Existing home sales decreased 2.5% to a seasonally adjusted annual rate of 5.46 million in April compared to 5.60 million in March.  According to the National Association of Realtors (NAR), sales are down 1.4% from a year ago and have declined year over year for the last two months.  NAR chief economist, Lawrence Yun, commented “The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home.”  He further commented, “Realtors say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford. With mortgage rates and home prices continuing to climb, an increase in housing supply is absolutely crucial to keeping affordability conditions from further deterioration. The current pace of price appreciation far above incomes is not sustainable in the long run.”

• The median existing home price increased 5.3% year over year to $257,900
• Inventory at the end of April increased 9.8% to 1.80 million existing homes, 6.3% lower than a year ago
• Inventory of existing homes has fallen year-over-year for 35 consecutive months
• Inventory is at a 4.0-month supply at the current sales rate vs. 3.5-month supply in March  
• First time home buyer made up 33% of sales up from 30% in the prior month
• Single-family sales declined 3% month-over-month
• Condo and co-op sales increased 1.6% from March

According to the Federal Housing Finance Agency, house prices rose 1.7% in the first quarter of 2018.  Prices rose 6.9% from the first quarter of 2017 to the first quarter of 2018. 

The top five states in annual appreciation were:

1. Nevada 13.7%
2. Washington 13.1%
3. Idaho 11.1%
4. Colorado 10.6%
5. Utah 9.9%

Initial Claims

Initial jobless claims increased 11,000 to 234,000 for the week ended May 18.  A better gauge, the 4-week moving average, increased by 6,250 to 219,750.  Continuing claims increased 29,000 to 1.74 million.  The four-week moving average declined 23,250 to 1.75 million, which is the lowest it’s been since December 1973. 

Market Commentary

Stocks sold off after it was announced that President Trump called off the nuclear summit with N. Korea. The S. Korea tracking etf, EWY, sold off 2.5% after the news broke, as investor concerns regarding geopolitical tensions may be renewed and could negatively impact economic activity in the region. 

Excerpts from President Trumps letter to Kim Jong Un cancelling nuclear summit:

• “I was very much looking forward to being there with you. Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting.”
• “You talk about nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used.”
• “I felt a wonderful dialogue was building up between you and me, and ultimately, it is only that dialogue that matters. Someday, I look very much forward to meeting you.”
•  “If you change your mind having to do with this most important summit, please do not hesitate to call me or write. The world, and North Korea in particular, has lost a great opportunity for lasting peace and great prosperity and wealth. This missed opportunity is a truly sad moment in history.”

The knee-jerk reaction to the news was risk off:

• Stocks sold off, the Dow briefly broke support @ 24,665
• Investors bought treasuries and the 10-year yield dropped to 2.95%
• The VIX, (fear index), spiked higher
• Gold rallied
• Japanese Yen rallied versus the US Dollar (Yen is seen as a safe haven/risk off currency)

Equities were having trouble gaining traction before the summit was cancelled, with the energy and financial sectors trading lower.  Financials were lower following a decline in interest rates. While energy stocks were lower following crude oil.  Crude is down for the third day, piercing the $71 level.  Reports suggest that the Russia energy minister will ask OPEC to phase-out production curbs at the June meeting. 

The Dow once again found support at 24,665, which has been the lower end of this week’s trading range.  Although it briefly broke 24,665 after President Trump’s letter was released, it quickly regained that level and built on the bounce higher after President Trumps news conference.     

The markets are obviously upset about the latest news regarding the failed North Korean summit and earlier news the Trump administration is looking into auto tariffs as part of national security.  I don't think that will go very far other than to remind our trading partners of the distinct advantages they enjoy and why there must be some modifications. 

The financial news remains largely positive.  From earnings to economic data there is mounting evidence this economy is firing on most cylinders. 

The miss on existing home sales is a yellow flag that could be mostly a hiccup from weather but also signs higher lumber prices and mortgage rates could be speed bumps. 

I remain very confident about the market and I think investors will readjust their thinking on how quickly some of the major issues may take to be resolved.  Some may not be resolved.  Continue to focus on fundamentals.  

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