All Things in Moderation

Stocks are higher this morning on no real news. Bonds and MBS are down.

New home sales rose 12% MOM in May to a seasonally-adjusted annual rate of 763,000. This is up 15.5% compared to May of last year. The median new home price fell 7.6% on a YOY basis to 416,300. The average sales price fell 6.6% to 487,000. It looks like the affordability issue has caused builders to focus more on lower-priced properties than luxury houses.

Home prices rose 0.7% MOM in April, according to the FHFA House Price Index. They were up 3.1% on a YOY basis. That said, we did see YOY declines in the West and the Mountain states.

Separately, the Case-Shiller Home Price Index reported an annual decrease of 0.2% in April. “The ongoing recovery in home prices is broadly based. Before seasonal adjustments, prices rose in all 20 cities in April (as they had also done in March). Seasonally adjusted data showed rising prices in 19 cities in April (versus 14 in March)…. If I were trying to make a case that the decline in home prices that began in June 2022 had definitively ended in January 2023, April’s data would bolster my argument. Whether we see further support for that view in coming months will depend on the how well the market navigates the challenges posed by current mortgage rates and the continuing possibility of economic weakness.”

We did see some big declines in certain MSAs: -12.4% in Seattle, -11% in San Francisco, -6.6% in Las Vegas, -5.6% in San Diego, -6.1% in Phoenix.

Did fraudulent PPP (Paycheck Protection Plan) loans artificially inflate home prices? According to new research, it may have happened.

Pandemic fraud facilitated by FinTech lenders exhibited significant geographic concentration, which makes it a unique setting to examine the effects of excess local stimulus cashflow on local purchases and prices. We first examine effects on a highly immovable local good—housing. At the individual level, fraudulent PPP loan recipients significantly increase their home purchase rate after receiving the loan the program compared to non-fraudulent PPP recipients. At the zip code level, house prices in high fraud zip
codes increase 5.7 percentage points more than in low fraud zip codes within the same county, with similar effects even after controlling for land supply, prior house price growth, teleworkability, population density, net migration, distance to central business district, and previous rates of remote work. This effect is entirely driven by fraudulent loans from FinTech lenders, and non-fraudulent lending has no such effect. Matching, synthetic controls, and an instrumental variables identification strategy based on social connections to distant zip codes yield similar results. Outside of the housing market, local PPP fraud also predicts consumer spending at the census tract level in 2020 and 2021 with a return to normal in 2022.

Consumer confidence improved in June, according to the Conference Board. Interestingly, there is a big divergence between the Present Situation Index, and the Expectations Index. The present situation index (how things actually are right now) is at 155 while the expectations index is 79. The chart below is more or less the average of the two. Inflationary expectations fell to 6% (still way above what the Fed would like to see), however this was the lowest since December 2020.

“Although the Expectations Index remained a hair below the threshold signaling recession ahead, a new measure found considerably fewer consumers now expect a recession in the next 12 months compared to May. Meanwhile, on a six-month moving average basis, plans to purchase autos and homes have slowed, after picking up earlier in 2023. This may reflect rising costs to finance big-ticket items as the Fed continues to raise interest rates. Meanwhile, vacation plans within the next six months continued to flag, led largely by declines in plans to travel domestically. This is an important indicator of desires to spend on services ahead, which may be a signal that post-pandemic ‘revenge spending’ on travel may have peaked and is likely to slow over the rest of this year.”

Filed under: Economy |