Paper Economy - A US Real Estate Bubble Blog

Thursday, November 29, 2012

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

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q3 2012 GDP report showing that the economy continued to expand with real GDP increasing at an annualized rate of 2.7% from Q2 2012.

On a year-over-year basis, real GDP increased 2.67% while the quarter-to-quarter non-annualized percent change was 0.66%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from declines to fixed non-residential investment in structures, equipment and software with the nonresidential investment component declining at an annualized rate of -2.2% from Q2.

Residential investment, on the other hand, worked to buoy the overall fixed investment component growing at an annualized rate of 14.2% from Q2.

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 November 29 2012

Today’s jobless claims report showed declines for both initial and continued jobless claims as initial claims dropped below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims declined by 23,000 to 393,000 claims from a revised 416,000 claims for the prior week while seasonally adjusted “continued” claims declined by 70,000 claims to 3.287 million resulting in an “insured” unemployment rate of 2.6%.

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 2.15 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.94 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.10 million people on state and federal unemployment rolls.


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Wednesday, November 28, 2012

New Home Sales: October 2012

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for October showing a slight monthly decline with sales falling 0.3% since September but rising 17.2% above the level seen in October 2011 though remaining at an historically low level of 368K SAAR units.

It's important to recognize that the inventory of new homes appears to now be bouncing around a very low 147K units, near the lowest level seen in in at least 47 years while the median number of months for sale has improved to 5.9.

The monthly supply increased to 4.8 months while the median selling price increased 5.74% and the average selling price increased 7.89% 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 – November 28 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) decreased 1 basis point to 3.44% since last week while the purchase application volume increased 3% and the refinance application volume declined 2% 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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Tuesday, November 27, 2012

S&P/Case-Shiller: September 2012

The latest release of the S&P/Case-Shiller (CSI) home price indices for September reported that the non-seasonally adjusted Composite-10 price index increased a slight 0.28% since August while the Composite-20 index increased 0.29% over the same period.

The latest CSI data clearly indicates that the price trends, while continuing to experience a slight lift through the typically more active late-summer season, are beginning to see a flattening of sorts and as I recently pointed out, the more timely and less distorted Radar Logic RPX data is starting to see the leveling off of prices yield to the typical seasonal downtrend into the fall.

The 10-city composite index increased 2.13% as compared to September 2011 while the 20-city composite increased 3.00% over the same period.

Both of the broad composite indices show significant peak declines slumping -29.77% for the 10-city national index and -29.20% 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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Monday, November 26, 2012

The Chicago Fed National Activity Index: October 2012

The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated pronounced weakness for the national economy with the index falling notably from the prior month to stand at a near-recessionary level of -0.56 while the three month moving average also slumped to -0.56.

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, November 23, 2012

No Limits?


I’d like to take a moment to reflect on the notion of “limited government”.

With the latest election, the last four years in particular and the last decade or so in general, the concept of “limited government” seems to have become a relic of sorts, mocked by one side of the ideological spectrum, paid lip service to by the other but widely discarded overall.

It’s strange that such a basic concept could fall so far out of fashion… as if it has no merit at all… yet most “reasonable” people must acknowledge that there are “limits” to what the government can and should do.

By “reasonable” people, of course, I mean those who accept as valid the overall order of our society which seeks to balance the government “public interest” with the individual “private interest” and not those who occupy the extremes of the many philosophies who want nothing more than to radically reorganize everything (…one way or another) from the ground up.

For example, every month over 47 million individuals receive $133.42 through the Department of Agriculture’s Food Stamps program for a total monthly cost of $6.28 billion dollars or $75.3 billion annually.

Now, given that this stipend is largely distributed to recipients via electronic credits through the widespread use of EBT cards (recipient accounts credited and credits transacted all electronically like credit cards), without incurring any additional administrative cost, the government could simply add another zero to the benefit bringing it to a monthly allowance of $1,334.20 per recipient and a program cost of $62.8 billion per month.

Why not do this? Wouldn’t this bring dramatic benefit to the lives nearly 50 million needy Americans?

Possibly you think that we simply cannot afford such a benefit BUT in an age of trillion dollar deficits, lack of revenue is hardly a limiting factor for government largesse… the Federal Reserve simply increases the monetary base (i.e. tacks on a few more zeros to its own balance sheet), buys government securities (government bonds of one sort or another) and viola!

So again, why not simply increase the Food Stamps benefit by a factor of 10?

In fact, why stop there?  It’s just electronic blips…. Why not add TWO zeros bringing the monthly allowance to $13,342.00 per recipient and a program cost of $628.0 billion per month?

Clearly this would go long way toward solving serious issues like income inequality and poverty not to mention the economic demand (… along with Keynesian multipliers) that would be created by all that increased purchasing power.

So what’s wrong with this scenario?  Are there no limits?

