U.S. House Prices

House prices in the U.S. continue steadily rising, with the S&P Case-Shiller index up 5.5% year over year in April. The FHFA’s index, which is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac, has increased 6.9%.

Sales prices of previously lived in homes reflect a similar trend, while new home sales prices are often too volatile to offer a reliable signal.

All 20 of the major U.S. cities tracked by the Case-Shiller index have experienced year over year gains in house prices. The total National index is now 2.4% higher than it’s pre-crisis peak while the 20-City Composite index has not yet fully recovered.

Looking at each city individually, we can see where housing excess was most prevalent leading up to the financial crisis.

While all 20 cities tracked in the Case-Shiller index have seen gains, prices in Cleveland are up only 3.4% from a year ago.

The FHFA tracks house prices by region rather than city and offers an alternative perspective. Their index shows house prices having increased the most year over year in the Mountain region.

The Pacific experienced pre-crisis housing growth unlike any other region.

U.S. Home Sales

New home sales have been accelerating and now exceed a rate of 0.6 million. Sales of previously occupied homes are around a rate of 5.6 million. The relative share of home sales that are new remains well below the 1990 to 2008 trend.

Total housing inventory is around 2.2 million, of which 0.3 million are new and 1.9 million are existing. At current sales rates, there are 5.1 months supply of new homes and 4.1 months supply of existing homes available for sale.

Homes are being sold extremely quickly, with the median new home on the market for only 3.4 months, near historic lows.

Investor Positioning

Some big moves in speculative positioning this week: A sharp pullback in U.S. Dollar longs, substantially increased net long positioning in the Australian Dollar and the New Zealand Dollar, and Dow Jones longs increasing to near historical highs.

Every Friday, the CFTC’s Commitments of Traders (CoT) release provides a breakdown of the previous Tuesday’s open interest for markets in which 20 or more futures and options traders hold positions equal to or above the established reporting levels. We provide a detailed look at positioning across financials and commodities by broad and disaggregated trader types.

Global Trade Monitor

Global export volumes through April have increased 3.9% year over year on a 3-month moving average basis, which bodes fairly well for global economic growth. Export volumes from developed economies are up 2.6% while emerging economies’ export volumes have risen 5.4%.

Growth in global trade volumes of 3.9% multiplied by the change in global trade prices of 4.0% equals an 8.1% annual increase in nominal global trade value.

The share of nominal global exports coming from emerging economies has increased to 47.0% while the share of nominal global imports has risen to 43.8%.

U.S. Housing Starts

Housing starts in the U.S. were at 1.20 million on a rolling annual basis through May. Starts totaled 0.60 million in the South census region, 0.31 million in the West, 0.18 million in the Midwest, and 0.11 million in the Northeast.

Single-family starts totaled 0.81 million and multi-unit starts were 0.39 million, bringing the single-family share of the total to 67.5%.

Housing starts are increasing at the fastest relative pace in the West, up 15.2% year over year.

Investor Positioning

Speculators in 10-year and 30-year U.S. Treasuries increased their net long positions this week while platinum longs pulled back.

Every Friday, the CFTC’s Commitments of Traders (CoT) release provides a breakdown of the previous Tuesday’s open interest for markets in which 20 or more futures and options traders hold positions equal to or above the established reporting levels. We provide a detailed look at positioning across financials and commodities by broad and disaggregated trader types.

U.S. TIC Report

The U.S. Treasury International Capital (TIC) report for the month of April showed a net $66 billion entering the U.S on private inflows of $73 billion and official outflows of $7 billion.

Foreigners net sold $11 billion worth of long-term securities, net purchased $26 billion of short-term securities, and banks’ $USD liabilities increased by $51 billion.

Over the past 12 months, a total of $63 billion in capital has left the U.S., on private inflows of $203 billion and official outflows of $266 billion.

Foreigners have net purchased $24 billion worth of long-term securities, net purchased $57 billion of short-term securities, and banks’ $USD liabilities decreased by $144 billion.

Of the foreign net purchase of long-term securities, a $285 billion inflow was due to long-term securities transactions and a $261 billion outflows was due to other foreign acquisitions.

Of the net $285 billion inflow from long-term securities transactions, a net $120 billion came from net foreign buying of U.S. securities and the remaining $165 billion was due to foreign buying of foreign securities.

The foreign buying of foreign securities was driven by net inflows of $251 billion from bonds and net outflows of $85 billion from equities.

The foreign buying of U.S. securities was due to net inflows of $352 billion from the private sector and net outflows of $233 billion from foreign governments. Combined, U.S. Treasury securities have seen net outflows of $257 billion, U.S. Government Agency Bonds have seen net inflows of $212 billion, Corporate Bonds have seen net inflows of $106 billion, and Equities have seen net inflows of $59 billion.

The separation of U.S. long-term securities categories by private and official sector are shown below.

U.S. Retail Report

The 3-month moving average of total U.S. retail sales was at $473.9 billion in May, an increase of 4.4% from the year prior. Core retail sales, which exclude the Autos and Gas categories, have increased 3.8%.

Sales at the Census Bureau’s defined GAFO measure, comprised of department store categories, are up only 0.7% year over year while sales at all Non-GAFO categories have risen 5.5%.

Total retail sales are around 26% higher than their pre-crisis peak level.

U.S Industrial Activity

The Fed’s aggregate index of U.S. industrial production was unchanged in May and is now up 2.2% from a year ago. All major market and industry groups have increased on a year over year basis, led by Materials markets and the Mining industry.

The total industrial production level is approaching the high it reached pre-recession. Of the 3 major market groups, only Materials production has recovered beyond pre-crisis peak. Of the 3 major industry groups, only Mining production has recovered.

Total industrial capacity is at a historical high.

Industrial production has not yet caught up with capacity this cycle, meaning further investment is not yet necessary.

Fed Watch

The Federal Open Market Committee voted at today’s monetary policy meeting to increase the Fed Funds target rate from a range of 0.75%-1.00% to 1.00%-1.25%. There was one dissenting voter, Neel Kashkari, who favored leaving rates unchanged.

Some FOMC members revised their economic forecasts from March, but the median projected long-run Federal Funds rate was unchanged at 3.0%.

In recent years the Fed has typically overestimated economic growth and price inflation in its forecasts.

Financial conditions remain loose and are not a present deterrent to the Fed’s targeted policy path.

The M2 money supply remains fairly stable with year over year growth around 6.0%.

The Fed has stated that it intends to begin implementing a balance sheet normalization program later this year, an effort to reduce it’s current holdings of approximately $4.5 trillion.

The FOMC will make its next policy announcement on July 26, 2017.