month.  Indexes tracking new orders (5.4 vs. 18.8 in April) and shipments (6.5 vs. 29.1 in April) were positive but fell in May.  The employment index, however, moved up to 22.1 from 12.3 in April.

The Conference Board's Index of Leading Economic Indicators (LEI) dropped 0.3% in April, after an upwardly revised 0.7% increase in the prior month.  Stock prices, money supply, consumer expectations, and interest rate spread made positive contributions, while the remaining six components fell in May.  The April decline of the LEI is the first since June 2010.  The LEI has risen 5.0% from a year ago in April, which is the smallest increase since October 2009. 

Initial Jobless Claims - Taking Stock with Distortions and All

Initial jobless claims fell 29,000 to 409,000 during the week ended May 14.  In the past four weeks, initial jobless claims show readings between 490,000 and 478,000.  The spike in initial jobless claims for the week ended April 30 is attributed to spring break related layoffs in New York that were not expected and an extended benefits program in Oregon.  The four-week moving average of initial jobless claims has registered an increase since the last week of March.  At the same time, continuing claims, which lag initial jobless claims by one week, fell 81,000 to 3.711 million, while the four-week moving average has held nearly steady during the past month.

Unemployment insurance claims under special programs, which are published with a two-week lag in relation to initial jobless claims, held steady at 4.1 million for the week ended April 30.  Total unemployment claims inclusive of continuing claims and those under special programs summed up to 7.9 million as of April 30, down from a peak of 10.84 million as of January 28, 2010.  The decline does not entirely reflect the improvement in labor market conditions because a part of this drop includes recipients who are no longer eligible for unemployment insurance. 

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Source: Northern Trust