Paper Economy - A US Real Estate Bubble Blog

Tuesday, May 31, 2011

S&P/Case-Shiller: March 2011

Note... be sure to bookmark the overall S&P/Case-Shiller Dashboard or the Scary Housing Dashboard of the weakest markets for a real-time view of all the markets tracked by S&P.

Today’s release of the S&P/Case-Shiller (CSI) home price indices for March reported that the non-seasonally adjusted Composite-10 price index declined 0.62% since February while the Composite-20 index declined 0.77% over the same period falling to the lowest level seen since the Great Housing Collapse commenced in 2006 further indicating that housing is continuing slump into a double-dip.

The latest CSI data clearly indicates that the price trends are continuing to slump and, as I recently pointed out, the more timely and less distorted Radar Logic RPX data is continuing to capture notable price weakness nationwide.

Further, both composite indices are now showing notable year-over-year declines, a weak sign indeed.

The 10-city composite index declined 2.91% as compared to March 2010 while the 20-city composite declined 3.61% over the same period.

Topping the list of regional peak decliners was Las Vegas at -58.61%, Phoenix at -55.91%, Miami at -51.12%, Detroit at -47.21% and Tampa at -46.63%.

Additionally, both of the broad composite indices show significant peak declines slumping -32.98% for the 10-city national index and -33.10% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com to view the full release.

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 and normalized 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 side-by-side (click for larger version).


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.


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Friday, May 27, 2011

Pending Home Sales: April 2011

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for April showing home sales declined dramatically with the seasonally adjusted national index slumping a whopping 11.6% since March and falling an exceptional 26.5% below the level seen in April 2010, the largest year-over-year decline seen in the wake of the housing collapse.

Meanwhile, the NARs chief economist Lawrence Yun sounds a more somber tone while, more or less, recounting a reality that can no longer be whitewashed or avoided... housing has double dipped.

"The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months, ... The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims."

The following chart shows the seasonally adjusted national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).


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Thursday, May 26, 2011

Kansas City Fed Manufacturing Survey: May 2011

The Federal Reserve Bank of Kansas City, like other district FRBs (New York, Philadelphia, Richmond and Dallas), tracks its region’s manufacturing activity by surveying a number of important indicators such as general activity, production, shipments, orders, employment and prices for raw materials and finished products.

The latest results are indicating that the manufacturing expansion slowed significantly falling to a near contraction level of 1 from a level of 14 a month earlier while the employee index declined to 9 and the prices paid for raw materials declined to 54.

The most notable declines leading the weakness were seen in the volume and backlog of orders and volume of shipments and the production index.

It's important to note that these declines are largely consistent with similar trends seen in other regional manufacturing surveys including the Philly Fed Business Outlook Survey and the Richmond Feds Survey of Manufacturing.

The following chart plots the seasonally adjusted Composite index since 2001 with the solid red line indicating the threshold between expansion and contraction.

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Bull Trip!: GDP Report Q1 2011 (Second Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q1 2011 GDP report showing that the economy continued to expand with real GDP increasing at an annualized rate of 1.8% from Q4 2010.

On a year-over-year basis real GDP increased 2.31% while the quarter-to-quarter non-annualized percent change was 0.46%.

The latest report reveals an notable decline in non-residential fixed investment with non-residential structures declining at a rate of 16.8% from the fourth quarter 2010 while residential fixed investment also declined falling at a rate of 3.3% over the same period.

Note that the BEA has yet to take down their estimates for Q2 residential fixed investment which still sits at the lofty level of a supposed 25.7% quarter-to-quarter change... not likely.... look for that figure to be revised down in coming releases impacting the anemic "final" Q2 2010 results.

Government spending declined notably with the national defense component declining at a rate of 11.7% from the fourth quarter 2010 while in total government expenditures shaved 1.07% from overall GDP.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims May 26 2011

Today’s jobless claims report showed an increase to initial unemployment claims and a decline to continued unemployment claims as a rising trend continued to materialize for initial claims.

Seasonally adjusted “initial” unemployment increased by 10,000 to 424,000 claims from last week’s revised 414,000 claims while seasonally adjusted “continued” claims declined by 46,000 resulting in an “insured” unemployment rate of 2.9%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 4.04 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.58 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.63 million people on state and federal unemployment rolls.


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Wednesday, May 25, 2011

Hey Big Spender: Discretionary Durable Goods Orders April 2011

Today’s Durable Goods Manufacturers’ Shipments, Inventories and Orders report indicated that total new orders for manufactured durable goods declined 3.6% from March to $189.9 billion while excluding transportation, new orders declined 1.5% to $143,175 billion.

