Analysts at Nomura expect healthy consumer fundamentals to support existing and new home sales in May for this week's US data.
Existing home sales (Wednesday): Existing home sales fell 2.3% m-o-m in April to an annualized pace of 5.57mn units. Both single-family home and condo sales slowed modestly. Much of the slowdown was due to low inventory levels of homes for sale on the market. For May, we forecast a slight decline of 0.1% m-o-m to an annualized rate of 5.565mn. Pending home sales, which tend to lead existing home sales by four to six weeks, declined moderately in April and March, portending a slowdown in existing home sales. Moreover, a low supply of home for sale may continue to constrain sales in coming months. Despite this industry challenge, consumer demand has been firm and mortgage rates have trended lower recently after a sharp pickup following the election in November 2016. Although the University of Michigan survey for May indicates that rising home prices were beginning to hurt consumers’ assessment of home buying conditions, relatively low mortgage rates and steady income growth would limit deterioration in home affordability and likely contribute to consumer demand for housing.
Initial jobless claims (Thursday): For the week ending 10 June, initial jobless claims fell 8k to 237k (this level of initial claims is consistent with private nonfarm payroll growth in June of 155k). The 4-week moving average remained relatively unchanged at 243k (242k one week prior). Continuing unemployment insurance claims increased 6k to 1935k with the 4-week moving average increasing slightly to 1927k from 1918k for the week ending 3 June. Incoming data suggest layoffs remain low and job creation remains healthy. As firms become less willing to let go of their employees and the labor market tightens further, we expect continued low readings in the medium term.
New home sales (Friday): New home sales dropped 11.4% m-o-m in April after strong increases in Q1. It is possible that a blip in April was likely transitory. There still are lingering challenges in the industry such as a lack of skilled labor and developable land, which may adversely affect the supply of newly built home for sale, which have been slow to catch up with consumer demand. Yet, home builders’ assessment of the future and current single home sales remains confident according to an NAHB survey for June. A steady increase in mortgage applications for home purchase suggests that consumer demand remained healthy, coupled with strong consumer fundamentals. Furthermore, permits for single family housing construction improved modestly in May, after decreases in April and March, pointing to some recovery in new home sales. Thus, we forecast a 3.9% m-o-m increase to an annualized rate of 591k in May."
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