Paper Economy - A US Real Estate Bubble Blog

Wednesday, October 31, 2012

Hong Kong Bubble?: Hong Kong Residential Property Prices July 2012

Recently, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in July, the price of residential properties increased 0.19% since June and climbed 7.54% above the level seen in July 2011.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

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Reading Rates: MBA Application Survey – October 31 2012

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) increased 1 basis point to 3.53% since last week while the purchase application volume increased 1% and the refinance application volume declined 6% over the same period.

Clearly, the Federal Reserve's QE3 announcement and implementation has had a notable effect on mortgage rates in recent weeks continuing to lift refinance application activity and possibly helping to establish a base of sorts to purchase applications.

The question is though, if the Fed is stimulating this activity by forcing artificially low rates, what would these trends look like if prevailing rates were based on a more fundamental market function?

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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S&P/Case-Shiller: August 2012

The latest release of the S&P/Case-Shiller (CSI) home price indices for August reported that the non-seasonally adjusted Composite-10 price index increased 0.87% since August while the Composite-20 index increased 0.88% over the same period.

The latest CSI data clearly indicates that the price trends continued to experience a lift through the typically more active spring-summer season and as I recently pointed out, the more timely and less distorted Radar Logic RPX data while continuing to capture rising prices, is starting to see a leveling off of the trend as the data moves through the summer transactions and heads for the typical declines seen in late-summer and fall.

The 10-city composite index increased 1.35% as compared to August 2011 while the 20-city composite increased 2.03% over the same period.

Both of the broad composite indices show significant peak declines slumping -29.90% for the 10-city national index and -29.37% 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.

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Friday, October 26, 2012

Bull Trip!: GDP Report Q3 2012 (First Estimate)

Today, the Bureau of Economic Analysis (BEA) released their first "estimate" of the Q3 2012 GDP report showing that the economy continued to expand with real GDP increasing at a tepid annualized rate of 2.0% from Q2 2012.

On a year-over-year basis real GDP increased 2.32% while the quarter-to-quarter non-annualized percent change was 0.50%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from declining exports of goods and services, a notable decline private farm inventories and weakness in non-residential structures.

Government spending worked to buoy GDP with a 13% quarter-on-quarter increase in non-defense spending while a decline in imports of goods also added positively (declining imports contribute positively to the final GDP aggregate).

Other categories such as residential structures also saw notable slowing from the prior quarter registering a still respectable rate of 8.5% while non-residential fixed structures expand by just 0.6%. 

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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Thursday, October 25, 2012

Pending Home Sales: September 2012

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for September showing that pending home sales improved slightly with the seasonally adjusted national index climbing 0.3% since August while increasing 14.5% above the level seen in September 2011.

Meanwhile, the NARs chief economist Lawrence Yun suggests that while recent pending sales activity has been bouncing around the old familiar "narrow range", 2013 should bring a continuation to the overall uptrend:

"Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range, ... This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013."

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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The Chicago Fed National Activity Index: September 2012

The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) showed an improvement of the national economy with the index climbing from the prior month to stand at a very weak 0.00 while the three month moving average remained very near contraction territory at -0.37.

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims October 25 2012

Today’s jobless claims report indicated a decline in initial jobless claims while continued unemployment claims remained flat as seasonally adjusted initial claims trended just below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims declined by a notable 23,000 to 369,000 claims from a revised 392,000 claims for the prior week while seasonally adjusted “continued” claims dropped to 3.254 million resulting in an “insured” unemployment rate of 2.5%.

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 2.08 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.74 million people that are currently counted as receiving traditional continued unemployment benefits, there are 4.83 million people on state and federal unemployment rolls.


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Wednesday, October 24, 2012

Reading Rates: MBA Application Survey – October 24 2012

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 increased 6 basis points to 3.52% since last week while the purchase application volume declined 8% and the refinance application volume declined 13% over the same period.

Clearly, the Federal Reserve's QE3 announcement and implementation has had a notable effect on mortgage rates in recent weeks continuing to lift refinance application activity and possibly helping to establish a base of sorts to purchase applications.

The question is though, if the Fed is stimulating this activity by forcing artificially low rates, what would these trends look like if prevailing rates were based on a more fundamental market function?

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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New Home Sales: September 2012

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for September showing a notable monthly improvement with sales climbing 5.7% since August and rising 27.1% above the level seen in September 2011 though remaining at an historically low level of 389K SAAR units.

It's important to recognize that the inventory of new homes appears to now be bouncing around a very low 145K units, near the lowest level seen in in at least 47 years while the median number of months for sale has improved to 6.5.

