Paper Economy - A US Real Estate Bubble Blog

Friday, September 30, 2011

University of Michigan Survey of Consumers September 2011 (Final)

Today's final release of the Reuters/University of Michigan Survey of Consumers for September indicated continued weakness in consumer sentiment with a reading of 59.4 falling 12.9% below the level seen last year while one year inflation expectations declined to 3.3%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 49.4, and the Current Economic Conditions Index climbed to 74.9.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining at levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.


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Thursday, September 29, 2011

Kansas City Fed Manufacturing Survey: September 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 remained at a near-contraction level of 6 since last month while the employee index improved slightly to 12 and the prices paid for raw materials increased to 30.

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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Pending Home Sales: August 2011

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for August showing home sales declined with the seasonally adjusted national index dropping 1.2% since July but increasing 7.7% above the level seen in August 2010.

Meanwhile, the NARs chief economist Lawrence Yun suggests that the weather played a part regionally while acknowledging that sales have been soft overall.

"The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August ... But broadly speaking, contract signing activity has been holding in a narrow range for many months."

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 29 2011

Today’s jobless claims report showed an notable decline to both initial and continued unemployment claims as a slight rising trend continued was called into question for initial claims.

Seasonally adjusted “initial” unemployment plunged 37,000 to 391,000 claims from last week’s revised 428,000 claims while seasonally adjusted “continued” claims declined by 20,000 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 3.58 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.30 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.88 million people on state and federal unemployment rolls.


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Bull Trip!: GDP Report Q2 2011 (Third Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their third "estimate" of the Q2 2011 GDP report showing that the economy continued to weakly expand with real GDP increasing at an annualized rate of just 1.3% from Q1 2011.

On a year-over-year basis real GDP increased 1.63% while the quarter-to-quarter non-annualized percent change was 0.33%.

The latest quarterly results revealed an notable 5.3% decline in durable goods from Q1 2011 while non-durable goods showed the slowest growth since 2009 and the overall personal consumption expenditures registered the weakest showing in six quarters at 0.7%.

Government spending declined notably with the non-defense spending declining 7.6% from Q1 2011 while state and local spending declining 2.8%.

Non-residential structures supposedly expanded at an annualized rate of 22.6% from Q1 though future revisions will likely revise down this value resulting in an even weaker (possibly sub-1%) growth for overall GDP in the second quarter.

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Wednesday, September 28, 2011

Lost Decade?

Yesterday’s On Point with Tom Ashbrook NPR radio show featured a segment titled “A Lost Decade?” whereby several apparent policy junkies presented their outlook for the possibility of a Japanese-style “lost decade” here in the U.S. as well as their opinions on past policy and what must be done to avoid further economic weakness.

While interesting listening, this was a pretty disappointing segment given that all the guests appeared to be in the Keynesian camp, completely unable to acknowledge that the efforts by the Federal Reserve and Federal Government have not only been futile but have actually been hampering any chance of a real sustained recovery.

The only glimmer of truth to the entire hour were the two callers who, taken together, made the point that the U.S. has been slogging through major structural economic changes for over a decade already and that the topic should really be titled “A Lost Score?”

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Reading Rates: MBA Application Survey – September 28 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 (from FHA and conforming GSE data) declined 3 basis points to 4.15% since last week while the purchase application volume increased 2.6% and the refinance application volume increased 11.20% over the same period.

With rates at or near generational lows (including the 10-year T-Bill) and the FOMC members becoming more dovish by the day, it will be interesting to see where rates will go once clear details of QE3, likely to be focused more on long term rates, are revealed.

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, September 27, 2011

S&P/Case-Shiller: July 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 July reported that the non-seasonally adjusted Composite-10 price index increased 0.88% since June while the Composite-20 index increased 0.91% over the same period with both measures continuing to decline notably since last year.

The latest CSI data clearly indicates that the price trends are experiencing a bit of a lift into the typically more active spring and early summer season but, as I recently pointed out, the more timely and less distorted Radar Logic RPX data is starting to capture falling prices driven primarily by seasonality.

The 10-city composite index declined 3.70% as compared to July 2010 while the 20-city composite declined 4.11% over the same period.

Topping the list of regional peak decliners was Las Vegas at -59.33%, Phoenix at -55.79%, Miami at -49.75%, Tampa at -45.56% and Detroit at -43.30%.

Additionally, both of the broad composite indices show significant peak declines slumping -30.96% for the 10-city national index and -30.87% 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 charts (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 as well as annual and monthly changes.




