Daily Gains Letter

first-time homebuyers


What’s Really Behind the Headlines for May’s Surging Home Sales

By for Daily Gains Letter | Jun 26, 2014

The Truth Behind May's Stellar Home Sales HeadlinesJudging by all the headlines alone, you’d conclude that the U.S. housing market is in full recovery mode (it isn’t) and that the U.S. economy is heading in the right direction (it’s not).

In response to existing-home sales data, USA Today’s headline read “Existing home sales up 4.9%; best gain since ’11;” CNBC’s headline declares “US existing home sales, inventory surge in May;” and The Wall Street Journal opines “Existing Home Sales Rise Strongly in May.”

Is the hype justified? Not if you dig below the headlines. First, the (so-called) good news. According to the National Association of Realtors, existing-home sales in May climbed 4.9% month-over-month to a seasonally adjusted rate of 4.89 million, up from 4.66 million in April. This marks the second monthly gain in a row. It’s also the fastest pace since October, the last time annualized sales surpassed the five million units mark! (Source: “Existing-Home Sales Heat Up in May, Inventory Levels Continue to Improve,” National Association of Realtors web site, June 23, 2014.)

All good? Not quite. There’s more to May’s existing-home sales data than the numbers at the top of the press release.

First-time homebuyers, a benchmark for how well the economy is doing, accounted for just 27% of all activity, down from 29% in April. The annual decline is even worse. In May 2013, first-time homebuyers accounted for 28% of sales; in May 2012 it was 34%; and in May 2011 it was 36%. Why is this a concern?  The 30-year average for first-time homebuyers—and a number economists consider ideal—is 40%! (Source: Schmit, J., “First-time buyers losing out as home sales rise,” USA … Read More


What’s Handicapping First-Time Homebuyers?

By for Daily Gains Letter | Mar 24, 2014

First-Time HomebuyersFor months and months now we’ve been pointing to seemingly obvious economic data to prove that the U.S. housing market is in trouble because of the weak U.S. economy. Those in the “know”—economists and the real estate board—have been waxing eloquence on how the weather is the main culprit behind the disappointing U.S. housing market numbers.

The National Association of Realtors (NAR) said existing-home sales in December were adversely affected by bad weather in many areas. Sales of existing homes in January were down 5.1%, reaching their lowest levels in 18 months. At the time, the NAR echoed it’s sentiment from the previous month and said the prolonged winter weather was playing a role and positive housing market activity would be delayed until spring.

Well, spring has sprung, and it looks like blaming the weather is getting a little old. Existing-home sales in February fell 0.4% month-over-month and 7.1% year-over-year to their lowest level since July 2012. (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors web site, March 20, 2014.)

First-time homebuyers, the litmus test for how well the economy is doing, accounted for 28% of purchases in February—that’s up from 26% in January (which was the lowest market share since the NAR first started compiling monthly data). In February 2013, first-time homebuyers accounted for 30% of sales. The 30-year average for first-time homebuyers is 40%—a number both real estate professionals and economists consider ideal.

As per usual, the U.S. housing market is being propped up by those with lots of money. All-cash sales made up 35% of sales in February—up from 33% in January and 32% in … Read More


How to Profit from the Weakening Housing Market

By for Daily Gains Letter | Feb 28, 2014

Housing MarketIt doesn’t take much to get the bulls excited when it comes to the U.S. housing market. Solid new-home sales data seems to have erased everyone’s memory of the raft of negative housing market numbers that have been flowing in for months.

But first, the good news! The U.S. Department of Commerce announced Wednesday that sales of new U.S. single-family homes soared 9.6% month-over-month in January to a seasonally adjusted annual rate of 468,000, the highest level since July 2008. January’s numbers are also 2.2% ahead of January 2013 estimates of 458,000. (Source: “New Residential Sales in January 2014,” United States Census Bureau, February 26, 2014.)

While Wall Street is busy blaming the cold weather for weak earnings, the winter winds have not held back new-home sales. In fact, in sharp contrast to Wall Street’s cold weather blame game, regions hardest hit by unusually cold temperatures experienced solid growth, easing concerns of a sharp slowdown in the U.S. housing market.

Sales in the Northeast soared 73.7% to a seven-month high, sales in the south climbed 10.5% to a more than five-year high, and sales in the west climbed 11%. The only region to experience a drop in new-home sales was the Midwest, where new-home sales retraced 17%.

If new-home sales were the foundation of the U.S. housing market’s health, everything would be looking up. Unfortunately, they’re not. That’s because new-home sales represent a small segment of the U.S. housing market—just 9.2%.

New-home sales figures, because they are measured when contracts are signed, are considered to be more sensitive to weather than existing-home sales, which are tallied when contracts close. So … Read More


Why Analysts Can’t Just Blame the Weather for Poor Housing Numbers

By for Daily Gains Letter | Feb 21, 2014

Poor Housing NumbersNo matter where you turn, bad earnings or economic indicators are being blamed on the cold weather. Weak January car sales figures were blamed on the weather; disappointing January housing data was blamed on the weather; Wal-Mart Stores, Inc. (NYSE/WMT) revised its earnings guidance lower because of the weather; and even Panera Bread Company (NASDAQ/PNRA) says the cold weather negatively impacted its results.

Because no one saw the cold winter weather coming, Americans have been left hungry, cold, and without vehicles or shelter. Though somehow, people too cold to get bread, groceries, or other staples still managed to stock their shelves with soup. Campbell Soup Company (NYSE/CPB) bucked the winter-blaming trend and said its quarterly profits surged 71% year-over-year to $325 million, or $1.03 a share.

But that’s not what I’m getting at…

The most recent industry to use the weather-related get-out-of-jail-free excuse is the housing market. I mentioned recently that the National Association of Home Builders (NAHB) said its monthly housing market sentiment index experienced its largest drop in history, from 56 in January to 46 in February. A score above 50 indicates positive sentiment; below that, it’s negative. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)

In line with negative homebuilder sentiment, perhaps it’s not a huge surprise to discover that construction of new homes sank in January. U.S. housing market starts tanked 16% in January to a seasonally adjusted rate of 880,000—the lowest reading since September and the largest month-over-month drop in three years. Further breaking down the housing market starts, single-family housing construction … Read More