Why Existing Home Sales Are Faltering - Barron's

Needed: More Houses

Economic Update
by Regions Financial
Dec. 19: Existing-home sales fell to an annualized rate of 5.35 million units in November, below the 5.44 million pace we and the consensus expected, while the initial estimate of October sales was revised modestly lower.

As has been the case for some time now, the real story of the monthly report is inventory, or the lack thereof. Listings of existing homes for sale tumbled to 1.64 million, far below our forecast of 1.67 million, pushing supply down to 3.7 months. To put this in perspective, a supply of about six months is seen as reflecting balanced market conditions.

Persistently lean inventories have fueled steady increases in the median existing-home sales price, which, as of November, is up 5.4% year on year. While low mortgage interest rates are mitigating the impact of higher prices on affordability, you can’t buy what’s not for sale. The housing market is getting less mileage from low rates than would otherwise be the case, and this does not figure to change anytime soon.
--Richard F. Moody

Too Much Bullishness?

U.S. Investment Policy Committee Notes
by CFRA Research
Dec. 19: The financial media’s second leading story (behind the impeachment) is “How long will this rally last?” Month to date through Dec. 17, the S&P 500 index gained 1.6%, which is equal to the average for all Decembers since World War II and is on top of November’s 3.4% climb.

Investors appear increasingly optimistic about economic and earnings-per-share growth, as the S&P 500 index is on pace to record its fourth-highest September-December return since this bull began.

Yet we see the S&P 500’s 18.75 times multiple on next 12-month EPS forecasts, according to S&P Capital IQ consensus estimates, as being vulnerable. In only 16 out of 913 weeks since 2002 has the market traded at loftier levels. The last time was during the nine-week stretch through the end of January 2018, which ended with the S&P 500 succumbing to a 10% correction.
--Sam Stovall

Likely Target: Health Care

Market Commentary
by Cresset Capital Management
Dec. 18: U.S. technology giants spent the past two decades gobbling up potential competitors. America’s lawmakers face a quandary: If they rein in these superstars to address domestic imbalances, they run the risk of crippling their global competitiveness.

Addressing the consolidation in health care, however, should be unambiguous, in our view. The U.S. health-care system is costly and inefficient: Americans pay double the amount per capita for health care versus our developed-country trading partners.

Congress needs to level the playing field and invite more competition. The result would be increased investment, higher productivity, and stronger wage growth. Although companies like Google and Facebook are at risk of increased regulatory oversight, we believe that the health-care sector is probably most exposed to increased regulatory scrutiny, especially in an election year.
--Jack Ablin

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