Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index April 2011

The latest release of the Moody’s/REAL Commercial Property Index showed a notable monthly decline of 3.7% between March and April suggesting that the nation’s commercial property markets are continuing to slump through a tremendous downturn that has seen prices down some 48.95% since the peak set in October 2007.

It's important to note that the index has fallen to an all time series low clearly indicating that the nation's CRE markets have now followed the residential markets into double-dip territory.

The Moody’s/REAL CPPI data series is produced by the MIT/CRE but is noted to be “complimentary” to their alternative transaction based index (TBI) as it is published monthly and is formulated from a completely different dataset supplied by Real Capital Analytics, Inc and Real Estate Analytics LLC.

The Chicago Fed National Activity Index: May 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic remained weak in May with the index falling into contraction territory of -0.37 while the three month moving declined to -0.19.

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.

It’s important to note that at -0.19, the current three month average index value is indicating that contraction may be in the offing.

New Home Sales: May 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for May showing a monthly decline with sales falling 2.15% since April but increasing 13.52% above the level seen a year earlier to a historically low 319K SAAR units.

These results, continue to indicate that the nation's housing markets are firmly entrenched in a double-dip and come fully in-line with the other pitiful housing data-points I have outlined in past months.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 166K units, lowest level seen in in at least 47 years while the median number of months for sale increased to 9.2.

The monthly supply declined to 6.2 months while the median selling price declined 3.43% and the average selling price declined a notable 5.23% from the year ago level.

The following chart show the extent of sales decline to date (click for full-larger version).

Extended Unemployment: Initial, Continued and Extended Unemployment Claims June 23 2011

Today’s jobless claims report showed a notable increase to initial unemployment claims and a slight decline to continued claims as a rising trend continued to materialize for initial claims.

Seasonally adjusted “initial” unemployment increased by 9,000 to 429,000 claims from last week’s revised 420,000 claims while seasonally adjusted “continued” claims declined by 1,000 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 3.95 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.48 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.44 million people on state and federal unemployment rolls.

Massive Unemployment: Mass Layoffs May 2011

The latest release of the Bureau of Labor Statistics (BLS) Mass Layoff Report indicated an increase in large-scale layoffs with 1599 mass layoff events for May resulting in 143,540 initial unemployment claimants on a seasonally adjusted basis.

The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.

FHFA Monthly Home Prices: April 2011

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices increased 0.81% since March but declined 5.79% below the level seen in April 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.

Reading Rates: MBA Application Survey – June 22 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 6 basis points to 4.57% since last week while the purchase application volume declined 2.8% and the refinance application volume dropped 7.2% over the same period.

Rates now appear to be trending down having, more of less, declined continually for the last few months.

Given that we are nearing the end of the Feds QE2 intervention, it will be interesting to see how long rates trend in the next few months.

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

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).

SoldAtTheTop's Fables: King Beaver and King Monkey

King Beaver and King Monkey got to talking one day about the state of their respective clans.

“By the looks of the numbers of your dams, you beavers are neither very powerful nor prosperous” said King Monkey adding, “Have you done nothing to inspire or encourage your beaver kin?”

“My kin need no encouragement for they work hard toiling independently against the vicissitudes of nature and as for inspiration, there is only what I gain from the sight of their constant efforts” said King Beaver.

“My monkey kin for certain know a better life than your beavers for I have made for them a deal whereby every monkey is given a tree nest so long as the able-bodied pay tribute to our clan” replied the Monkey King.

“Tribute? ... In what form?” asked the Beaver King.

“Two bananas a day from the mighty, one pawfull of seeds from the typical and a few leaves or nothing at all from the weak for it’s the least we can do for those who, as nature would have it, have been dealt such unfortunate circumstances” replied the Monkey King.

“That sounds like quite a bargain” said the wise Beaver King adding, “are your able-bodied kin holding up their end?”

“They certainly are, and I should add…” replied the foolish Monkey King “that this deal comes none too soon as we are finding nature to be weakening our ranks with each passing day!”

Existing Home Sales Report: May 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for May showing continued weakness and sharp declines with slumping sales and prices and an increasing monthly supply.

Single family home sales declined a whopping 3.2% from April falling 15.4% below the level seen last year while the median selling price declined a notable 4.5% below the level seen in May 2010.

