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Economy

U.S. home sales slide as prices break above $400,000 for first time

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© Reuters. FILE PHOTO: A “For Sale” sign is posted outside a residential home in the Queen Anne neighborhood near the Space Needle in Seattle, Washington, U.S. May 14, 2021. REUTERS/Karen Ducey/File Photo

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By Lucia Mutikani

WASHINGTON (Reuters) – U.S. existing home sales tumbled to a two-year low in May as prices jumped to a record high – topping the $400,000 mark for the first time – and mortgage rates increased further, pushing out entry-level buyers from the market.

Despite the fourth straight monthly drop in sales and declining affordability, reported by the National Association of Realtors on Tuesday, the housing market remains fairly hot, with properties typically staying on the market for a record low 16 days. With supply still undesirably low, prices could remain elevated, though sellers are reducing the list price in some areas where bidding wars were prevalent.

“Existing home sales should continue to slow over the course of the year as mortgage rates move higher,” said David Berson, chief economist at Nationwide in Columbus, Ohio. “But in the absence of a deep and sustained economic downturn, home sales should not drop as they did in the housing bust – allowing prices to continue to move higher on average.”

Existing home sales fell 3.4% to a seasonally adjusted annual rate of 5.41 million units last month, the lowest level since June 2020 when sales were rebounding from the COVID-19 lockdown slump. Sales rose in the Northeast, but declined in the Midwest, the West and densely populated South.

Economists polled by Reuters had forecast sales would decrease to a rate of 5.40 million units. They estimate that a housing market downturn would need sales to drop to between a rate of 4.0 million to 4.5 million.

Home resales, which account for the bulk of U.S. home sales, tumbled 8.6% on a year-on-year basis last month.

Sales in May were mostly closings on contracts signed one to two months ago, before mortgage rates started accelerating amid a surge in inflation expectations and the Federal Reserve’s aggressive interest rate hikes.

Graphic: Existing home sales – https://graphics.reuters.com/USA-STOCKS/xmvjowrzypr/ehs.png

The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13-1/2-year high of 5.78%, according to data from mortgage finance agency Freddie Mac (OTC:FMCC). That was the largest one-week increase since 1987. The rate has surged more than 250 basis points since January.

The report joined housing starts, building permits and homebuilder sentiment in suggesting that the housing market was losing speed under the weight of higher borrowing costs. It was also the latest indication that the U.S. central bank’s rapid monetary policy tightening was slowing the overall economy.

That was underscored by a separate report from the Chicago Fed on Tuesday showing its National Activity Index fell to a reading of 0.01 in May from 0.40 in April, which it said “suggests economic growth declined in May.”

A zero value for the monthly index has been associated with the economy expanding at trend growth. Fears of a recession have been mounting in the wake of the Fed’s decision last week to raise its policy rate by three-quarters of a percentage point, its biggest hike since 1994.

The Fed has increased its benchmark overnight interest rate by 150 basis points since March.

U.S. stocks on Wall Street rebounded on Tuesday from recent sharp losses. The dollar fell against a basket of currencies. U.S. Treasury yields rose.

SLOWING MIGRATION

The housing market is the sector most sensitive to interest rates. Its slowdown could help to bring housing supply and demand back into alignment and slow price growth.

The median existing house price raced 14.8% from a year earlier to an all-time high of $407,600 in May, crossing the $400,000 level for the first time.

The $250,000-$500,000 price bracket accounted for 42.0% of the houses sold last month, with the $500,000-$750,000 segment making up 19.3%. Only 19.5% of the homes sold were in the sought-after $100,000-$250,000 price range. Double-digit price growth was registered in the South and West.

But the pandemic-driven migration to some areas in the South is slowing, which could help tame the price appreciation.

“The affordability migration will lose some steam now that interest rates have risen, which will make it a bit tougher to sell homes in those higher-price markets,” said Mark Vitner, a senior economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina.

There were 1.16 million previously owned homes on the market, following a seasonal monthly bump of 12.6%. Supply remained 4.1% down year-on-year.

The steady monthly improvement could continue, with government data last week showing housing completions in May increased to the highest level since 2007.

At May’s sales pace, it would take 2.6 months to exhaust the current inventory of existing homes, up from 2.5 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand. Eighty-eight percent of homes sold in May were on the market for less than a month.

First-time buyers accounted for just 27% of sales, which economists said also explained why double-digit home price growth persists even as discounts become more common. All-cash sales made up 25% of transactions – those are mostly Wall Street institutions taking advantage of the rising demand for renting.

Economy

Asia stocks edge down after Wall Street falls; oil rises

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© Reuters. FILE PHOTO: A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying graphs (top) of Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon

By Julie Zhu

HONG KONG (Reuters) – Asian shares edge down in early trade on Tuesday with investors taking their cue from a volatile Wall Street session overnight, while oil prices climbed following last week’s rout.

Oil continued to rise with investors still weighing worries over an economic slowdown against concern over lost Russian supply amid sanctions related to the conflict in Ukraine.

“A seam of tight supply news bolstered the (oil) market,” analysts at Commonwealth Bank of Australia (OTC:CMWAY) said in a research note. “Political unrest might curtail supply from a couple of second-tier producers, Ecuador and Libya. And then there’s the G7’s proposed price cap on Russian oil.”

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.7%. The index is down 3.8% so far this month. U.S. stock futures, the S&P 500 e-minis, were up 0.27%.

