Paper Economy - A US Real Estate Bubble Blog

Monday, October 31, 2011

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

Today, the Federal Reserve Bank of Dallas released their latest read on manufacturing in their region indicating that manufacturing activity continued to indicate weakness with the current general business activity index improving to a weak expansion level of 2.3 while the future general business activity index rising to 14.70.

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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Friday, October 28, 2011

ECRI Weekly Leading Index: October 21 2011

The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index improved slightly since last week resulting in the all important annualized “growth” component showing a value of -10.00 and continuing firmly suggest recession call on the part of the ECRI’s economics staff .

The chart above shows the ECRI’s Weekly Leading Index growth component since 2001.

Notice that this index has turned notably negative which, along with an erosion in many other key macro-economic series, appears to be signaling recession is nigh.

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University of Michigan Survey of Consumers October 2011 (Final)

Today's final release of the Reuters/University of Michigan Survey of Consumers for October indicated improvement in consumer sentiment with a reading of 60.9 but falling 10.4% below the level seen last year while one year inflation expectations declined to 3.2%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 51.8, and the Current Economic Conditions Index climbed to 75.1.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near 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, October 27, 2011

Kansas City Fed Manufacturing Survey: October 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 8 since last month while the employee index remained flat at 12 and the prices paid for raw materials declined to 24.

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: September 2011

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for September showing that home sales declined with the seasonally adjusted national index dropping a notable 4.6% since August but increasing 6.4% above the level seen in September 2010.

Meanwhile, the NARs chief economist Lawrence Yun suggests that home buyers were sidelined by weak confidence in the economy and confusing policy coming out of the Fed while the most likely explanation for the latest round of weak results is that buyers simply see that prices are headed lower.... Who in this economy would leverage up significant debt to buy an asset that is clearly still declining in value?

"A combination of weak consumer confidence and continuing tight lending criteria held back home buyers, even though the private sector added nearly 2 million net new jobs in the past 12 months ... America’s monetary policy is contradictory and confusing, where some consumers with the best financial capacity and top-notch credit scores pay higher mortgage interest rates ... The Federal Reserve evidently has been attempting to lower mortgage rates, yet more consumers are faced with taking out jumbo loans that carry higher interest rates. ... Just leaving excessive cash to sit in banks and not work into the economy is a drag on the overall recovery ... We need a comprehensive approach to address housing issues – not additional impediments."

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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Bull Trip!: GDP Report Q3 2011 (First Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their first "estimate" of the Q3 2011 GDP report showing that the economy continued to expand with real GDP increasing at an annualized rate of just 2.5% from Q2 2011.

On a year-over-year basis real GDP increased 1.62% while the quarter-to-quarter non-annualized percent change was 0.61%.

The latest quarterly results indicate that the only notable source of weakness in the economy came from government expenditures with non-defense spending declining 3.7% while state and local spending declined declined by 1.3%.

Fixed investment purportedly made notable contributions to Q3 GDP with non-residential fixed investment increasing 16.3% from Q2 2011 while residential fixed investment increased 2.4% over the same period.  


Personal consumption expenditures also increased notably increasing 2.4% from Q2 2011.

Keep in mind that these results are likely very poorly estimated and are sure to be revised notably in following quarters and even years to come.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims October 27 2011

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

Seasonally adjusted “initial” unemployment declined 2,000 to 402,000 claims from last week’s revised 404,000 claims while seasonally adjusted “continued” claims declined by 96,000 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 3.44 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.13 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.58 million people on state and federal unemployment rolls.


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Wednesday, October 26, 2011

New Home Sales: September 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for September showing a monthly increase with sales climbing 5.7% since August but declining 0.9% below the level seen in September of 2010 and remaining at an epically low level of 313K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 163K units, lowest level seen in in at least 47 years while the median number of months for sale declined to 7.9.

