Month: December 2024

Last Thursday saw yet more bad news coming out from the deteriorating American housing market. For January 2019, United States’ home sales collapsed to their lowest point in over three years. Housing prices themselves ticked up just modestly.

The statistics are anything but encouraging as they continue to indicate still more weakness and momentum loss within the overall important housing market. Keep in mind that this Real Estate sector is a key leading economic indicator too.

The National Association of Realtors revealed the grim statistics. They stated that the critical existing home sales category declined by a sobering 1.2 percent to an adjusted annual rate (seasonally adjusted) total of 4.94 million units for the past month. This chart below shows the negative ongoing trend all too well:

This abysmal number was good enough to take the low point record dating back to November of 2015. More than this, it came in substantially below the median analysts’ expectations rate of 5 million units. The NAR attempted to showcase some slightly good news in the December pace of sales getting a slightly higher revision.

Yet this January drop was not the first consecutive disappointment in existing home sales even. There had already been months of existing weakness within the American housing market. Compared to one year prior, existing home sales have plunged 8.5 percent versus the same time in 2018.

Fingers are pointing in several directions for the significant, disappointing, and ongoing setback in home sales. One substantial blow to the market has been the marked rise in U.S. interest rates dating back to 2016. The Federal Reserve has been on an interest rate raising crusade in an effort to normalize financial markets it upended after the Global Financial Crisis. Add to this more costly homes and a tighter existing inventory (that resulted from labor and land shortages), and you now have a recipe for serious trouble in the market.

Yet in the last few months, the fixed rate 30 year mortgage has come back down somewhat and inflation on housing prices has been decreasing. The median existing home price only rose 2.8 percent versus a year prior to touch $247,500 for January. This by itself represented the tiniest gain since February of 2012.

Yet despite this better news for the Real Estate market, existing home sales are falling consistently throughout the nation. In January, they declined in three out of the four national regions. The Northeast region was the only one that saw better home sales.

This decline in home sales has led to a growing backlog in unsold homes on the market. While December had 1.53 million units available, for January there were 1.59 million previously owned houses available on the market. This means at the January pace of sales, that the market would need 3.9 months to clear out the existing home inventory. This contrasted with December’s 3.7 months needed to clear the market.

But even these numbers show the ill health of the industry. Realtors consider a good six to seven months of supply necessary for there to be a healthy market balance factoring in both supply and demand.

Is Your Retirement Portfolio Protected from the Collapse in Existing Home Sales in the U.S?

Fed policy makers have become so afraid of not having the necessary interest rate cutting tools to deal with the next recession and economic malaise that they have created the next economic crisis through their own actions of raising interest rates (to have the tools available). Existing home sales numbers feed through to stock and bond market prices and performances sooner or later.

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In the latest signs of slowing economic growth, very poor U.S. retail sales and wholesale inventories figures have been released showing data not consistent with a growing economy. In the past two weeks, the data emerged showing that American retail sales suffered their largest decline in over nine years back in December. Sales declined consistently across all of the metrics measured — online, in physical stores, and even in restaurants.

Analysts who studied this warned of a significant economic activity slump at the conclusion of 2018. From November to December, the retail sales declined by 1.2 percent. This marked the largest decline in a month dating back to the Great Recession and Global Financial Crisis in September of 2009. This chart below tells the discouraging tale:

The restaurant sales have been particularly bad. Economist David Rosenberg observed that the sales from restaurants have dropped for four of the last five months. The pace of this decline has not been seen in a quarter of a century. It makes the restaurant sales plunge worse than in both the 2007 to 2009 and the 2001 recessions.

Yet the news emerging last week only underscored how significantly the economy is deteriorating. U.S. Wholesale inventories recorded their sharpest gain in over five years for December. This matches the decline in sales of December that had occurred for the third consecutive month.

Reuters news service put it this way: “an unintended piling up of goods at wholesalers could be flagging a slowdown in demand.”

The Commerce Department’s inventory report showed that wholesale inventories roared higher by 1.1 percent for December. Analysts had only looked for a minor .3 percent increase. Instead, they got the greatest rise dating back to October of 2013.

As if that was not bad enough, Commerce revised the November figures higher from the prior estimate of .3 percent to .4 percent. Year over year in December, the wholesale inventories jumped by 7.3 percent.

