- U.S. new home sales expected to fall back
- U.S. home prices expected to extend the surge
- U.S. consumer confidence expected to settle back but remain generally strong
- 2-year T-note auction
U.S. new home sales expected to fall back — The consensus is for today’s April new home sales report to show a decline of -7.0% m/m to 950,000, reversing about a third of March’s surge of +20.7% m/m to a 5-year high of 1.021 million.
March’s surge in new home sales was partially due to a recovery from February’s weak sales level, which was hurt by bad weather. However, new home sales in March were also boosted by strong underlying demand as people continue to buy new homes for the extra space and to escape from multi-family units.
New home sales are likely to be curbed over the near term, however, by tight supplies and high prices. The supply of new homes on the market in March was very tight at 3.6 months, which was just slightly above last year’s record low of 3.5 months. Also, the high price of homes is likely to deter some buyers.
Meanwhile, existing home sales have been hurt by tight supplies and high prices. Last week’s April existing home sales report fell by -2.7%, which was the third consecutive monthly decline. The weak existing home sales report did not bode well for today’s new home sales report.
Home sales continue to see support from low mortgage rates. The current 30-year mortgage rate of 3.00% is up by only 35 bp from January’s record low of 2.65% and is still 74 bp below the pre-pandemic level of 3.74% seen at the end of 2019.
U.S. home prices expected to extend the surge — The consensus is for today’s U.S. home price reports to again show very large increases. Today’s March FHFA index is expected to increase by +1.2% m/m, adding to Feb’s increase of +0.9%. Meanwhile, today’s March S&P CoreLogic Composite-20 index is expected to show a sharp gain of +1.3% m/m, adding to Feb’s +1.2% increase.
U.S. home prices have surged in recent months due to very strong home demand and tight supplies. On a year-on-year basis, the FHFA index in February rose by +11.9% y/y and the Composite-20 index rose by +11.9%.
The question is whether the surge in home prices will continue or will soon fade as pandemic demand is finally sapped. In addition, a large number of homes could soon be coming onto the market as mortgage forbearance measures expire and foreclosures increase.
More homes may also start coming onto the market as people who were frozen in place during the pandemic finally decide to sell their homes and move on with their plans. There are also 76 million baby boomers (born 1946-64) who are starting to stretch the limits of their life expectancy, or may at least want to sell their homes to downsize.
U.S. consumer confidence expected to settle back but remain generally strong — The consensus is for today’s Conference Board U.S. May consumer confidence index to show a decline of -2.7 points to 119.0, giving back part of April’s sharp +11.7 point increase to 121.7.
U.S. consumer confidence has soared this year as the pandemic fades and after many consumers received two stimulus checks. In addition, many consumers are in good financial shape after having saved a large chunk of money during the pandemic when they couldn’t travel, go to public entertainment events, or go to restaurants.
The 7-year average of new U.S. Covid infections on Sunday fell to a new 11-month low of 25,141, the lowest level since June 2020. Also, vaccinations are boosting consumer confidence since consumers now feel safer going out into public. The CDC reports that 39.3% of the U.S. population is now fully vaccinated and 49.4% has received at least one dose.
2-year T-note auction — The Treasury today will sell $60 billion of 2-year T-notes. The Treasury will then continue this week’s $209 billion T-note package by selling $26 billion of 2-year floating-rate notes and $61 billion of 5-year T-notes on Wednesday, and $62 billion of 7-year T-notes on Thursday.
The Treasury has left the size of its 2-year T-note unchanged at $60 billion since January. Due to pandemic expenses, the Treasury last year boosted the size of the 2-year auction by 50% to $60 billion from the $40 billion size seen in 2019 and early 2020.
The benchmark 2-year T-note yield yesterday closed little changed at 0.15%, which is near the middle of the narrow range seen in the past three months.
The 12-auction averages for the 2-year are as follows: 2.52 bid cover ratio, $115 million in non-competitive bids, 3.1 bp tail to the median yield, 10.1 bp tail to the low yield, and 46% taken at the high yield. The 2-year is the second least popular security among foreign investors and central banks behind the 3-year T-note. Indirect bidders, a proxy for foreign buyers, have taken an average of 51.4% of the last twelve 2-year T-note auctions, which is well below the median of 60.5% for all recent Treasury coupon auctions.
