Lowest Existing Housing Inventory On Record

Redbook Same Store Sales Growth Improves

Preliminary January consumer sentiment index from the University of Michigan was basically unchanged. As you can see from the chart below, the Bloomberg Consumer Comfort index is at a 19 year high as it has increased with the stock market. Correlation with the S&P 500 is quite high. Low wage industries have high wage growth. And upper income people have the rising stock market to make them optimistic.

The middle is being hurt by rising oil prices, although, that looks like it is changing. In the next couple months, oil will have tough yearly comps. Energy in the CPI report will oddly have easy comps. Tie breaker is the recent decline in oil prices. After peaking at $63.27, in part because of geopolitical strife, WTI has fallen to $55.24. Headline CPI should decline because of these lower prices. Keep in mind, the December PCE report doesn’t come out until next Friday.

This conversation all contextualizes the recent Redbook sales growth in the week of January 18th which rose to 5.3% from 5%. Sales growth has been strong in the first few weeks of January. It’s possible the 2 year growth stack in retail sales increases this month. Obviously, yearly growth will fall because the comp is harder. I will be paying special attention to motor vehicle and parts sales as they were weak in December.

An Update On Housing

This week, the FHFA housing price index, the MBA applications report, and the existing home sales reports came out. Let’s look at the 3. November FHFA house price index showed monthly growth of 0.2% which was the same as last month and missed estimates for 0.3%. Therefore, yearly growth fell from 5% to 4.9%. This goes against the recent trend of rising home price growth. I’m interested to see what the Case Shiller index shows next Tuesday. 

Remember, Redfin showed 6.9% yearly price growth in December which was the highest in 19 months. Each data point measures price growth differently so I look at how each one has done compared to its recent results. Existing home price growth was higher.

MBA weekly applications index from the week of January 17th is the first report of the year that matters as few buy houses right after the new year. Composite index was down 1.2% weekly after rising 30.2%. Both components fell 2% as refinancing was up 43% and purchases were up 16% last week. Purchase index was up 8% yearly. Comps in 2019 are harder than 2018. Housing market was at its worst in Q4 2018.

That explains why existing home sales were up 10.8% in December (up from 2.7% growth). However, even without the easy comp, this still would have been a solid report. There were 5.54 million homes sold which beat the consensus estimate of 5.43 million and the highest estimate which was 5.5 million. It beat the prior reading of 5.35 million which means its monthly growth rate rose from -1.7% to 3.6%.

As you can see from the chart above, sales were the highest since early 2018. Inventories fell 8.5% which was the biggest decline since 1982 when the data started being tabulated. Monthly supply fell to 3 months which is the lowest ever. There appears to be fewer baby boomers moving out of their homes. While sales can still be strong with low inventories, prices inevitably rise. 

Price growth was 7.8% as the median home cost $274,500. Furthermore, starter homes are going away which hurts millennials. Houses less than $100,000 had sales fall 7.7% while sales were up 20% or more in all price categories above $250,000.

Weak Chicago Fed Report

Chicago Fed national activity index’s 3 month average improved because a weak reading left it, but the December report was still poor. November reading was revised lower by 15 basis points to 0.41. September’s index was revised lower by 6 basis points and October’s was pushed higher 2 basis points. 3 month average was revised down 6 basis points to -0.31. 

With September’s weak reading leaving the index and December’s report showing -0.35, the 3 month average rose to -0.23. However, recognize that December’s report was a 0.76 decline from November, missed estimates by 0.5, and was 5 basis points below the lowest estimate. 25 of the indicators in this report were positive and 60 were negative. Production & income was the weakest category and personal consumption & housing was slightly positive. It helps to have very strong housing starts.

Another Week Of Low Claims

Initial jobless claims in the week of January 18th rose from 205,000 to 213,000 which was 2,000 above the consensus. 4 week average is now back to normal as the spike in December is no longer included. It fell from 216,500 to 213,250. Many bears feared the spike in continuing claims. Continuing claims in the past 2 weeks have fallen from 1.804 million to 1.731 million. 

Now the data set looks range bound since last May opposed to signaling a recession is coming. In the past 2 weeks, yearly growth has fallen from 5.6% to 1.4%. Remember, continuing claims are a week behind initial claims.


Redbook and the Consumer Comfort index suggest retail sales will be strong in January. We’re still waiting for the December PCE report. Following the industrial production and retail sales reports JP Morgan lowered its Q4 GDP growth estimate from 2% to 1.5%. 

Investors are ignoring the weak Q4. December existing home sales were strong, but the Chicago Fed National Activity index fell. Initial jobless claims were low again. As expected, continuing claims fell and there is no indication of a recession based on this metric. 

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