Reuters has also reported that the corporate reports for business spending on equipment plans indicated a decline in growth for the conclusion of 2018. With all of this consumer and business spending key to fueling the American economy, the decline in consumer demand is hardly good news.

Some economists have since noted that the last time these retail sales figures came out so badly as they did in December, the United States was already firmly in the grips of the Great Recession. Other signs of the economy cracking abound— just look at the record high delinquencies in car loans.

Is Your Retirement Portfolio Protected from the Collapse in U.S. Retail Sales?

What about the Federal Reserve? Have they not already turned things back around in the stock markets with their Powell Pause? Some economists like Peter Schiff are already saying it is too late to backtrack now. The Fed-induced recession is now already in the cards:

“Of course, stock market investors are clueless about that. They’re just having a party because the Powell Put is back on the table. And they think simply because the Federal Reserve is no longer hiking rates that they no longer have to worry about the Fed pushing the economy into a recession… The rate hikes of the past have already guaranteed that the economy is headed for recession. It doesn’t matter whether they continue to raise rates in the future. The recession is a done deal. It’s just now you have that calm between the storm while investors are still clueless and haven’t yet connected those what should be, very obvious dots.”

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This past week saw another ominous financial metric released. The total net worth of Americans plunged at the fastest level going back to the financial crisis in the last quarter of 2018. Falling stock market values gnawed away at Americans’ collective household balance sheets.

The end result was that the net worth cratered down to $104.3 trillion at the year’s conclusion. This represented a sharp decline of $3.73 trillion from third quarter 2018, per the Federal Reserve’s figures they released. It amounted to an eyebrow raising decline of 3.4 percent, as this chart below clearly shows:

Still think the economy is doing just fine?

A great amount of the decline was down to the troubles Wall Street wrestled with as markets endured a sharp decline beginning back in October and continuing into the end of December. At one point, the stock markets even reached official bear market levels of down 20 percent.

Stocks were tanking as observing investors started worrying if the Fed would continue to raise interest rates even with the conditions in the national economy starting to crack. When the dust finally settled on the ongoing market drop by the conclusion of December, American households had suffered through an eye watering $4.6 trillion decline in equity value.

It was made a little less bad by the accompanying $300 billion gain in the value of real estate. Yet this was still good enough for the second largest (in dollars) quarterly drop dating back to the beginning of the Federal Reserve tracking such metrics.

In the end, the total financial assets equaled slightly over $85 trillion at the end of 2018 at the same time as real estate values totaled $29.2 trillion. This significant decline contrasted sharply with the previously rising household net worth. These had been sharply climbing since the end of the financial crisis. The total has grown by 73 percent from 2009.

Some optimistic pundits think that the market will make up all of its lost ground after a strong start in January and February. Yet they are selectively looking at the market’s performance, which is already been down around 1.6 percent for March.

Also keep in mind that this past quarter’s decline in net worth happened even while the economy was growing solidly, with GDP up 2.6 percent. Earlier in 2018, national GDP growth had been almost three percent even with financial markets delivering lackluster returns. Even now, economists are projecting little growth in the American economy for 2019. The Atlanta Fed forecasts GDP growth of only .5 percent.

Besides this, the S&P 500 is already sending out warning signals of too high valuations. The index trades at around 16 times the earnings estimates for 2019 on the S&P 500 corporations. Bearish signs abound throughout the markets. These range from revisions down in earnings, to decelerating global growth, to fears of a recession induced by the past over zealous tightening activities of the Fed. Stock valuations are looking dear, according to analyst and research company Sevens Report Research founder Tom Essaye. He warned:

“On a valuation basis this market has risen to reflect a macro environment that is materially more positive than the one we currently have, and as a fundamentals driven analyst, that makes me nervous over the medium term. The current macro setup much more matches the ‘Scattered Storms’ scenario, but the market valuation is reflective of a ‘Party Sunny’ environment. That’s a discrepancy that will have to close.”

Consider yourself fairly warned. This pullback in markets looks to be far from over.

Is Your Retirement Portfolio Protected from the Ongoing Decline in U.S. Household Wealth?

Wall Street has a long time saying, “Even dead cats bounce when you throw them out the window.” This market has enjoyed a little bit of a dead cat bounce in January and February, but all indications are for a resumption in the market declines. You have already seen this beginning in March. The high market valuations are a warning bell.

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