Stripping durable goods orders of defense orders AND non-defense aircraft orders yields an effective measure of orders coming as a direct result of typical discretionary consumer durable goods spending on items such as motor vehicles, furniture, consumer electronic devices and home appliances.

Looking at the latest data for March (less timely data), "discretionary" durable goods orders increased notably jumping 3.72% since February climbing 10.91% above the level seen in March 2010.

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FHFA Monthly Home Prices: March 2011

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices declined 0.26% since February dropping 5.85% below the level seen in March 2010.

Clearly, we are well into the second leg double-dip of this housing collapse as home sales and homebuying sentiment continue to deteriorate with prices closely following behind.

The FHFA monthly HPI are formulated from home purchase information collected from mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.

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Reading Rates: MBA Application Survey – May 25 2011

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 as well as the volume of 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 increased 9 basis points to 4.69% since last week while the purchase application volume increased 1.5% and the refinance application volume increased 0.9% over the same period.

Rates now appear to be trending down having, more of less, declined continually for the last four months.

Given that we are nearing the end of the Feds QE2 intervention, it will be interesting to see how long rates trend in the next few months.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




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Tuesday, May 24, 2011

Prime Time: Hudson City Bancorp Non-Performance Q1 2011

Hudson City Bancorp (NYSE:HCBK) has become an icon of traditionally run, prime-only, safe and sound regional banks.

Some time ago I took exception with the PR that Hudson City was spinning as it’s CEO, Ronald Hermance, appeared on a multitude of business and non-business media (Mad Money, CNBC, Bloomberg, Barron’s… even NPR) speaking of the merits of his banks “old fashioned” sound traditional lending practices which included never making subprime loans or other toxic affordability products.

Of course, Hermance downplayed his banks non-performing loan ratio which as of Q1 2011 stands at a not-so-respectful 2.92% of total loans with $886.5 million in delinquent loans, preferring instead to project the picture of a safe bank with only high quality loans and growing deposits.

While Hermance was making the rounds of media outlets and dropping talking points his banks big mortgages were going bad at a progressively higher rates.

The "investor" community must have been shocked when in late November of 2008, Hermance disposed of 2,173,847 shares at a $16.48... very near the peak price ever seen for the stock.

How could Hermance sell so many of his shares, especially in light of the sound practices and dramatic upside potential?... As Cramer put it, this story was "as Good as Gold"!

Well... in retrospect Hermance was smart to dump out of this train wreck as the bank's stock has been, more or less, in the dumper ever since.

Today, it seems clear that the housing decline did not skip Hudson City Bancorp and although it is true that they did not participate in subprime lending, the bank originated jumbo loans in a market (primarily the New York, New Jersey metro area) that was as overheated as any during the housing boom.

Big prime loans, even with low loan to values go bust in down economies and our current housing driven bust with significant declines to home prices makes matters worse.

I’ve been arguing for the better part of three years that although the traditional media and apparently general consensus has focused on subprime and other “toxic” mortgage products as the source for the credit tumult, the historic deterioration would by no means be limited to these “bleeding edge” products.

Before this massive housing collapse is complete, I expect to see new records set for prime defaults, be they prime-Jumbo ARM loans, prime-Jumbo fixed rate loans, prime-conforming ARM loans or prime-conforming fixed rate loans… we will see historic defaults across the entire spectrum of mortgage products.


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The Richmond Fed Survey of Manufacturing Activity: May 2011

Today, the Federal Reserve Bank of Richmond released their Survey of Manufacturing Activity showing that the composite index, the broadest measure of manufacturing activity, fell 16 points to a weak level of -6.

The most notable component measures also showed similar poor results with the new orders dropping 25 points to -15, shipments declined 19 points to -13 and backlog of orders declined 20 points to -19.

The following chart plots the composite index with the red line marking a level of 0, or the threshold between increasing and declining activity.

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New Home Sales: April 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for April showing a monthly increase with sales climbing 7.31% since March but still declining 23.10% below the level seen a year earlier to a historically low 323K SAAR units.

These results, while again strengthening a bit off of February's horrendous level still clearly indicates that the nation's housing markets are firmly entrenched in a double-dip and come fully in-line with the other pitiful housing data-points I have outlined in past weeks.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 175K units, lowest level seen in in at least 47 years while the median number of months for sale remained elevated increasing to 8.8.

The monthly supply declined to 6.5 months while the median selling price increased a notable 4.61% and the average selling price declined 0.59%.

