Hong Kong Bubble?: Hong Kong Residential Property Prices February 2011

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in February, the price of residential properties increased a whopping 2.87% since January climbing 23% above the level seen in February 2010.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases with the "Hong Kong Island" series indicated that prices have now far outpaced the prior 1997 peak.

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.

Reading Rates: MBA Application Survey – April 20 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 declined 15 basis points to 4.83% since last week while the purchase application volume jumped 10% and the refinance application volume increased 2.7% over the same period.

It's important to note that much of the increase in the overall purchase applications index was due to a notable 17.6% jump in government purchase applications as buyers sought to lock in FHA funding before the scheduled increase in premiums.

While rates have generally trending up for the last five months, it will take some time to determine if this trend will continue or if rates will begin to slide back down to the historically low levels seen in mid-2010.

Keep in mind that the Feds QE2 announcement marked the start of the latest uptrend in rates so that as we near the completion of the Feds latest action (scheduled to end in June) it will be interesting to see if there is a correlated impact on rates.

Further, there has been some chatter of either a premature end to QE2 as the Fed gears up to deal with untethered inflationary forces as well as some speculation to the contrary indicating that the Fed may need to engage in QE3 later this year should the recovery stall similarly to 2010.

Both outcomes could notably impact mortgage rates and in turn, seriously impact the trends in the nation's housing markets.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

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).

New Residential Construction Report: March 2011

Today’s New Residential Construction Report showed a slight bounce off of last months exceptionally weak results with both single family permits and single family starts which rising while the new home market remains historically distressed.

Single family housing permits, the most leading of indicators, increased 5.7% on a month-to-month basis to 405K single family units (SAAR), dropping a notable 25.3% below the level seen in March 2010 and an astonishing 77.47% below the peak in September 2005.

Single family housing starts increased 7.7% to 422K units (SAAR), dropping a notable 21.1% below the level seen in March 2010 and a whopping 76.85% 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.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings April 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a slight decline for most measures with the "buyer traffic" index remaining near record lows as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently all measures are showing either notable year-over-year declines or, for the buyer traffic index, zero change in the level of activity seen since last year.

Clearly the new home market has seen another no-show start to the buying season with the typically strongest selling months (remember Bob Toll's analysis of the seasons) fully behind it.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Production Pullback: Industrial Production March 2011

Today, the Federal Reserve released their monthly read of industrial production showing a notable increase with total industrial production climbing 0.80% from February and rising 5.88% above the level seen in March 2010.

Capacity utilization continued to trend up rising 0.70% from February and climbing 6.32% above the level seen in March of 2010 to stand at 77.40%

The Empire State Manufacturing Survey: April 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report indicated expansion for current activity and slight slowing for future activity with the current business conditions index climbing to 21.7 while the future conditions index declined slightly to 47.44.

Current prices paid registered a fifth consecutive monthly increase climbing to 57.69 while current new orders jumped to 22.34 with future new orders climbing slightly to 43.59.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims April 14 2011

Today’s jobless claims report showed a notable increase to initial unemployment claims and declined to continued unemployment claims as a significant declining trend continued to materialize for both initial and traditional continued claims.

Seasonally adjusted “initial” unemployment increased by 27,000 to 412,000 claims from last week’s revised 385,000 claims while seasonally adjusted “continued” claims declined by 58,000 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 4.31 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.08 million people that are currently counted as receiving traditional continued unemployment benefits, there are 8.39 million people on state and federal unemployment rolls.

Beveridge Curve Balancing Act: February 2011

Looking deeper at today’s Job Openings and Labor Turnover report you can see that while the unemployment rate is showing notable signs of establishing a peak, the job openings rate is showing an equal but opposite troughing dynamic.

Further, the latest data indicates that private job hires are occurring at a rate of 3.4% of total employment while private job separations occurs at a rate of 3.2%.

So, currently job hires are slightly outpacing separations thus resulting in, more or less, a stagnant job market and more evidence that the unemployment rate may stay elevated for some time.

It's important to note that today's data is very preliminary and volatile and that a more sustained and sustained spread between the rate of hires and separations would be required to make a significant dent in our current structurally weak job market.

