Paper Economy - A US Real Estate Bubble Blog

Thursday, February 28, 2013

Bull Trip!: GDP Report Q4 2012 (Second Estimate)

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q4 2012 GDP report showing that the economy barely registered growth in Q4 2012 with real GDP improving at an annualized rate of just 0.1% from Q3 2012.

On a year-over-year basis, real GDP increased 1.61% while the quarter-to-quarter non-annualized percent change was an increase of a slight 0.03%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from declines in exports with the "net-exports" component declining at an annualized rate of 3.9% from Q3, and notable declines in government spending particularly on national defense with a 22.0% decline in federal national defense spending from Q3.

Residential investment, on the other hand, worked to buoy the overall fixed investment component growing at an annualized rate of 17.5% from Q3.

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 February 28 2013

Today’s jobless claims report showed a notable decline to both initial and continued unemployment claims as initial claims trended below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims declined by a notable 22,000 to 344,000 claims from 366,000 claims for the prior week while seasonally adjusted “continued” claims declined by 91,000 claims to 3.074 million resulting in an “insured” unemployment rate of 2.4%.

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 2.00 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.66 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.67 million people on state and federal unemployment rolls.


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Wednesday, February 27, 2013

Reading Rates: MBA Application Survey – February 27 2013

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 3.66% since last week while the purchase application volume declined a notable 5% and the refinance application volume declined 3% over the same period.

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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Pending Home Sales: January 2013

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for January showing that pending home sales improved notably with the seasonally adjusted national index jumping 4.5% from December and increasing 9.5% above the level seen in January 2012.

Meanwhile, the NARs chief economist Lawrence Yun suggests that while contract activity is on the rise, overall sales for 2013 are projected to increase less than in 2012 while prices should continue to climb:

"Over the near term, rising contract activity means higher home sales, but total sales for the year are expected to rise less than in 2012, while home prices are projected to rise more strongly because of inventory shortages..."

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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Tuesday, February 26, 2013

New Home Sales: January 2013

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing a notable monthly increase with sales rising 15.6% since December and rising 28.9% above the level seen in January 2012 but remaining at an historically low level of 437K SAAR units.

It's important to recognize that the inventory of new homes appears to now be bouncing around a very low 150K units, near the lowest level seen in in at least 47 years while the median number of months for sale has worsened slightly to 4.7.

The monthly supply dropped to 4.1 months while the median selling price increased 2.12% and the average selling price increased 7.75% 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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FHFA Monthly Home Prices: December 2012

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that in December, nationally, home prices increased 0.63% from November and rose 5.99% above the level seen in December 2011.

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: December 2012

Today's release of the S&P/Case-Shiller (CSI) home price indices for December reported that the non-seasonally adjusted Composite-10 price index increased a slight 0.25% since November while the Composite-20 index increased 0.16% over the same period.

The latest CSI data demonstrates, more or less, that the typical seasonal pattern is continuing to play with price weakness coming as a result of lower seasonal transactions.  If this trend continues, prices should continue to remain flat to decline into the February-March release in advance of the typical uplift from the more active spring transactions.

It's important to recognize though that on a year-over-year basis, nominal prices remain in positive territory possibly indicating the current seasonal weakness may be minor compared to recent years.

The 10-city composite index increased 5.95% as compared to December 2011 while the 20-city composite increased 6.84% over the same period.

Both of the broad composite indices show significant peak declines slumping -29.96% for the 10-city national index and -29.33% 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, February 25, 2013

The Chicago Fed National Activity Index: January 2013

The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated a notable weakening for the national economy with the index falling to a very low growth level of -0.32 from a level of 0.25 in December while the three month moving average improved to a level of 0.30.

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, February 22, 2013

Grow Your Way Out of Federal Largess?


Recently, a slew of know-it-all Keynesian policy junkie types have hit the media with suggestions that those in favor of limited government (or a merely a more limited version than the current incarnation) style budget cuts are dwelling too much on the numerator of the debt-to-GDP ratio and not enough on the denominator.

The suggestion being that we could easily turn around our insolvency problem if the government would simply focus on GDP growth and NOT on the growth of federal spending.

A quintessentially maniacal Keynesian solution indeed!.... Better, smarter government spending will stimulate GDP growth enough to reduce the debt-to-GDP!

Ha! What absurdly delusional times these are.