The following chart show the extent of sales decline to date (click for full-larger version).

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Monday, May 23, 2011

The Chicago Fed National Activity Index: April 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity slowed notably in April with the index falling into contraction territory of -0.45 while the three month moving declined to -0.12.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

It’s important to note that at -0.12, the current three month average index value is indicating that contraction may be in the offing.

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Friday, May 20, 2011

Massive Unemployment: Mass Layoffs April 2011

The latest release of the Bureau of Labor Statistics (BLS) Mass Layoff Report indicated a notable jump in large-scale layoffs with 1564 mass layoff events for April resulting in 143,927 initial unemployment claimants on a seasonally adjusted basis.

The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.


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The New “Household” Misery Index: March 2011

Today's release of the Household Misery Index showed that the level of misery declined in March dropping 0.05% but still remained near the peak for this cycle and nearly the highest level seen in 30 years while on a year-over-year basis, misery declined for the fourth consecutive month dropping 0.18% since March 2010.

Back in the 1970s and 80s the “Misery Index” was popularized as a measure that accurately captured the misery and malaise of the time.

The original Misery Index was a bit too simplistic as it only captured the severity of the two main vexing issues of the time, unemployment and inflation.

Today, inflation, as measured by the annual rate of change of the CPI-U, is not a significant source of financial misery.

Of course, households on fixed income may dispute that fact and many have argued that CPI itself does not accurately capture “real” inflation as it has never accounted for the ridiculous increasing costs of housing and other essentials so for the sake of formulating a new misery index, inflation will factored out.

Another key to formulating a new misery index is to specifically target “household” misery as opposed to including data that might target the miserable state of affairs of the federal government or corporate misery.

The Household Misery Index captures the following trends and weights them equally:

1. The U-3 unemployment rate
2. YOY percent change of the 10-Year moving average of total nonfarm payrolls
3. YOY percent change of the 10-Year moving average of “real” personal income
4. YOY percent change of the 10-year moving average of “real” S&P 500

The unemployment rate captures the misery associated to the threat and severity of a potential bout of unemployment while the annual change of the 10 year moving average of non-farm payrolls captures a more fundamental sense of the overall job market.

The annual change to the 10 year moving average of “real” (adjusted with CPI-U) personal income captures a household’s long term sense of income prospects.

The annual change to the 10 year moving average of “real” (adjusted with CPI-U) S&P 500 captures a household’s long term sense of typical investment prospects.

Unfortunately, all home price series are simply not long enough to include in the formulation but there may be alternative measures that can be included in the future.

This is a notable improvement for misery and if the past is to be taken to be even just a crude guide, the level of household misery should continue to steadily improve in the coming months.

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Thursday, May 19, 2011

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey May 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for May indicated a notable pullback in the regions manufacturing activity with the current activity index plunging to a level of 3.9 while the future activity index also declined to a level of 16.6.

Both indices are still indicating expansion though the size of the latest pullback clearly demands that closer attention be paid to these series in future releases.

The following chart shows the current and future activity indexes both with their corresponding 3-month moving averages. The red line marks the threshold between contraction and expansion for these diffusion indexes.

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Existing Home Sales Report: April 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for April showing a trifecta of housing malaise, notable declines to both sales and prices as well as climbing inventory.

Single family home sales declined 0.5% from March falling 12.6% below the level seen last year while the median selling price declined a notable 5.4% below the level seen in April 2010.

Further, inventory of single family homes remains high climbing 11.4% from March but declining 2.6% below the level seen in April 2010 which, combined with the relatively slow pace of sales, resulted in a jump in the monthly supply to 9.0 months.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.



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Extended Unemployment: Initial, Continued and Extended Unemployment Claims May 19 2011

Today’s jobless claims report showed a notable declines to both initial and continued unemployment claims as a rising trend continued to materialize for initial claims.

Seasonally adjusted “initial” unemployment declined by 29,000 to 409,000 claims from last week’s revised 438,000 claims while seasonally adjusted “continued” claims declined by 81,000 resulting in an “insured” unemployment rate of 3.0%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 4.10 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.73 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.84 million people on state and federal unemployment rolls.


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Wednesday, May 18, 2011

Reading Rates: MBA Application Survey – May 18 2011

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 as well as the volume of 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 declined 7 basis points to 4.60% since last week while the purchase application volume declined 3.2% and the refinance application volume jumped 13.2% over the same period.

Rates now appear to be materially trending down having, more of less, declined continually for the last four months.

Given that we are nearing the end of the Feds QE2 intervention, it will be interesting to see how long rates trend in the next few months.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




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