Double-dip jitters are back and America, as ever, is in the vanguard. This week saw more horrendous housing market news. On Tuesday, the National Association of Realtors said last month’s sales of previously owned American homes plunged by 27.2% to a 3.83 million annual rate. That’s the lowest level in more than a decade. The median forecast was for 4.65 million and a 13.4% decline, says Bloomberg.
There was more bad news on Wednesday. The FHFA house-price index dipped 0.3% in June, while new US home sales in July plummeted to an all-time low of 276,000. That’s almost a third down on a year ago. It means that the number of houses on the market has risen above nine months’ supply. “The danger is that an increased supply of unsold homes will lead to a double dip in [US] house prices,” said Michael Mackenzie in the FT.
There was more disappointment on the industrial front in July. US durable goods orders (ex-transportation) fell 3.8%, while ‘non-defense’ capital goods orders dropped 2.8%. So it’s little surprise that riskier assets classes, such as equities and commodities, have nosedived. Both the Reuters/Jefferies CRB commodity price index and the S&P 500 have dropped by around 6% since the first week of August.
What the commentators said
“The 27% plunge in the pace of July’s existing home sales from a month earlier owes much to the expiry of a tax break,” said Martin Hutchinson on Breakingviews. “But real house prices are still as high as at the end of the 1997-2000 technology bubble. So their tentative recent recovery looks vulnerable to another significant leg down. That in turn could bring a second recessionary downturn.”
And that’s likely to have a worldwide impact. “Global growth is undoubtedly faltering,” said Julian Jessop at Capital Economics, “and the outlooks for the major advanced economies are pretty poor.”
So the latest stockmarket and commodity price falls could continue for a while. “Investors are becoming increasingly concerned that the US and Western Europe will move to a Japanese scenario, with low growth, low rates and an ageing population,” said Tommy Leung at UBS.
All this bad news flow is “sending investors flocking to safe-haven assets”, said Katy Burne in the Wall Street Journal. Specifically, it is “pushing more buyers to the bond market in a flight-to-quality”, said Jason Rogan at Guggenheim Capital Markets. Yields on 30-year US Treasuries – still viewed as a safe bet – have fallen to 16-month lows as bond prices have risen on heavy buying.
Meanwhile, the yen, which is seen as another port in a storm, has hit a 15-year high against the dollar. And those are not the only signs that risk aversion is back amongst investors. As Adam Klopfenstein at Lind-Waldock pointed out, as commodity positions are being “adjusted”, the “flight-to-quality crowd is jumping on gold”.