Paper Economy - A US Real Estate Bubble Blog

Saturday, October 31, 2009

"Recovery" Jobs Cost Taxpayers Over $80,000 Each!

The math is trivial... Recovery.gov states that the American Recovery and Reinvestment Act has already "created or saved" 640,329 jobs as a direct result of $52.1 billion of funds (a.k.a. your tax dollars) payed out in "contracts, grants and loans".

So... $52.1 billion divided by 640,329 = $81,364 per each job "saved or created".

Here is a nice image widget that you can embed in your favorite web page in order to keep track of the governments costly shenanigans ... Ill updated it as the stats at recovery.gov are updated.

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Friday, October 30, 2009

Ticking Prime Bomb!: Fannie Mae Monthly Summary September 2009

Decades from now the summer of 2008 will likely be remembered to mark the turning point where legislative blundering took an otherwise serious financial crisis and molested it into an epic financial collapse.

By fully assuming the liabilities of Fannie Mae and Freddie Mac, the two colossal and corrupt (and conduit of corruptness funneling junk Countrywide Financial loans onto the implied balance sheet of the federal government) government sponsored enterprises, the federal government, led by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, has thrust taxpayers into an abyss of insolvency with one mighty shove.

Given the sheer size of these government sponsored companies, with loan guarantee obligations recently estimated by Federal Reserve Bank of St. Louis President William Poole of totaling $4.47 Trillion (That’s TRILLION with a capital T… for perspective ALL U.S. government debt held by the public totals roughly $4.87 Trillion) this legislative reversal making certain the “implied” government guarantee is reckless to say the least.

The following chart (click for larger ultra-dynamic and surf-able chart) shows what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers.

Finally, the following chart (click for larger ultra-dynamic and surf-able chart) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

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Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 43% in a little over 160 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… even far stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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The Rundown - “Plan B, Propaganda, Congressional Lowlifes, Another Glassman Prediction, Shrinking Road Crews and Arson In Nevada”

Do you have a plan B? A MUST WATCH… last night’s Frontline. Aw Shucks… poor bastards on the upper-east side.

The White House says it has already “saved or created” 650K jobs... only problem… since just this January, 3.386 million jobs have actually been lost and the losses are continuing… Jared Bernstein says the figure is closer to a million jobs “saved or created” and adds “It's a great example of the unprecedented transparency, where the American taxpayer can point and click and see their taxes creating jobs … you have to understand the nature of Keynesian stimulus”… I say it’s a new low for government falsehoods and propaganda and so does the AP.

If they can’t manage their own finances why should they be influencing yours?

J.P Morgan Analyst James Glassman thinks unemployment could trend down this winter… He also predicted back in 2000 that the DOW would reach 36,000 and wanted to help you profit from it.

It seems to me that the size of crews repairing roadways is getting substantially smaller … just a few guys and some serious machinery… definitely not long lines of guys with shovels as in the 1930s depression era… When we think about infrastructure stimulus it’s easy to imagine lots of potential employment... Is this misguided?

Is it any surprise that a people in Nevada are encouraging children to play with matches?

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Thursday, October 29, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 47% in a little over 150 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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The Rundown – “Romer, Shiller, Mobile, Caskets, Food Stamps and Booze”

Romer puts up a front on today’s GDP says ”it’s a wonderful sign… this is the turn around.” CNBC reports there “are no red flags” in the data… how about the fastest rate of residential investment since 1998?! Faster than every quarter of the housing boom? Keep dreaming.

The latest on the proposed extension of the “home buyers” tax gimmick would have move-up home borrowers bribed by up to $6500 and first-time home borrowers bribed by $8000 as well as increasing the income limits to $125K for individuals and $250K for couples. This sham policy while giving Robert Shiller a “funny feeling” also is a great way to get you audited should you receive its benefits… it’s also a great way to perpetuate widespread fraud and support ridiculously high housing costs.

Traders, speculators and other “investors” appear to be spending more time determining how to game government stimulus than make worthy investments… the news is littered with advice on arbitraging big government policies… healthcare, swine flu, green technology, housing and consumption… is this how you build a recovery?

The iPhone, Android and other Mobile devices/technologies are really cool… but widespread adoption of data mobile devices won’t spur economic growth anywhere close to the extent that the initial thrust of the internet-era did… its nifty incremental improvement but not revolutionary technological change.... what is the "next big thing"?... space elevator anyone?

Walmart is “beta testing” a new product… caskets. While both Walmart and Costco now accept food stamps… oops… I mean “Supplemental Nutrition Assistance Benefits”… and Wallgreens and Family Dollar now sell booze... are these all related?

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Bull Trip?!: GDP Report Q3 2009 (Advance)

Today, the Bureau of Economic Analysis (BEA) released their first installment of the Q3 2009 GDP report showing that the economy expanded Q3 with GDP increasing at an annual rate of 3.5% from Q2.

