Its halfway through the session, and there’s a nice move higher, as social media stocks, Facebook and Twitter, are also rebounding on heavy trading (number one and three most active stocks in today’s session).  The standout sector is crude oil, which is getting a charge from today’s inventory report. 

Gusher Ahead?

Speculation is also increasing that by the end of the year, dynamic changes in supply could send crude significantly higher.  Return of Iranian sanctions could lower production by half a million barrels a day from current 2.2 million. Venezuela production is coming to a halt from lack of parts and expertise to fix its aging equipment.

The question is when will all of this help crude oil stocks?  This year, crude oil and crude oil stocks have gone in opposite directions. 

• Crude Oil 2018 YTD +7.9%
• S&P Energy (ELX) -7.5%

This makes the latter extremely attractive, but thus far, it’s been a value trap.  At some point, this all begins to change; although, I can’t pinpoint when that happens.  I think it will with WTI closing above $67.00, as this could be a potential spark for huge percentage moves in underlying oil-producing equities.

On the housing front, despite low inventory levels and increased prices, existing home sales in February increased 3.0% to a seasonally adjusted 5.54 million annual rate. The median existing single-family home price was $243,400, up 5.9% from a year ago.   Unsold inventory is at a 3.4-month supply at the current sales pace compared to 3.8 months a year ago.  Typically, 6-months’ supply is associated with a balanced market.   The inventory of homes for sale at the end of February increased 4.6%, but it is 8.1% lower than a year ago.  

The median existing single-family home price was $243,400, up 5.9% from a year ago, adding pressure on affordability concerns related to first time home buyers.  First-time buyers were 29% of sales in February down from 31% a year ago.  Realtors say a 40% share of first-time buyers is needed for a robust housing market. 

Mortgage applications decreased 1.1% from the previous week. The story remains the same; affordability due to rising prices is hampering prospective buyers.  First time buyers need to step up.  There may be light at the end of the tunnel as the Senate recently voted to pass legislation to relax regulations to Dodd Frank to help smaller banks, which may lead to relaxed regulations for home buyers.  The market will be paying close attention to today’s FOMC release for hints of the direction of interest rates, which are closely tied to mortgage rates.     

Year over year, higher end homes are experiences the greatest price appreciation, while homes at $250,000 and below declined.