Economic Jolt: Job Openings and Labor Turnover February 2011

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” jumped a notable 14.10% since January climbing 27.79% above the level seen in February 2010 while private non-farm job “hires” increased a notable 4.33% since January climbing 4.65% above the level seen in February 2010 and job “layoffs and discharges” increased 2.14% since January while dropping 8.99% below the level seen last year.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

Conspicuous Correlation: Retail Sales March 2011

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.4% since February bringing the total increase since last year to 7.1% on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased a notable 1.51% from February climbing 1.98% above the level seen in March 2010 while, adjusting for inflation, “real” discretionary retail sales actually declined 0.71% 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.

Reading Rates: MBA Application Survey – April 13 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 increased 5 basis points to 4.98% since last week while the purchase application volume declined 4.7% and the refinance application volume declined 7.7% over the same period.

While rates have generally trending up for the last five months, it will take some time to determine if this trend will continue or if rates will begin to slide back down to the historically low levels seen in mid-2010.

Keep in mind that the Feds QE2 announcement marked the start of the latest uptrend in rates so that as we near the completion of the Feds latest action (scheduled to end in June) it will be interesting to see if there is a correlated impact on rates.

Further, there has been some chatter of either a premature end to QE2 as the Fed gears up to deal with untethered inflationary forces as well as some speculation to the contrary indicating that the Fed may need to engage in QE3 later this year should the recovery stall similarly to 2010.

Both outcomes could notably impact mortgage rates and in turn, seriously impact the trends in the nation's housing markets.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

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).

Fannie Mae Delinquencies: February 2011

The latest release of the Fannie Mae Monthly Summary indicated that for data through January, total serious single family delinquency continued to declined though at a notably slower pace than in recent months.

In January, 3.38% of non-credit enhanced loans went seriously delinquent while the level was 10.55% of credit enhanced loans resulting in an overall total single family delinquency of 4.45%.

The following charts (click for larger ultra-dynamic and surf-able chart) show what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers.

The Globe of Bubbles!?: U.K. vs U.S. Home Prices March 2011

One of the more interesting and most dramatic features of the housing bubble days was how pervasive and broad the mania was, encompassing a multitude of regional housing markets across the United States and around the globe.

Today, post-housing crash, we are still seeing property markets continuing to move together somewhat as governments around the globe scramble to prop up quickly deflating housing assets with boondoggles that quickly reveal themselves as being mere temporary distortions to a trend the remains "organically" in decline.

Comparing the S&P/Case-Shiller (CSI) index to that of the two popular U.K. home prices indices you can see that while all three indices were showing some significant signs of deceleration in recent months, now both UK series have shown some notable increases.

The following chart (click for dynamic full-screen version) shows S&P/Case-Shiller Composite-10 series along with the Nationwide and Halifax U.K. series.

U.K. Home Prices: Halifax and Nationwide March 2011

The latest release of the two most prominent home price indices for the United Kingdom are continuing to signal weakness with continued sluggishness.

The “Nationwide” series, indicated that U.K. home prices jumped notably rising 2.21% from February and climbing 0.14% above the level seen in March 2010 while the “Halifax” series increased 0.45% from February but fell a notable 3.96% below the level seen a year earlier.

Both indices are similar to our own S&P/Case-Shiller data series in that they both implement a methodology that seeks to standardize the quality homes included as source data and track the price changes occurring between sales instead of simply tracking the distorted average or median sales price.

The following chart (click for full-screen dynamic chart) show the price movement since 1991 to each index.

The Fall of Greece: February 2011

Looking at the most recent OECD economic indicators, Greece makes by far the weakest showing in all the Eurozone as it continues to plod through difficult economic times.

Industrial production remains in severe contraction territory, consumer has fallen off a cliff, business confidence though trending up is clearly depressed and the leading index is turning down fast dropping 0.38% since January and 6.41% below the level seen in February 2010.

For March (more timely data), consumer confidence increased 0.51% from February but dropped 1.75% below the level seen in March 2010 while business confidence increased notably from February climbing 2.06% above the level seen in March 2010.

Industrial production remains weak but jumped 0.75% between November and December 2010 (much less timely data) remaining near the lowest levels seen since the late 1990s.