Weak Existing Home Sales
The new home permits, starts, and completions were all strong in May, but the existing home sales have been flat at best this year. The seasonally adjusted annual rate of existing homes sales was 5.43 million in May. This was below the consensus for 5.5 million. As you can see from the chart below, the rate was 5.45 million in April. This means the month over month change was -0.4% which is on top of last month’s month over month decline of 2.7%. The year over year decline in existing home sales was 3%. Last month’s year over year decline was 1.6%.
Existing home sales aren’t growing like new home sales because they recovered quicker than new homes sales after the financial crisis. Existing home sales simply went up afterwards while builders of new homes were still licking their chops in 2010 and 2011. After many went out of business, it was a tough decision to start building again. Existing home sales are currently weak because of low supply, high prices, and high mortgage rates. The chart above shows mortgage rates have gone from 3.4% in the summer and fall of 2016 to 4.6% now.
The median sale price went up 2.7% month over month to a record high $264,800. The year over year increase was 4.9%. Even though supply was up 2.8%, it remains constrained. The supply to sales ratio increased from 4 months to 4.1 months. This report will hurt GDP growth again. The weakest region was the northeast which saw a decline of 11.75% year over year. The west was down 4.1%, the Midwest was down 2.3%, and the south, which is the biggest market, was flat.
Earnings Update
Even though earnings season doesn’t get going until the second week of July, which is in 3 weeks, there have been 7 firms which have reported their Q2 earnings so far. As you can see from the top table below, the results are a perfect 7 for 7 in terms of earnings beats. 3 tech firms, 2 consumer discretionary firms, 1 consumer staples, and 1 industrial firm beat estimates for an average growth rate of 29.81%. The average EPS surprise is 3.26% so far. The sales growth was slightly lower because one consumer discretionary firm missed estimates, making the beat rate 86%. The average sales growth was 12.38% and the sales surprise average was 0.92% above estimates. The average effective tax rate was 11.72%. The tax law changed the corporate tax rate from 35% to 21%.