Although these results will likely boost confidence among Wall Street speculators and gamblers and provide solid evidence to the feds that all their “hard work” has paid off, a closer inspection of the data reveals some seriously questionable statistics.

First, residential fixed investment (i.e. investment in residential properties) increased at an annual rate of 23.4% from Q2, a faster rate of growth than in any quarter since Q1 1998… i.e. faster rate of residential real estate investment than any quarter in any of the roughly 10 years of housing boom.

Non-residential fixed investment decreased at an annual rate of only 2.5% in the same quarter that saw commercial real estate prices decline at their fastest annual rate in at least 20 years while vacancies increased and rents declined.

Durable goods increased at an annual rate of 22.3% nearly all the result of the government’s one time sham “Cash for Clunkers” program.

Finally, Real personal consumption increased at an annual rate of 3.4% on “Cash for Clunkers” while real personal income declined $15.5 billion and real personal current taxes increased $4.8 billion resulting in a 3.4% decline to real disposable personal income… so real incomes declined 3.4% yet real consumption increased 3.4%.

Without the clunker stimulus, the supposed pop in fixed residential investment and the strength in fixed non-residential investment today’s number GDP result would have been flat at best.

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Mid-Cycle Meltdown!: Jobless Claims October 29 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims decreased 1,000 to 530,000 claims from last week’s unrevised 531,000 claims while “continued” claims decreased 148,000 resulting in an “insured” unemployment rate of 4.4%.

As with the last few weeks, today’s results indicate that initial claims are continuing to stay elevated while continued claims is presenting a slow descent.

It's important to consider that with net non-farm payrolls (as well as likely job hires and job openings) still firmly in decline, declines to the continued claims series are could largely the result of many recipients simply reaching the end of their benefit period.

Are we on the verge of a new upturn in joblessness or just in a slow trend down from last year’s epic shakeout?

If firms go for another substantial round of layoffs and job cuts during the fall to early winter (…the typical period of increasing job cutting activity regardless of economic conditions) we could see an unemployment super-spike form whereby two years of significant job cutting activity merge into one large period of unemployment.

Of course there are many ways that the job picture could trend but if firms underestimated their cutting last year and need to cut even deeper this year, it would clearly differentiate this period from most of the past post-WWII recessionary periods.

Clearly, careful attention needs to be paid to these indices to see how they reflect the state of the job market as we move further into the second half of the year.

***

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

As you can see, acceleration to claims generally precedes recessions and vice versa.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke did on several occasions) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth had been very weak, not succeeding to reach trend growth as had been minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and resulted, instead, in a mid-cycle meltdown.

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Wednesday, October 28, 2009

Crashachusetts Existing Home Sales and Prices: September 2009

This week, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for September showing that single family homes sales jumped 4.6% on a year-over-year basis while condo sales surged 12.2% over the same period.

Single family median home value declined 1.7% on a year-over-year basis to $290,000 while condo median prices increased 1.7% to $259,450.

Though these results will likely be touted by MAR and the Boston Globe (… both with significant interest in promoting “good news” for housing) as an indication that the housing market has rebounded, it’s important to note that without the propping of the governments “homebuyer” tax gimmick these results would be significantly weaker.

Sales reached their peak in July (as is typical) and have been down consecutively ever since, suggesting that the tax handout pulled purchases forward into the summer leaving the fall and winter with potentially less demand… October’s results will be interesting indeed.

In any event, I have updated the sales chart to capture a rough picture of what the sales trend might have looked like without all the housing welfare.

In the chart below (the top chart), the blue line indicates the actual results while the green removes 5% of sales from since May, the purple removes 10%, the light blue removes 15% and finally the orange remove 20%.

Notice that IF the feds housing bribes added 5% more sales, removing them would result in a year that would have peaked out at about the same level as last year, subtracting 10% to 15% would have seen the consistent downward trend firmly continuing while removing 20% (a bit aggressive even for my standards) would have seen a significant new leg down.

Now that it appears almost certain that the feds will step up their support of unaffordable housing by broadening the hosing tax gimmick to cover move-up buyers with higher income requirements, it will be interesting to see the effects on our housing market.

This sham government stimulation is poorly targeted and absurdly expensive but is it possible that it may soon become ineffective?.. only time will tell.

Of course, you know where the Massachusetts Association of Realtor president Gary Rogers stands on government handouts and trickery:

“We really feel that the past three months of positive home sales are a result of the $8,000 tax credit and its impending expiration date,… Despite this bump, we are concerned that it will take longer and be more difficult for the market to stabilize without extending the Federal tax credit for homebuyers past the December 1 deadline.”


As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current home price movement.

