Friday, June 16th, 2017
Putting a bow on a big week for economic data, Housing Starts and Permits results for May came out ahead of the bell this Friday, but the results were not good. New Starts were expected to be up 3-5% but came in -5.5%. Permits also fell 4.9% last month, far below expectations. The 1.092 million seasonally adjusted annualized starts fell below the 1.2 million anticipated, whereas expectation for permits of 1.172 million came up short at 1.156 million.
Even though the Fed has raised interest rates this week, mortgage rates remain near historic lows. This was supposed to have sopped up a lot of the pent-up demand for new housing, but these numbers suggest progress has stalled. Current housing also remains dense, another indication that pent-up demand exists for housing. Yet new homes are not being built at the pace analysts had expected, and this has manifested itself in this morning's numbers.
The "sweet spot" of new homes sales is in the lower $200K-300K range, whereas the $300K-500K range is tracking at half-pace compared to expectations. Why would this be? Consider most homeowners in the U.S. currently are from the Baby Boomer generation, which is reaching retirement age and looking to downsize in a general sense - this helps put more demand on that lower-end range of housing.
Millennials were supposed to have gotten off the mat by now, but many are still living in Mom & Dad's basement. Now that interest rates are on the rise, affording a new home is only going to get more difficult, so the generational wait to find new housing may seem a bit puzzling. Perhaps there's more comfort in continuing to live at home than has been considered by the data points.
Housing is well understood to be a key cog in the wheel of economic growth: not just mortgage-writing banks win business, but construction workers, lumber providers, energy concerns, drywall manufacturers, etc. all provide input to GDP. Arguably, housing is more important in this regard than any other single industry in America.
In any case, the housing market looks a bit stalled. New Starts numbers can be volatile month to month, but Permits usually indicate a smoothing out of housing progress. Yet a disappointing read for Permits this morning would indicate we're still not out of the rough in domestic housing at this stage. Maybe things will improve through the warm weather months of 2017.
Amazon Buys Whole Foods Market for $13.7B
HUGE news as I'm writing this column: Internet retail monolith Amazon.com AMZN has reached an agreement to purchase Whole Foods Market WFM for $42 per share, a total of $13.7 billion. The news report indicates Whole Foods CEO John Mackey will stay on to head the company. What we're seeing is a precipitous plummet in other publicly traded companies like Kroger KR , which owns upstart Mariano's parent Roundy's.
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