The monthly supply declined to 4.5 months while the median selling price increased 11.71% and the average selling price increased 14.49% 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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Monday, October 22, 2012

Index of Stress: October 2012

The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.

As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants

Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

The latest results of the STLFSI indicate that the level of financial stress remains elevated with October's results at -.20, a level roughly equivalent to the immediate recovery period following the tech-wreck.

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Friday, October 19, 2012

Existing Home Sales Report: September 2012

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for September showing a decline in sales with total home sales falling 1.7% since August but still rising 11% above the level seen in September 2011.

Single family home sales also declined dropping 1.9% from August but still rising 10.8% above the level seen in September 2011 while the median selling price declined slightly on the month but increased 11.4% above the level seen a year earlier.

Inventory of single family homes declined 4.2% from August dropping 18.1% below the level seen in
September 2011 which, along with the sales pace, resulted in a fairly balanced monthly supply of 5.8 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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Thursday, October 18, 2012

Extended Unemployment: Initial, Continued and Extended Unemployment Claims October 18 2012

Today’s jobless claims report indicated a notable increase in initial jobless claims and a decline in continued unemployment claims as seasonally adjusted initial claims trended just below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims jumped by a notable 46,000 to 388,000 claims from a revised 342,000 claims for the prior week while seasonally adjusted “continued” claims dropped to 3.252 million resulting in an “insured” unemployment rate of 2.5%.

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 2.13 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.78 million people that are currently counted as receiving traditional continued unemployment benefits, there are 4.91 million people on state and federal unemployment rolls.


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Wednesday, October 17, 2012

New Residential Construction Report: September 2012

Today’s New Residential Construction Report showed notable gains in September with single family permits increasing significantly from August while starts also increased over the same period.

Single family housing permits, the most leading of indicators, jumped 6.7% from August to 545K single family units (SAAR), and increased 27.3% above the level seen in September 2011 but still remained an astonishing 69.7% below the peak in September 2005.

Single family housing starts increased 11% from August to 603K units (SAAR), and climbed 42.9% above the level seen in September 2011 but still remained 66.9% below the peak set in early 2006.


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Tuesday, October 16, 2012

SoldAtTheTop's Fables: The Dumb-Ass and the Wise-Ass


"Pull!" cried the Ass Leader continuing "... If WE all do OUR-fair-share WE shall succeed in moving this great load, for together a group as strong and as virtuous as OURS can accomplish great things!"

The group pulled hard and then pulled some more eventually budging the load and bringing it into slight forward motion.

"Are WE all doing OUR-fair-share!?" yelled the Ass Leader, "... this burden must be shared by US all for no single individual Ass could bear it alone!"

"Come on now... WE must all pull!" screamed the Ass Leader.

Just then a Wise Ass stopped pulling bringing an abrupt end to the motion of the load.

"I, for one, am not so certain that pulling this load is very fair to ME," declared the Wise Ass adding "... and besides, if no single individual Ass could alone bear this load, then how is it that when I stop pulling, the load refuses to move?"

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Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings October 2012

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing continued improvement in October with the composite HMI index rising to 41 while the "buyer traffic" index climbed to 35, a level not seen since April 2006.

While all indicators have made truly spectacular improvements this year, it's important to note that conditions still remain fairly distressed by historic standards.

Although, looking at the data, it is fairly clear that the last few months of results indicate a major change in builder sentiment likely coming as a result of improvements in confidence given the notable rise in buyer traffic, reduced inventory and a more balanced monthly supply.




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Production Pullback: Industrial Production September 2012

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing an improvement in September with total industrial production increasing 0.41% since August and rising 2.81% above the level seen in September 2011.

Capacity utilization also increased rising 0.27% from August and climbing 1.37% above the level seen in September of 2011 to stand at 78.26%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.


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Monday, October 15, 2012

Conspicuous Correlation: Retail Sales September 2012

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 1.1% from August and an increase of 5.4% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales also increased 1.1% from August climbing 3.31% above the level seen in September 2011 while, adjusting for inflation, “real” discretionary retail sales increased 1.86% over the same period.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

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Friday, October 12, 2012

University of Michigan Survey of Consumers October 2012 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for October indicated an increase in consumer sentiment from the prior month with a reading of 83.1, the highest level seen since September 2007, and improvement on an annual basis with the level increasing a notable 36.68% while one year inflation expectations declined to 3.1%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 79.5, and the Current Economic Conditions Index rose to 88.6.

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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