Home Buyers are now saying ‘no mas’ / Chicago mfr’g

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United States

Pending home sales in April, a key metric in the heart of the Spring transaction season, fell 1.3% m/o/m vs the estimate of a gain of .5% and March was revised down by one tenth to a decline of .9%. Versus last year, contract signings are down 5.4% which is the biggest y/o/y decline since August 2014. As I keep talking about, price is becoming a real issue in large part due to modest inventory increases. The NAR said “contract activity is fading this spring because significantly weak supply levels are spurring deteriorating affordability conditions.” They said that realtors do believe that foot traffic is higher than last year “but it’s obviously not translating to more sales.” Supply has picked up in the last reading for April in the new home sales and existing home sales data seen last week so maybe this can be the beginning of more inventory coming to market but we’ve reached a major inflection point with price gains. Buyers are beginning to say ‘no mas’ and if you missed my note this morning, I help to partly explain why.

PENDING HOME SALES INDEX

ITB and XHB are lower in response.

XHB 1 year

 

UPDATE: Oops! Chicago PMI mistakenly said index fell in May. It actually rose. The comments below were based on their incorrect initial release. Update here with the new data.

The May Chicago manufacturing PMI fell to 55.2 from 58.3 in April (which was the best since January 2015) and that is almost 2 pts below the estimate. Smoothing out what is now a very volatile statistic puts the year to date average at 55.8 which compares with the 2016 average of 53.1. Some key internals weakened a bunch. New orders fell 9.6 pts to the lowest since January. Backlogs did rise by 4.8 pts but remains below zero for the 6^th straight month. Employment was modestly above 50. Price pressures eased for the 3^rd month.

Bottom line, this figure that is still at a good level follows a negative print from NY, a big upside to Philly but with weak internals, a sharp drop from Richmond and little change in the Dallas index. So let’s call manufacturing in May a mixed bag so far and the ISM will reconcile all tomorrow. The estimate is 54.6 vs 54.8 in April and this would be the lowest since the 54.5 print in December. It stood at 52 in October before the election.