- - Thursday, May 31, 2012


While we all wait for the May employment report Friday, we have received the latest data on the housing market, and it seems there have been differing perspectives on what it means.

I’m referring to the S&P/Case-Shiller Home Price 20-city composite index, which hit a reading of 136.9 for March. That index has been more or less unchanged on a month-over-month basis since December, and that is resulting in some calling for a potential bottom in housing prices.

Others are reading it differently — on a year-over-year basis. From that vantage point, the S&P/Case-Shiller index fell 2.6 percent in March. While the year-over-year decline has slowed from the worst drop on that basis — down 4.5 percent in May 2011 — it can be read as home prices are “still” falling. The art in looking at these types of metrics is knowing when to listen to one over the other. In instances like this, I tend to favor the sequential comparisons as they are more telling on the direction at the margins.

Does that mean, however, that all is well in the housing market? Nope, and for those thinking that low mortgage rates will stimulate new housing demand, the data show something different. Per the Mortgage Bankers Association, which releases weekly data on mortgage applications, refinancing has been responsible for 77 percent of mortgage activity over the past few months. This has been the case even though a 30-year fixed mortgage hit a rate of 3.91 percent during the week of May 25, which was the lowest rate in the history of the survey.

While many focus on interest rates as a driver of housing, the better indicator in my view is job creation, and that has slowed over the past few months. More specifically, nonfarm payrolls have fallen month over month from 275,000 in January to a disappointing low of 115,000 in April. While the overall unemployment report has fallen over the past several months, the driver has been the falling participation rate rather than job growth.

Worse yet, ahead of the May employment report from the Bureau of Labor Statistics, three other readings for the month showed weaker than expected job creation and a rise in layoffs. More specifically, TrimTabs found that only 124,000 jobs were added in May versus economists’ consensus view for Friday’s nonfarm payroll of 155,000. Payroll processing firm Intuit’s Small Business Employment Index showed May job growth rose 0.2 percent, which was slower than April’s 0.3 percent increase.

The Challenger Job Cuts report showed the May total of job cuts was up 53 percent from the 40,559 planned layoffs announced in April. This marked the fourth year-over-year increase in monthly job cuts in 2012. Also missing the mark was ADP’s take on May job creation as that report tabulated only 133,000 jobs added versus the expectation of 157,000 jobs. It’s not looking good for the May employment report.

Mix this slowing job creation with anemic income growth, high underemployment and the surge in consumer debt, which rose by $21.3 billion in March — the greatest increase since November 2001 — amid the cloud of uncertainty ahead, and I suspect consumers are more likely to hold off buying new homes near term.

That cloud of uncertainty includes the impact of slowing growth around the globe, issues in the eurozone, Obamacare, a changing domestic tax code, the debt ceiling, the elections and the increasingly discussed fiscal cliff at the end of the year. Fold in the second-quarter performance in the S&P 500 and the dip in prospective homebuyer traffic in April according to National Association of Home Builders/Wells Fargo findings on all of that, and it looks more like a sideways move at best for the housing and stock markets over the next few months.

Chris Versace is editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com, or follow him on Twitter @_chrisversace. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.

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