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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Monday, September 26, 2011

More Pain, Less Gain: S&P/Case-Shiller Preview for July 2011

As I demonstrated in prior posts, given their strong correlation, the home price indices provided daily by Radar Logic, averaged monthly, can effectively be used as a preview of the monthly S&P/Case-Shiller home price indices.

The current Radar Logic 25 MSA Composite data reported on residential real estate transactions (condos, multi and single family homes) that settled as late as July 25 and averaged for the month indicates that with the slowing summer transactions has come a flattening of prices (the typical trend) with the national index remaining unchanged since June but still remaining 4.66% below the level seen in July 2010.

The Radar Logic index will likely be capturing an decline in prices from now until early 2012 as transactions continue to trend down.

Look for tomorrow's S&P/Case-Shiller home price report to reflect this flattening trend though to a lesser degree due to its three month rolling-average nature with prices moderately higher.

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The Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey: September 2011

Today, the Federal Reserve Bank of Dallas released their latest read on manufacturing in their region indicating that manufacturing activity continued to slow with the current general business activity index declining to weaker contraction level of -14.4 while the future general business activity index weakened to -1.5.

These results are coming, more or less, inline with the other regional manufacturing survey all indicating that business activity has slowed sharply in 2011 and may possibly indicate recession is upon us.

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New Home Sales: August 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for August showing a monthly decline with sales falling 2.3% since July but increasing 6.1% from August 2010 and remaining at an epically low level of 295K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 162K units, lowest level seen in in at least 47 years while the median number of months for sale declined to 8.9.

The monthly supply remained flat at 6.6 months while the median selling price declined 7.72% and the average selling price declined 8.48% from the year ago level.

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

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The Chicago Fed National Activity Index: August 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated notable weakness of national economic trends for August with the index remaining in contraction territory at -0.43 while the three month moving average declined slightly to -0.28.

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.

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Friday, September 23, 2011

Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index July 2011

The latest release of the Moody’s/REAL Commercial Property Index showed a notable monthly gain of 5% in July while the nation’s commercial property markets continue to slump through a tremendous downturn that has seen prices down some 42.7% since the peak set in October 2007.

The Moody’s/REAL CPPI data series is produced by the MIT/CRE but is noted to be “complimentary” to their alternative transaction based index (TBI) as it is published monthly and is formulated from a completely different dataset supplied by Real Capital Analytics, Inc and Real Estate Analytics LLC.

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Double-Digit Double-Jeopardy: Double Digit State Unemployment August 2011

The latest Regional and State Employment and Unemployment report showed that in August 10 states were experiencing double digit unemployment with a median unemployment rate of 10.9% while the median unemployment rate for all 50 states and the District of Columbia stood at 8.3%.

Nevada showed the highest unemployment rate at 13.4% followed by California at 12.1 and Michgaan at 11.2%.

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The New “Household” Misery Index: July 2011

Today's release of the Household Misery Index showed that the level of misery declined in July dropping 0.06% from June 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 0.35%.

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, September 22, 2011

FHFA Monthly Home Prices: July 2011

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices increased 0.80% since June but declined 3.53% below the level seen in July 2010.

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 22 2011

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

Seasonally adjusted “initial” unemployment declined 9,000 to 423,000 claims from last week’s revised 432,000 claims while seasonally adjusted “continued” claims declined by 28,000 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 3.50 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.29 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.79 million people on state and federal unemployment rolls.


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Wednesday, September 21, 2011

Existing Home Sales Report: August 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for August showing a notable rise in sales with total home sales jumping 7.7% since July and 18.6% above the level seen in August 2010.

Single family home sales climbed a notable 8.5% from July and rose 20.2% above the level seen in August 2010 while the median selling price declined 5.4% below the level seen in August 2010.

Inventory of single family homes went flat from July dropping 11.8% below the level seen in August 2010 which, combined with the relatively slow pace of sales, resulted in an still elevated monthly supply of 8.3 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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Reading Rates: MBA Application Survey – September 21 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 (from FHA and conforming GSE data) went flat at 4.18% since last week while the purchase application volume declined 4.7% and the refinance application volume increased 2.2% over the same period.

With rates at or near generational lows (including the 10-year T-Bill) and the FOMC members becoming more dovish by the day, it will be interesting to see where rates will go once clear details of QE3, purported to be focused more on long term rates, are revealed.

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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