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Wednesday, November 21, 2012

Extended Unemployment: Initial, Continued and Extended Unemployment Claims November 21 2012

Today’s jobless claims report showed declined for both initial and continued jobless claims as initial claims remained above the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims declined by 41,000 to 410,000 claims from a revised 451,000 claims for the prior week while seasonally adjusted “continued” claims declined by 30,000 claims to 3.337 million resulting in an “insured” unemployment rate of 2.6%.

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 2.19 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.96 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.15 million people on state and federal unemployment rolls.


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Tuesday, November 20, 2012

New Round of Downsizing Looming?


Looking deeper into last Friday’s weak industrial production report, it appears that the “Business Equipment” component is giving a clear sign of weakness as well as substantiating the business investment pullback noted over the weekend by the WSJ.

In fact, looking at the data (click on the chart below for a full-screen dynamic version of the entire history of this data series) it’s easy to see that this series makes fairly sharp tops as the economy transitions into recession making it a useful contraction indicator.

Keep in mind though, while the latest results look like another solid harbinger of looming recession, the data is still fairly preliminary and subject to revision.

Another couple or few months of data will be required to determine if this pullback is simply a slowing of our halfhearted recovery or a more notable slide into a new recessionary decline.

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New Residential Construction Report: October 2012

Today’s New Residential Construction Report showed mixed results for October with monthly gains in single family permits but losses to total permits while total starts increased as single family starts declined over the same period.

Single family housing permits, the most leading of indicators, rose 2.2% from September to 562K single family units (SAAR), and increased 26.2% above the level seen in October 2011 but still remained an astonishing 68.74% below the peak in September 2005.

Single family housing starts declined 0.2% from September to 594K units (SAAR), and climbed 35.3% above the level seen in October 2011 but still remained 67.4% below the peak set in early 2006.


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

Yesterday, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing continued improvement in November with the composite HMI index rising to 46 while the "buyer traffic" index went flat at 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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Existing Home Sales Report: October 2012

Yesterday, the National Association of Realtors (NAR) released their Existing Home Sales Report for October showing a increase in sales with total home sales rising 2.1% since September and climbing 10.9% above the level seen in October 2011.

Single family home sales also rose climbing 1.9% from September rising 9.6% above the level seen in October 2011 while the median selling price declined slightly on the month but increased 10.9% above the level seen a year earlier.

Inventory of single family homes went flat from September at 1.89 million units dropping 20.9% below the level seen in October 2011 which, along with the sales pace, resulted in a fairly balanced monthly supply of 5.4 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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Monday, November 19, 2012

Production Pullback: Industrial Production October 2012

Last week, the Federal Reserve released their monthly read of industrial production and capacity utilization showing an notable pullback in October with total industrial production declining 0.43% since September but rising 1.74% above the level seen in October 2011.

Capacity utilization also declined falling 0.57% from September and remaining just 0.24% above the level seen in October of 2011 to stand at 77.79%

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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Friday, November 16, 2012

The European Domino


Yesterday, EuroStat, the European Union’s statistics office, released their Q3 2012 read on the 17-nation combine GDP showing a quarter-to-quarter decline of 0.1%, tipping the group squarely (though possibly temporarily due to future revisions) into recession, as economic conditions worsened and continued from the prior quarter’s -0.2% reading.

While recession for Europe is no surprise, given all the attention that has been directed to the crisis economies of Greece, Spain, Italy, and Portugal and the broader weakness elsewhere in the European Union, it should also be clear that the U.S. faces nearly identical prospects as the burdens of government overreach take their toll on macroeconomic conditions.

Further, while the U.S. generally prides itself on having more robust economic conditions than Europe, comparing the quarterly growth rates, one can easily see that for over a decade now, our economic conditions have, more or less, trended together.

So this begs the question, how long can the U.S. expect to buck the trend?

Unless you expect notable improvement in future quarters, it would appear that the European Union’s poor conditions are just another harbinger of larger global underperformance that could crush the U.S.’s tepid recovery.

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Thursday, November 15, 2012

Extended Unemployment: Initial, Continued and Extended Unemployment Claims November 15 2012

Today’s jobless claims report indicated a major setback to the weak economic "recovery" with both initial and continued jobless claims rising unexpectedly as initial claims jumped back above the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims surged by 78,000 to 439,000 claims from a revised 361,000 claims for the prior week while seasonally adjusted “continued” claims increased by 171,000 claims to 3.334 million resulting in an “insured” unemployment rate of 2.6%.

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 2.12 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.77 million people that are currently counted as receiving traditional continued unemployment benefits, there are 4.89 million people on state and federal unemployment rolls.


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Wednesday, November 14, 2012

Conspicuous Correlation: Retail Sales October 2012

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a decrease of 0.3% from September but an increase of 3.8% 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 declined 0.98% from September remaining a mere 0.55% above the level seen in October 2011 while, adjusting for inflation, “real” discretionary retail sales declined 1.46% 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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Reading Rates: MBA Application Survey – November 14 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) decreased 6 basis point to 3.43% since last week while the purchase application volume increased 11% and the refinance application volume increased 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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