Sell in May and Go Away?

There’s a stock market bromide that goes “Sell in May and go away.” The gist of the bromide is to sell your stock holdings in May and then repurchase them in November. The strategy, so we’re told, enables you to avoid the months where stocks have historically suffered their most punishing losses.

For us, it’s the opposite – sell in May and keep selling to November. (Actually, keep selling through April, but why quibble?).  Home sales generally trend higher starting in May and peak in either September or October.

The good news is that we’ve got a jump on the prime selling season. Existing home sales were up strongly in March and the momentum is expected to hold in April.

As for new homes, sales growth has been respectable, but not spectacular, this year. Home builder optimism, in turn, has plateaued in recent months. The Wells Fargo/NAHB Sentiment Index posted at 58 for May. This is the fourth-consecutive month the index has posted at 58. This isn’t bad, but builders aren’t quite as optimistic as they were six months ago.  Buyer traffic remains an issue; builders don’t see enough of it. The dearth of first-time buyers remains a drag on overall traffic growth.

Despite sentiment plateauing, home builders are still willing to move ahead. Housing starts and permits trended higher in April. Starts rose 6.6% to 1.172 million units on an annualized rate. Permits rose 3.6% to 1.116 million units. Year over year, though, starts and permits are both down, with starts falling 1.7% and permits falling 7.2%.  Keep in mind that starts have historically averaged 1.5 million units annually.

But there is a mitigating factor: Most of the weakness is in the multi-family segment, which have been on a tear over the past five years.  Single-family units continue to trend higher.  Year over year, single-family starts are up 3.3%; permits are up 8.4%. 

We have to concede that we are somewhat nervous as we head into summer.  Gross domestic product growth (GDP) has ground to a halt. To be sure, GDP is by far an incomplete measure of how the economy is doing, but it does capture headlines and it does influence behavior. We’d like to see a little more growth.  The latest reading on GDP doesn’t even show the economy growing 1% annually.

Job growth – particularly in the private sector – is the greater concern, though. Last month, new jobs posted well under 200,000. A couple more months of sub-200,000 job growth and we might have to ratchet down our expectations for home sales and purchase mortgage lending.

Information provided by Jessica Regan.

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