Further, inventory of single family homes remains high declining just 1.1% from April and 2.1% below the level seen in May 2010 which, combined with the relatively slow pace of sales, resulted in a increase in the monthly supply to 9.0 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.

Target the American Dream

Last week, workers at a Target retail store in New York rejected unionization and while I'm certain that many could argue the various merits for or against that decision, I would like to take issue with a bit of the dramatic language offered by union president Bruce W. Both.

Both states that "Target did everything they could to deny these workers a chance at the American Dream... However, the workers' pursuit of a better life and the ability to house and feed their families is proving more powerful."

This statement got me thinking about how earners at the lower end of the income scale are depicted, not just by this union leader whose primary interest is on expanding his organizations reach, but in general.

In short, I fundamentally disagree with Mr. Both's statement and the general depiction of unskilled laborers.

These workers, by performing simple menial labor in a retail chain are doing everything they can to deny themselves the American Dream.

Consider what it costs to have the minimum American Dream... to live in America, have a family, a house, a car, some decent clothes, and be reasonably fed and properly insured.

It's pretty expensive and can't be done by simply stocking shelve in a retail store.

There is no rational person who will argue that the American Dream can be had by simply working in a retail chain doing basic labor... labor that is often times performed perfectly well by minors or even individuals with developmental disabilities and handicaps of the mind.

The modern day version of the American Dream demands more than the minimum level of effort and further, requires real strategy.

If it's well understood in advance that a particular direction can never pay an American Dream yielding living wage, then it would be best to face that fact and not have false expectations about what may come of your effort.

For example, suppose you want to be a musician but the best you could muster given your efforts is to blow a G-note on a tuba.

Knowing that no musician in history has ever made a career of single tone should demand that you change your strategy either working harder to become a real musician or changing disciplines altogether.

The last thing you would want to do is to pretend that somehow being able to play a single note makes you a valuable musician or, worse yet, join up with a group of other G-note blowing tuba "players" in hopes that somehow more value is created from the union.

This line of thinking may seem callous to many given that current trends of discourse tend to pander to the "disadvantaged" forcing many to spin roughly the same language as used by Mr. Both but the fact remains, the American Dream cannot be had by stocking shelves in a retail chain and no amount of unionization, socialization or dramatic language will ever change that fact.

University of Michigan Survey of Consumers June 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for June indicated a worsening of consumer sentiment with a reading of 71.8 falling 5.53% below the level seen last year while one year inflation expectations declined to 4%.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) declined to 66.8, and the Current Economic Conditions Index declined to 79.6.

It's important to recognize that while consumer sentiment is higher than the panic laden trough level seen in late 2008, the current sentiment level is still far lower than any level seen during the 2001 tech recession and roughly equivalent to the worst seen during the early 1990s and second dip 1982 recessions.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey June 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for June indicated a continued notable pullback in the regions manufacturing activity with the current activity index plunging to a level of -7.7 while the future activity index also declined to a level of 2.5.

The current activity index along with four additional current data points (new orders, unfilled orders, delivery time and inventories) are now indicating contraction of manufacturing activity with the size and breadth of the latest pullback clearly demanding that closer scrutiny be paid to these series in future releases.

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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims June 16 2011

Today’s jobless claims report showed decline to both initial and continued unemployment claims as a rising trend continued to materialize for initial claims.

Seasonally adjusted “initial” unemployment declined by 16,000 to 414,000 claims from last week’s revised 430,000 claims while seasonally adjusted “continued” claims declined by 21,000 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 3.88 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.42 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.31 million people on state and federal unemployment rolls.

New Residential Construction Report: May 2011

Today’s New Residential Construction Report showed slight increases to both single family permits and starts from last month and notable declines from last year while the new home market remains historically distressed.

Single family housing permits, the most leading of indicators, increased 2.5% on a month-to-month basis to 405K single family units (SAAR), dropping a notable 6.90% below the level seen in May 2010 and an astonishing 77.47% below the peak in September 2005.

Single family housing starts increased 3.7% to 419K units (SAAR), dropping 8.91% below the level seen in May 2010 and a stunning 77.02% 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 June 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing declines across every measure with the "future conditions" component falling to the historic low while the "buyer traffic" index remained 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 notable declines 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.