The Housing Inflation Persists

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Crude Hijacking

The energy stocks I recommend have been especially strong in the past few weeks.  They have been aided by the tension in the Middle East as Iran continues to hijack ships.  As a result, the U.S. Navy dispatched two amphibious warships and thousands of Marines to the Middle East to counter Iranian threats. 

China imported 11.4 million barrels per day of crude oil in the first six months this year, which is 11.7% higher than a year ago.  Interestingly, 2.13 million barrels per day of crude oil came from Russia and China has boosted its stockpile of crude oil to take advantage of cheaper Russian crude oil. 

So overall, due to China stockpiling crude oil and the tension in key crude oil shipping lanes, like the Straight of Hormuz and the Gulf of Oman, crude oil prices continue to meander steadily higher.

Persistent Housing Inflation

Housing inflation persists. The National Association of Realtors on Thursday announced that existing home sales declined 3.3% in June to an annual pace of 4.16 million.  In the past 12 months, existing home sales have declined 18.9%, which is the slowest pace in 14 years (since 2009).  There were 1.08 million homes for sale in June, which is 13.6% less than in June 2022.

There is only a 3.1-month supply at the current sales pace and the tight inventory of homes for sale is increasingly being blamed for lackluster sales. The median home price in June was $410,200, which is the second highest ever recorded, so affordability also remains an issue.  As an example, first-time home buyers fell to just 26% of all existing home sales in June, which is the lowest proportion ever recorded.

Unaffordable Homes

The Commerce Department on Wednesday announced that single-family home starts declined 7% in June to 935,000 after surging 18.7% to a revised annual pace of 1.005 million (up from 997,000 previously reported).  May was the highest level for single-family home starts since June 2022. 

Also notable is that building permits for single-family homes rose 2.2% in June to an annual pace of 922,00. The Wall Street Journal reported that many folks do not want to sell their single-family home due to low mortgage rates in the past few years, so effectively home builders are being forced to build more new homes since the inventory of existing homes for sale remain abnormally low.

Consumers remain fickle, but retail sales have risen for three straight months, so the U.S. economy continues to steadily grow. The service economy is carrying the U.S. economy at the present time since the manufacturing sector is now at its lowest level in the past three years after contracting for eight consecutive months. The Atlanta Fed continues to estimate second-quarter GDP at a 2.4% annual pace due largely to consumer spending.

Deflationary Forces Keeping Commodities In Check

Normally, a weak U.S. dollar fuels commodity inflation, but deflationary forces are still keeping some commodities in check. Citigroup, JP Morgan Chase, and Morgan Stanley all cut their China growth forecasts this week.

Officially, China has a 5% GDP growth target, but how it can possibly make that target when its exports and imports are declining is questionable.  The Wall Street Journal reported that China’s economy only grew 0.8% (a 2.2% annual pace) in the second quarter and that more than 20% of Chinese between 16 to 24 years old are out of work. 

Complicating matters further, Germany and the U.S. are systematically uncoupling for China, since it is no longer viewed as a reliable trading partner. If China gets its “mojo” back, I expect commodity prices to firm up, but right now deflationary forces persist as China’s exports and imports struggle.

Interestingly, one of the reasons that wholesale goods costs declined 4.4% in the past year according to the June Producer Price Index (PPI), is that consumers are no longer buying as many goods, so imports from China, Japan, South Korea and Vietnam are all declining as The Wall Street Journal recently reported. 

Specifically, China’s exports plunged 12.4% in June, while imports declined 6.8%. This is the biggest decline in exports in three years since after the start of the pandemic. China’s exports to the U.S. declined 24% in June, while its exports to the EU dropped 13%. 

Germany has followed the U.S. and is now openly encouraging businesses to look for alternatives to importing from China due to an increase in hostility. Interestingly, China just passed Japan in vehicle exports as Chinese EV exports soar to Europe and other markets.

Coffee Beans: Car Oven

National Weather Service personnel in Texas put the record heat wave to good use by baking a batch of cookies on the dashboard of a hot car. The cookies were left to cook for about 4 1/2 hours and came out not quite “golden brown” but fully cooked. Source: UPI. See the full story here.