Reader... let's first establish a few basic facts and then take some time to absorb the chart below.

Nominal GDP has a trailing 20 average annual growth rate of 4.71% while the average growth rate for nominal federal government debt is 7.41%.

Right there you can see a problem, for the last 20 years, GDP has been growing at nearly half the rate of federal government spending.

But taking the Keynesian policy junkies contention seriously for a moment, let's assume that "smart" policy makers could manage to generate an 8% annual nominal GDP rate... a literal farce.... and kept the federal government spending pumping along at it's average 7.41%.

Even given this absurd growth assumption, debt-to-GDP would remain above 100% till 2018 and would still be at a level of 82% in 2050!! ... bear in mind, the debt-to-GDP averaged roughly 50% during the 40 years preceding 2008.

Sorry policy junkies, you can't grow your way out of it federal largess... and certainly not with MORE largess... bring on the cuts and LOTS of them!

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Thursday, February 21, 2013

Recession Watch 2013: Federal Debt to GDP


The year 2012 marked the first time in at least 40 years that total federal government debt surpassed the total nominal GDP.

In fact, the debt-to-GDP ratio lurched over the 100% mark in the first quarter of 2012 and never looked back, continuing its trend upward and now seems destined to close the gap to 102% before long.

Yes, it's just a single measure and in many circles these days (particularly Keynesian policy junkies) hardly stirs the slightest concern, but, be that as it may, it's worth tracking as eventually this relationship may ultimately be recognized as one of the strongest and most damming pieces of evidence against the solvency of the U.S. government.

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The Philly Fed Business Outlook Survey: February 2013

The February release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) indicated an worsening of the regions manufacturing activity with the current activity index declining to a contraction level of -12.5 while assessments the future activity index increased to a level of 32.1.

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: January 2013

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for January showing a slight monthly improvement in sales with total home sales climbing 0.4% since December and climbing 9.1% above the level seen in January 2012.

Single family home sales also improved slightly rising 0.2% from December and still rising 8.5% above the level seen in January 2012 while the median selling price increased a notable 12.6% above the level seen a year earlier.

Inventory of single family homes declined notably from December to 1.55 million units dropping 25.5% below the level seen in January 2012 which, along with the sales pace, resulted in a monthly supply of 4.3 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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 21 2013

Today’s jobless claims report showed a jump to both initial unemployment claims and continued jobless claims as initial claims trended below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims increased by a whopping 20,000 to 362,000 claims from 342,000 claims for the prior week while seasonally adjusted “continued” claims increased by 11,000 claims to 3.148 million resulting in an “insured” unemployment rate of 2.4%.

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 1.84 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.66 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.51 million people on state and federal unemployment rolls.


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Wednesday, February 20, 2013

New Residential Construction Report: January 2013

Today’s New Residential Construction Report showed mixed results for January with increases for single family permits and starts but a notable 8.5% monthly decline for total starts.

Single family housing permits, the most leading of indicators, rose 1.9% from December to 584K single family units (SAAR), and increased 29.2% above the level seen in January 2012 but still remained an astonishing 67.52% below the peak in September 2005.

Single family housing starts increased 0.8% from December to 613K units (SAAR), and rose 20.0% above the level seen in January 2012 but still remained 66.37% below the peak set in early 2006.


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Tuesday, February 19, 2013

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings February 2013

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that assesments of housing activity declined slightly in February with the composite HMI index falling to 46 while the "buyer traffic" index fell more notably to 32.

It's important to note that February showed a flattening of sorts to future expectations, a development that is worth noting as the new home market moves through it's most active months at the start of the year (see Bob Tolls explanation for January - early spring being the new home markets most active period annually).

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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Friday, February 15, 2013

Production Pullback: Industrial Production January 2013

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a decline in January with total industrial production falling 0.10% since December but rising 2.10% above the level seen in January 2012.

Capacity utilization also declined dropping 0.27% from December but still climbing a slight 0.46% above the level seen in January of 2012 to stand at 79.06%

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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Wednesday, February 13, 2013

Conspicuous Correlation: Retail Sales January 2013

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.1% from December and an increase of 4.4% 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 0.41% from December climbing 1.19% above the level seen in January 2012 while, adjusting for inflation, “real” discretionary retail sales declined 0.33% 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 – February 13 2013

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 3.64% since last week while the purchase application volume declined a notable 10% and the refinance application volume declined 6% over the same period.

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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