Demand Tapped Out?
Ashraf Laidi | May 27, 2021 02:36AM ET
by Adam Button
USD is finally gaining ground as indices pullback with markets drawing closer to the final week of the month and a long weekend in the US and UK. A surprise plunge in US new home sales in May isn't all that it seems. NZD is the only currency gaining vs USD after a relatively hawkish RBNZ policy statement.
New data showed that May US new home sales sank to a pace of 863K from 1021K the month before. That's one of the sharpest drops in record and a sharp correction after a surge since the pandemic.Cardano is up 13% on the day, continuing to perform all major cryptos. Gold hit 1912, rising more than $70. Despite the long weekend ahead, there will be a round of crucial US macro data, which could trigger a spike in yields.
Where the US housing market goes will be a critical input for US growth this year and beyond. Americans are famous for taking home equity loans and the construction sector can be an major tailwind.
So is demand tapped out? No.
Price is the ultimate measure of demand and the median new home sales price was up 20.1% y/y. More telling may be a long series of anecdotal reports from home builders who are struggling with supply bottlenecks and unexpected commodity price increases.
Typically, new homes are sold on spec at agreed-on prices 1-2 years before the final product is delivered. That leaves builders with all the exposure to commodity prices – namely lumber. Since prices have been flat for much of the past decade, that's usually something that can be absorbed into margins. This year though prices of lumber have quadrupled and that's left homebuilders in a bad spot.
Rather than doubling down, trying to hedge or guessing at prices, many are opting not to sell the homes until they're nearly completed. So construction is continuing to boom but the 'sales' are being pushed further into the cycle.
This is an other example of how bottlenecks are making it tough to gauge just how strong the economy is.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.