The monthly supply remained declined to 6.2 months while the median selling price declined a notable 10.35% and the average selling price declined 9.93% 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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Reading Rates: MBA Application Survey – October 26 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) remained flat at 4.22% since last week while the purchase application volume increased 6.4% and the refinance application climbed 4.4% 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 as 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, October 25, 2011

FHFA Monthly Home Prices: August 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 0.11% since July and declined 4.16% below the level seen in August 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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S&P/Case-Shiller: August 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 August reported that the non-seasonally adjusted Composite-10 price index increased 0.24% since July while the Composite-20 index increased 0.15% 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 flattening into the typically less active summer and fall season and as I recently pointed out, the more timely and less distorted Radar Logic RPX data is starting to capture notable falling prices driven primarily by seasonality.

The 10-city composite index declined 3.49% as compared to August 2010 while the 20-city composite declined 3.80% over the same period.

Topping the list of regional peak decliners was Las Vegas at -59.46%, Phoenix at -55.84%, Miami at -49.83%, Tampa at -45.60% and Detroit at -42.22%.

Additionally, both of the broad composite indices show significant peak declines slumping -30.90% for the 10-city national index and -30.83% 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, October 24, 2011

More Pain, Less Gain: S&P/Case-Shiller Preview for August 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 August 22 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 declining 0.60% since July and falling 4.50% below the level seen in August 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/declining trend though to a lesser degree due to its three month rolling-average nature with prices moderately higher.

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The Chicago Fed National Activity Index: September 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) continued to indicate the weakness of national economic trends with the index remaining in contraction territory at -0.22 while the three month moving average improved slightly to -0.21.

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, October 21, 2011

The New “Household” Misery Index: August 2011

Today's release of the Household Misery Index showed that the level of misery declined in August dropping 0.05% from July 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 0.42%.

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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ECRI Weekly Leading Index: October 14 2011

The latest release of the Economic Cycle Research Institute’s (ECRI) Weekly Leading Index has weakened yet again bringing the all important annualized “growth” component to a value of -10.10 and continuing firmly suggest recession call on the part of the ECRI’s economics staff .

The chart above shows the ECRI’s Weekly Leading Index growth component since 2001.

Notice that this index has turned notably negative which, along with an erosion in many other key macro-economic series, appears to be signaling recession is nigh.

The following video of Achuthan with Bloomberg’s Tom Keene is well worth the watch as Achuthan details his reasoning for his recession call depicting it as “inescapable” as “contagion in the forward looking indicators” look like “wildfire”.

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Thursday, October 20, 2011

Existing Home Sales Report: September 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for September showing a notable decline in sales with total home sales falling 3% since August but remaining 11.3% above the level seen in September 2010.

Single family home sales dropped a notable 3.6% from August but rose 12.2% above the level seen in September 2010 while the median selling price declined 3.9% below the level seen in September 2010.

Inventory of single family homes declined 3.2% from August dropping 11.2% below the level seen in September 2010 which, combined with the relatively slow pace of sales, resulted in an still elevated monthly supply of 8.22 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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Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey October 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for October indicated a notable improvement in the regions manufacturing activity with the current activity index jumping to a level of 8.7 while the future activity index also improved to a level of 27.2.

While most component measures turned around in October, it's important to note that most measures still signal notable weakness for manufacturing activity... clearly, more data is needed in order to get a more complete sense of how the economy is trending.

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims October 20 2011

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

Seasonally adjusted “initial” unemployment declined 6,000 to 403,000 claims from last week’s revised 409,000 claims while seasonally adjusted “continued” claims increased by 25,000 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 3.48 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.11 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.59 million people on state and federal unemployment rolls.


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Wednesday, October 19, 2011

New Residential Construction Report: September 2011

Today’s New Residential Construction Report showed that in September, single family permits declined while single family starts increased from August with both measures continuing to show tepid results when compared on a year-over-year basis.

Single family housing permits, the most leading of indicators, declined 0.2% from last month to 417K single family units (SAAR), increasing 3.47% above the level seen in September 2010 but remaining an astonishing 76.81% below the peak in September 2005.

Single family housing starts increased 1.7% to 425K units (SAAR), but dropped 4.92% below the level seen in September 2010 and a stunning 76.69% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.


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