Tuesday, December 1, 2009

The Good, Surprising, and Ugly

The Good:
"Sales of domestic light motor vehicles in October rebounded 17.2 percent to 7.8 million units as sales returned to normal-at least for the current recovery. Combined sales of domestics and imports in rose to a 10.5 million annualized unit rate from 9.2 million in September. Now that the monthly swings from cash-for-clunkers have been wrung out from the data, November will stand out as a possibly true measure of the strength of demand for motor vehicles and of the viability of the consumer sector to a large degree."

Sales for the Thanksgiving Holiday were down about 1% from last year as consumers bargain hunted and held out for heavier discounts. Domestic Motor Vehicle sales for November may give an indication of what consumers are spending on if anything. Economists are predicting a consensus range of 7.5 to 8.0 million units sold. Hopefully, this will mark an upturn in domestic consumption overall.

The Surprising:
"Existing home sales got a giant boost in October from the pending expiration of the first round of buyer credits, a gain that raised questions whether sales rates were pulled forward and would dip in subsequent months. But today's pending home sales report points to continued strength ahead. Pending home sales jumped 3.7 percent in October to 114.1, adding to September's even more impressive 6.0 percent gain. Year-on-year pending home sales are up 31.8 percent. The housing sector appears to be moving off the bottom, underscored by the 4.4 percent rise in private residential construction also reported today at 10:00."

The secondary market is picking up a bit. How much of this can be accredited to the potential tax-credit expiration? Additionally, how many of these homes have maintained timely payment schedules without restructuring or default?

The Ugly
"The construction sector continues to head in divergent directions with housing improving but being offset with declines in nonresidential and public outlays. Overall construction spending was unchanged in October after dropping a revised 1.6 percent in September. The unchanged figure for October came in higher than the consensus forecast for a 0.4 percent decline. Probably the biggest negative in the report is that September was revised down sharply from the initial estimate of a 0.8 percent boost. For the latest month private residential outlays jumped 4.4 percent after a 2.0 percent decline in September. In contrast, private nonresidential fell 2.5 percent in October while public outlays dipped 0.4 percent in the latest month."

This is disappointing news considering the demand for existing homes. One could infer demand for new homes has not picked up due to plentiful layoffs and lack of employment opportunities. It is hard to start a family with no income. Additionally recent college graduates are still struggling to find jobs. I don't expect this number to pick up anytime soon until the demographic of 22-30 years find stable employment.

Patrick M. Ambrus
Analyze Capital LLC
Managing Partner


  1. Cash for clunkers,

    home sales? Hows the inventory doing?

    Construction down is good if inventory is still high!

  2. "Construction down is good if inventory is still high!"

    I didn't think of it that way. I was looking for more organic growth via pent up consumer demand.

  3. I wonder what the MBA applications will look like next week? I am not very hopeful we will see strong improvement. You never know though. If the Fed keeps interest rates low forever we could own five houses each by the time were 23.

  4. Everything will depend on QE, gots to watch that money supply and the interest rates. The fed definitely is going to raise rates next year. They will have to, but they will probably late in the game as usual. Though all in all fundamentals still don't warrant this. Though I would think an ending of QE would increase the value of the MBS that all the banks are holding. Though if housing is not ready for a raise this could be seen as a negative shock to equilibrium.

    If rates keep on plumetting though, ill start speculating on physical real estate. You can get your mansion in miami and ill get one in maine... lol


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