There's a growing consensus among economists that the U.S. housing market is making a V-shaped recovery. But David Rosenberg says they're living in a "fantasy land."
If you ask most economists about the U.S. housing market, they’ll likely tell you it’s a symbol of consumer resiliency amid an unprecedented crisis. And they may tout it as evidence that a V-shaped recovery is still achievable.
But David Rosenberg is not most economists. And if you ask him, he’ll tell you those other economists are living in a “fantasy land.”
Reacting to today’s new home sales data, the Rosenberg Research founder ranted that the “bulls have gone ape.”
The definition of a V-shaped recovery in today’s fantasy land: when US new home sales are “only” down at a 33% annual rate since the turn of the year. The bulls have gone ape on today’s number! What a recovery.
According to the Commerce Department, sales of new single-family houses rallied 16.6% to a seasonally adjusted annual rate of 676,000 units in May. That blew past estimates, which anticipated a pace of around 640,000 units.
At first blush, the new home sales spike represents a stunning divergence from yesterday’s May existing home sales data.
The National Association of Realtors (NAR) report indicated that sales of existing houses had plummeted 9.7% from April levels and 26.6% annually. And unlike today’s report, existing sales came in worse than expected.
But the disparity has more to do with how the data is collected than any fundamental disconnect. New home purchases are recorded following contract signings, while existing home purchases are typically reported after the transactions close.
Consequently, existing home sales data is more reflective of conditions in March and April. That’s when lockdowns were in full force in most regions of the country.
It’s true that new home sales represent a small percentage of the housing market. But bulls would say the sharp rebound is a leading indicator of a V-shaped recovery in overall purchase activity.
As National Association of Home Builders Chief Economist Robert Dietz wrote today following the release of the new home sales report:
The May data, although reporting gains off a relatively weak April pace, add an additional data point of a housing rebound and marking housing as a leading sector in the developing economic rebound.
And that’s not the only optimistic indicator.
Mortgage application volume – a proxy for homebuyer demand and another leading indicator for home sales – is also rising aggressively. During the most recent collection period – the week ending June 12 – mortgage applications for home purchases shot up to an 11-year high.
Threats remain – namely, tight inventories and a lack of access to mortgage credit. But there seems to be an emerging consensus that the housing market bottomed out in April.
And there’s a growing sense that housing – in an inverse of 2008 – will be the trailblazer as the economy wakes up from its “self-induced coma.”
But David Rosenberg has never been one for consensus. And suffice to say: he isn’t having it.
In his withering Tuesday morning tweet, the former Gluskin Sheff and Merrill Lynch economist unloaded on the thesis that the housing market is making a V-shaped recovery.
His main gripe is that the statistics only appear optimistic when you compare them to April data.
Today’s reading is still well below February’s revised figure of 800,000 units sold. That’s true even though mortgage rates have plunged around 50 basis points in the intervening months.
Rosenberg’s rant was a fitting companion for his commentary on Monday’s existing home sales report.
With a tone that bordered on unbridled glee, Rosenberg mocked the worse-than-expected data:
And this is supposed to be the sector that blazes the trail for this (alleged) recovery!
But Rosenberg finds himself increasingly isolated on “Permabear Island.
And this corner of Wall Street that could grow even more sparsely populated as soon as next Monday (July 29). That’s when the NAR will publish its May pending home sales report.
Danielle Hale, chief economist at Realtor.com, says that housing market analysts will be watching this release closely.
That’s because it’s a leading indicator of where existing home sales will be in one to two months.
The jump in new home sales is a nice indicator of what’s to come because it’s based on contract signings, a somewhat early stage of the homebuying process.
A similar surge in next week’s pending home sales, which cover the much larger existing homes market, will be good confirmation that the low point in home sales is likely behind us.
Hale says a strong pending sales reading will confirm that the jump in new home sales is a genuine indicator of a broad housing market rebound – not an outlier.
But don’t expect it to faze David Rosenberg.
After all, the hallmark of a faux recovery is that the data paints a “V” shape… until it turns into an “M.”