The U.S. real estate market has been booming as mortgage rates have fallen to historical lows and work-from-home has encouraged relocation from urban apartments to suburban homes.
Housing inventory relative to sales has collapsed to the lowest level on record, intensifying the upward pressure on prices and slowing new homes sales after peaking earlier this year. Home prices surged 13.2% y/y in March, according to S&P Case-Shiller data, marking the strongest rate since 2005. As investors eye inflationary pressures closely, housing is a big part of the overall inflation equation. Owner’s equivalent rent (OER) makes up one-fourth of the CPI and lags the reality of the housing market. The survey is based on a homeowner’s expectations for a hypothetical rental price of their home, and homeowners are much slower to adjust their expectations than the housing market is to react to supply and demand. The calculation of OER also smooths recent hikes by using the monthly average of the six-month change in expected prices. This helps explain why the OER only increased 2% y/y in April, close to the slowest annual growth since 2012. Meanwhile, inflation is real for those looking to buy a home, and several measures of the housing market show booming activity. If the tide starts to turn on owner’s equivalent rent, this could be a tailwind for inflation that is stickier than the transitory boosts from supply bottlenecks and could drive inflation expectations higher.
–JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
France opens vaccination to all adults. After a slow start, France’s COVID-19 vaccination program is gaining traction, and from May 31 vaccines will be available for all adults.
The anti-Netanyahu bloc runs low on time. On June 2, the so-called “Change Bloc” of parties opposed to Israeli Prime Minister Benjamin Netanyahu will run out of time to form a government.
A Turkey-Greece meeting in Athens. Turkish Foreign Minister Mevlut Cavusoglu will meet his counterpart, Nikos Dendias, on May 31 in the Greek capital, where the pair will try to lay the groundwork for a possible meeting between Greek Prime Minister Kyriakos Mitsotakis and Turkish President Recep Tayyip Erdogan.
The U.S. secretary of state visits Costa Rica. On June 1-2, U.S. Secretary of State Antony Blinken will visit Costa Rica in his first visit to Latin America to meet with senior officials from several Central American countries and Mexico.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
Jill Mislinski always has a great chart of the S & P 500 every week. The index is up 11.93% YTD and less .7% below all timne high.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q1 earnings are expected to increase 52.5% from 20Q1. Excluding the energy sector, the earnings growth estimate is 53.3%.
- Of the 489 companies in the S&P 500 that have reported earnings to date for 21Q1, 87.3% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 21Q1 revenue is expected to increase 13.5% from 20Q1. Excluding the energy sector, the growth estimate is 14.3%.
- During the week of May 31, seven S&P 500 companies are expected to report quarterly earnings.
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