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business newsFed Concerned About New Home Sales Plunge
By
Richard Suttmeier
Jun 24, 2010 8:40 am
Housing is beginning to drag the economy again, and the Fed is worried about modest income growth, lower housing wealth, and tight credit conditions.
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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.
US Treasury Yields -- The $38 billion 5-year note auction had a neutral result with a yield of 1.995, a bid-to-cover of 2.58, and an indirect bid of 35%. The US Treasury auctions $30 billion 7-year notes today. The 30-year fixed-rate mortgage is at a record low of 4.76%, but mortgage applications decline. The problem is that the spread versus the 10-year has widened to 166 basis points from 115 where it was when the Fed stopped buying mortgage securities on March 31. A 4.25% mortgage would make it a lot easier to refinance mortgages. The daily chart for the 10-year shows the longer-term trading range between the 200-day simple moving average at 3.544 and 3.061 with a daily pivot at 3.180, and annual resistances at the floor at 2.999 and 2.813.
Comex Gold -- The daily chart shows declining mojo, but Monday’s all-time high of $1266.5 was a failed test of my monthly resistance at $1265.9. The 21-day and 50-day simple moving averages provide key supports at $1228.4 and $1201.3.
Nymex Crude Oil -- The daily chart still shows overbought mojo with oil below its 50-day and 200-day simple moving averages and annual pivot at $77.05, $77.04, and $77.05. The 21-day is support at $74.41. Today’s resistance is $79.91.
The Euro --The daily chart shows rising mojo as strength reached my quarterly resistance at 1.2450 on Monday. The 21-day simple moving average is support at 1.2208.
Daily Dow -- The 21-day simple moving average is support at 10,183 with the 200-day and 50-day simple moving averages at 10,350 and 10,556. My annual pivot has been a magnet at 10,379. A close below the 21-day shifts the daily chart to negative as mojo rolls over. My call remains that the April 26 high at 11,258 ended the bear market rally since March 2009 and starts the second leg of the multi-year bear market.
New-Home Sales Plunge as Tax Credits Expire
New-Home Sales for May plunged 32.7% to an annual rate of just 300,000 units, the lowest pace since record keeping began in 1963. This shouldn't be a surprise as 33% of new-home sales were generated because of tax credits, which expired on April 30. Remember that homebuilders peaked in share price in July 2005 and new-home sales are down 78% from that peak. Complicating a housing recovery is high unemployment, job security, and the fact that banks continue to employ tight credit conditions.
Federal Reserve Leaves Funds Rate Exceptionally Low for Extended Period
The FOMC sees the economic recovery proceeding with a gradually improving labor market. Against this backdrop, household spending is increasing but constrained by high unemployment. The Fed worries about modest income growth, lower housing wealth, and tight credit conditions.
My concerns are clearly stated by the Fed: “Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank-lending has continued to contract in recent months.”
It was housing that caused stress in the banking system beginning in 2007. Housing is beginning to drag the economy again, and stress in the banking system continues, but is buoyed by low interest rates, which has just not helped Main Street, USA. Strategists argue whether or not the economy is headed for a double-dip or not. Looking at housing and the unemployment rate, the economy is still in its first dip. After all, the National Bureau of Economic Research (NBER) has yet to time-stamp recession’s end. Without an end there can't be a double-dip. Can the NBER declare the recession time-stamped beginning December 2007 over with an unemployment rate of 9.7% when the rate was 4.6% at the end of 2007?
(See also, The Rising Risks of a Double-Dip Recession.)
US Treasury Yields -- The $38 billion 5-year note auction had a neutral result with a yield of 1.995, a bid-to-cover of 2.58, and an indirect bid of 35%. The US Treasury auctions $30 billion 7-year notes today. The 30-year fixed-rate mortgage is at a record low of 4.76%, but mortgage applications decline. The problem is that the spread versus the 10-year has widened to 166 basis points from 115 where it was when the Fed stopped buying mortgage securities on March 31. A 4.25% mortgage would make it a lot easier to refinance mortgages. The daily chart for the 10-year shows the longer-term trading range between the 200-day simple moving average at 3.544 and 3.061 with a daily pivot at 3.180, and annual resistances at the floor at 2.999 and 2.813.
Comex Gold -- The daily chart shows declining mojo, but Monday’s all-time high of $1266.5 was a failed test of my monthly resistance at $1265.9. The 21-day and 50-day simple moving averages provide key supports at $1228.4 and $1201.3.
Nymex Crude Oil -- The daily chart still shows overbought mojo with oil below its 50-day and 200-day simple moving averages and annual pivot at $77.05, $77.04, and $77.05. The 21-day is support at $74.41. Today’s resistance is $79.91.
The Euro --The daily chart shows rising mojo as strength reached my quarterly resistance at 1.2450 on Monday. The 21-day simple moving average is support at 1.2208.
Daily Dow -- The 21-day simple moving average is support at 10,183 with the 200-day and 50-day simple moving averages at 10,350 and 10,556. My annual pivot has been a magnet at 10,379. A close below the 21-day shifts the daily chart to negative as mojo rolls over. My call remains that the April 26 high at 11,258 ended the bear market rally since March 2009 and starts the second leg of the multi-year bear market.
New-Home Sales Plunge as Tax Credits Expire
New-Home Sales for May plunged 32.7% to an annual rate of just 300,000 units, the lowest pace since record keeping began in 1963. This shouldn't be a surprise as 33% of new-home sales were generated because of tax credits, which expired on April 30. Remember that homebuilders peaked in share price in July 2005 and new-home sales are down 78% from that peak. Complicating a housing recovery is high unemployment, job security, and the fact that banks continue to employ tight credit conditions.
Federal Reserve Leaves Funds Rate Exceptionally Low for Extended PeriodThe FOMC sees the economic recovery proceeding with a gradually improving labor market. Against this backdrop, household spending is increasing but constrained by high unemployment. The Fed worries about modest income growth, lower housing wealth, and tight credit conditions.
My concerns are clearly stated by the Fed: “Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank-lending has continued to contract in recent months.”
It was housing that caused stress in the banking system beginning in 2007. Housing is beginning to drag the economy again, and stress in the banking system continues, but is buoyed by low interest rates, which has just not helped Main Street, USA. Strategists argue whether or not the economy is headed for a double-dip or not. Looking at housing and the unemployment rate, the economy is still in its first dip. After all, the National Bureau of Economic Research (NBER) has yet to time-stamp recession’s end. Without an end there can't be a double-dip. Can the NBER declare the recession time-stamped beginning December 2007 over with an unemployment rate of 9.7% when the rate was 4.6% at the end of 2007?
(See also, The Rising Risks of a Double-Dip Recession.)
No positions in stocks mentioned.
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