New Home Sales: January 2012

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing a monthly decline with sales dropping 0.97% since December but rising 3.55% above the level seen in January 2011 and remaining at an historically low level of 321K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 151K units, lowest level seen in in at least 47 years while the median number of months for sale increased to 7.1.

The monthly supply declined to 5.6 months while the median selling price declined 9.57% and the average selling price declined 5.11% from the year ago level.

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

FHFA Monthly Home Prices: December 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 0.71% since November and declined 1.32% below the level seen in December 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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 23 2012

Today’s jobless claims report showed that initial unemployment claims went flat while continued unemployment claims declined as seasonally adjusted initial claims continued to trend well below the closely watched 400K level.

Seasonally adjusted “initial” went unchanged at 351,000 claims from last week’s revised 351,000 claims while seasonally adjusted “continued” claims declined by 52,000 resulting in an “insured” unemployment rate of 2.7%.

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 3.40 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.98 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.39 million people on state and federal unemployment rolls.

Existing Home Sales Report: January 2012

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for January showing an increase in sales with total home sales climbing 5.0% since November and 3.6% above the level seen in December 2010.

Single family home sales increased 3.8% from December and rose 2.3% above the level seen in January 2011 while the median selling price declined 2.6% below the level seen in January 2011.

Inventory of single family homes increased 1.5% from December dropping 18.9% below the level seen in January 2011 which resulted in a monthly supply of 6.1 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.

Reading Rates: MBA Application Survey – February 22 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 unchanged at 3.98% since last week while the purchase application volume declined 2.9% and the refinance application declined 4.8% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

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).

Outstanding Contraction!: Commercial Paper Outstanding January 2012

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they had not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and for January commercial paper generally wen flat while still contracting at a rate of 4.12% on a year-over-year basis to $972.90 billion, a level that is still substantially lower than even the worst periods of the last two recessions.

New Residential Construction Report: January 2012

Today’s New Residential Construction Report showed mixed results in January with single family permits increased from November while starts declined over the same period.

Single family housing permits, the most leading of indicators, increased 0.9% from last month to 445K single family units (SAAR), and increased 6.2% above the level seen in January 2011 but remaining an astonishing 75.25% below the peak in September 2005.

Single family housing starts declined 1.0% to 508K units (SAAR), and climbed 16.2% above the level seen in January 2011 but remaining a stunning 72.13% 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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 16 2012

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

Seasonally adjusted “initial” unemployment declined 13,000 to 348,000 claims from last week’s revised 361,000 claims while seasonally adjusted “continued” claims declined by 100,000 resulting in an “insured” unemployment rate of 2.7%.

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 3.47 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.09 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.57 million people on state and federal unemployment rolls.

Production Pullback: Industrial Production January 2012

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a pullback with total industrial production increased 0.3% from December and rising 3.35% above the level seen in January 2011.

Capacity utilization declined 0.06% from December climbing just 2.16% above the level seen in January of 2011 to stand at 78.55%

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.

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

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that all measures increased notably in February with the composite HMI index climbing to 29, the highest level seen since mid-2007, while the "buyer traffic" index climbed to 22.

While all indicators made notable increased again in February, it's important to note that conditions still remain distressed by historic standards though, the last few months results appears to indicate a major change in the builder sentiment.

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

Reading Rates: MBA Application Survey – February 15 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 3.98% since last week while the purchase application volume declined 8.4% and the refinance application increased 0.8% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

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).

Conspicuous Correlation: Retail Sales January 2012

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a 0.4% increase from December and an increase of 5.8% 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 increased 0.47% from December and increased 4.86% above the level seen in January 2011 while, adjusting for inflation, “real” discretionary retail sales increased 2.23% 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.

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

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in December, the price of residential properties declined a notable 3.82% since November but still remained 7.87% above the level seen in December 2010.

It appears that after a stunning run of monthly increases that saw prices climb dramatically, prices are beginning to show a notable pullback with all measures declining on the month.

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.

University of Michigan Survey of Consumers February 2012 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for February indicated a decline in consumer sentiment with a reading of 72.5 dropping 6.45% below the level seen last year while one year inflation expectations declined slightly to 3.2%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) declined to 68, and the Current Economic Conditions Index dropped to 79.6.

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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 09 2012

Today’s jobless claims report showed a decline to initial unemployment claims and an increase to continued unemployment claims as seasonally adjusted initial claims continued to trend below the closely watched 400K level.

Seasonally adjusted “initial” unemployment declined 15,000 to 358,000 claims from last week’s revised 373,000 claims while seasonally adjusted “continued” claims increased by 64,000 resulting in an “insured” unemployment rate of 2.8%.

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 3.50 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.05 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.55 million people on state and federal unemployment rolls.