Key Statistics from the Report:

Single Family results compared to September 2008

  • Sales: increased 4.6%
  • Median Selling Price: declined 1.7%
  • Inventory: declined 12%
  • Current Months Supply: 7.1
  • Current Days on Market: 124
Condo results compared to September 2008

  • Sales: increased 12.2%
  • Median Selling Price: increased 1.7%
  • Inventory: declined 16%
  • Current Months supply: 6.7
  • Current Days on Market: 136

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Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 44% in a little over 150 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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New Home Sales: September 2009

Subtitle: Bye Bye Bounce…

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for September showing both significant revisions to prior months results as well as a whopping 3.6% month-to-month decline in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace down to 402,000 units or 7.8% below the level seen in September 2008 and remaining 71.06% below the peak level 2005

Ah... yes… These must be awfully disappointing numbers for many.

…The Feds, Wall Street, speculators, all the unwitting suckers that locked in “housing bottom” home purchases using government handouts and bribes.

Well, the system may be a shell of its former self, twisted and tortured by the feds, industry groups and speculators, but it’s not about to be gamed by such tomfoolery.

As I had pointed out earlier in the year, the new home sales numbers are highly revised and have given a multitude of false “recovery” starts in recent years... though this season’s bump up has been far more notable, the result of the tremendously costly government tax giveaway.

We saw an increase an activity but not in “organic” activity… How would new home sales have trended without the government propping?

So, the “real” bottom is not in and, as I have noted in the prior posts, given that the level of completions remains near peak levels of past boom periods and that there is still currently 7.5 months of supply, it is very likely that we will be headed back for a new low come mid-winter.

In any event, it looks like buying activity has been slower than was past reported and is continuing to slow as we move through the fall and I say good riddance!

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)


It’s important to note that although the new home sales data appears to have prompted the traditional media to make many “bottom calls” recently, the evidence for their conclusions were scant.

First, most “bottom callers” have focused too closely on just the new home sales series and its historic bottoms rather than other important indicators that disclose a more complete state of the new home market.

As I have argued recently, the level of inventory and supply and level of completed new homes are still too high for a real sustained bottom for the new home market.

The following chart (click for larger) plots the new home sales (SAAR) series along with the current inventory level (NA) and the level of homes completed (NA) since 1973.

As you can see, although the new home sales series has breached the lowest level in over 30 years, the level of inventory (homes for sale at end of period) still remains slightly higher than past historic bottoms and the level of homes completed remains much higher.

In fact, the level of completed new homes remains near PEAK levels for past housing boom periods… a truly bad sign for pricing going forward.

Look at the following summary of today’s report:

National

  • The median sales price for a new home declined 9.06% as compared to September 2008.
  • New home sales were down 7.8% as compared to September 2008.
  • The inventory of new homes for sale declined 36.5% as compared to September 2008.
  • The number of months’ supply of the new homes has decreased 31.2% as compared to September 2008 and now stands at 7.5 months.
Regional

  • In the Northeast, new home sales increased 68.0% as compared to September 2008.
  • In the Midwest, new home sales increased 12.7% as compared to September 2008.
  • In the South, new home sales declined 23.6% as compared to September 2008.
  • In the West, new home sales declined 1.0% as compared to September 2008.

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Reading Rates: MBA Application Survey – October 28 2009

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 3 basis points since last week to 5.04% while the purchase application volume decreased 5.2% and the refinance application volume declined 16.2% compared to last week’s results.

It’s important to recognize that while the Federal Reserve’s “quantitative easing” measures have worked to push down fixed rates and resulting in two separate booms of refinance activity earlier in the year and what appears to be a third one shaping up now, purchase activity still appears to have been only lightly effected.

Even with historically low lending rates both refinance and purchase application volume appears lackluster and possibly even still in an overall declining trend.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).



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Tuesday, October 27, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 47% in a little over 150 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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S&P/Case-Shiller: August 2009

Today’s release of the S&P/Case-Shiller (CSI) home price indices for August 2009 showed a continued, yet notably weaker, bounce in prices with the Composite-10 index increasing 1.28% on a month-to-month basis.

While many of the nation’s housing markets experienced extra-seasonal activity as the result of the “first time homebuyers” tax gimmick, its effects, along with the typical seasonal bounce, are beginning to wane.

It’s important to remember that the CSI data is lagged by two months and that today’s results represent an average of prices paid from home sales closed between June-August.

Now that the strongest selling months have largely been reported, look for all remaining CSI releases for 2009 to indicate notable price weakness coming from typical seasonal declines as well as extra-seasonal declines as a result of notably reduced demand from activity that was “stimulated” forward into the summer by the tax sham.

Also, looking at the 1990s-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Further, is important to remember that the 90s housing recovery played out against the backdrop of a truly unique period of growth in the wider economy fueled primarily by novel and ubiquitous technological change (cell phones, internet, personal computers, telecommunications, etc).

The 10-city composite index declined 10.63% as compared to August 2008 while the 20-city composite declined 11.32% over the same period.

Topping the list of regional peak decliners was Las Vegas at -54.95%, Phoenix at -52.33%, Miami at -46.98%, Detroit at -43.65% and Tampa at -39.76%.

Additionally, both of the broad composite indices showed significant declines slumping -30.21% for the 10-city national index and -29.30% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com and search for “case shiller”.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.


In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

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