Australian shares were up 0.25%, while Japan’s Nikkei stock index rose 0.5%.

China’s blue-chip CSI300 index was 0.4% lower in early trade. Hong Kong’s Hang Seng index opened down 0.36%.

On Monday, U.S. stocks ended a volatile trading session slightly lower with few catalysts to sway investor sentiment as they approach the half-way point of a year in which the equity markets have been slammed by heightened inflation worries and tightening Fed policy.

The major U.S. stock indexes lost ground after oscillating earlier in the session, with weakness in interest rate sensitive megacaps such as Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) Inc providing the heaviest drag.

The Dow Jones Industrial Average fell 0.2%, the S&P 500 lost 0.30% and the Nasdaq Composite dropped 0.72%.

Oil prices rose as the Group of Seven nations promised to tighten the squeeze on Russia’s finances with new sanctions that include a plan to cap the price of Russian oil.

U.S. crude ticked up 0.99% to $110.65 a barrel. Brent crude rose to $116.22 per barrel.

Treasury yields climbed on Monday following capital and durable goods orders data and as pending home sales surprised to the upside from the previous month.

The yield on benchmark 10-year Treasury notes last reached 3.1847% on Tuesday, compared with its U.S. close of 3.194% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.0974% compared with a U.S. close of 3.123%.

Also, the U.S. dollar edged lower versus major rivals as investors weighed expectations on inflation and interest rate hikes. The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 103.91.

Gold was slightly higher. Spot gold was traded at $1,824.28 per ounce. [GOL/]

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Economy

Japan says hard to confirm impact from Russia’s debt default

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© Reuters. FILE PHOTO: Japan’s new Finance Minister Shunichi Suzuki wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, speaks at a news conference in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Tuesday that it was “a little difficult” at present to confirm the definite impact on Japan from Russia’s debt default.

Suzuki, who commented on the issue after being asked about it by reporters at a news conference following a regular cabinet meeting, added that any moves in Russian government bonds were likely to have a limited impact on Japanese investors.

“The ratio of investments in Russia as part of Japan’s overall foreign bond investments is limited,” Suzuki said.

“Moves in Russian government bonds are likely to result in limited direct losses for Japanese investors, including financial institutions,” he said.

The White House and Moody’s (NYSE:MCO) credit agency on Monday said Russia had defaulted on its international bonds for the first time in more than a century.

The Kremlin, which has the money to make payments thanks to oil and gas revenues, has rejected the claims that it has defaulted on its external debt.

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Economy

Euro gains traction ahead of inflation data, dollar steadies

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Tom Westbrook

SINGAPORE (Reuters) – The euro won support on Tuesday as traders braced for European inflation figures to run hot this week and awaited a speech from central bank chief Christine Lagarde, while worries about a recession kept the U.S. dollar firm.

The euro rose 0.3% overnight and at one point poked above its 50-day moving average. It last sat at $1.0578.

The dollar held modest overnight gains on other currencies and traded at 135.37 yen and $0.6936 per Australian dollar early in the Asia session.

German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday. European Central Bank President Lagarde is also due to speak at the ECB forum in Sintra, Portugal, at 0800 GMT on Tuesday.

“This set of inflation data will have a significant influence on the ECB’s monetary policy forward guidance, especially on the trajectory … of its interest rate hike cycle that is expected to kick start in July,” said CMC analyst Kelvin Wong.

Hike expectations have the euro trading firmly against the yen and it last bought 143.28 yen, close to last week’s seven-year high of 144.24. It also has momentum on sterling and has gained 1.2% this month to 86.15 pence.

The weak spot is against the Swiss franc which has rocketed to test parity on the common currency following a surprise rate hike by the Swiss National Bank earlier in June.

Moves elsewhere were modest as traders try and navigate between relief that signs of weakness in recent global economic data can moderate rate hikes, and worry that it could be a harbinger of the onset of a difficult period of stagflation.

Some of the heat has come out of bets on U.S. interest rate rises, with the peak in the Federal Reserve’s benchmark funds rate now seen hovering around 3.5% next year rather than 4% or above, but the dollar has not yet fallen far from lofty peaks.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

The risk-sensitive Australian and New Zealand dollars have been left behind in last week’s stock market bounce. The kiwi was steady at $0.6306 on Tuesday.

Sterling was similarly becalmed at $1.2274.

“Stay long the dollar until some of the uncertainty has reduced,” said Societe Generale (OTC:SCGLY) strategist Kit Juckes.

“The dollar will fall likely only when the global economy is on a more sustainable growth path … markets are forward-looking, but all we can see ahead today is danger.”

========================================================

Currency bid prices at 0130 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0579 $1.0583 +0.00% -6.91% +1.0586 +1.0571

Dollar/Yen

135.3050 135.4600 -0.12% +17.63% +135.5850 +135.3000

Euro/Yen

143.15 143.35 -0.14% +9.84% +143.4500 +143.1300

Dollar/Swiss

0.9558 0.9562 -0.07% +4.75% +0.9567 +0.9555

Sterling/Dollar

1.2274 1.2265 +0.07% -9.24% +1.2283 +1.2263

Dollar/Canadian

1.2866 1.2872 -0.05% +1.76% +1.2878 +1.2858

Aussie/Dollar

0.6929 0.6925 +0.09% -4.65% +0.6938 +0.6918

NZ

Dollar/Dollar 0.6300 0.6302 -0.02% -7.96% +0.6307 +0.6293

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

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