Extended Unemployment: Initial, Continued and Extended Unemployment Claims April 22 2010

Today’s jobless claims report showed a decline to both initial claims and continued claims with a subtle flattening continuing to shape up for both series while total continued claims including federal extended benefits appear to be flattening.

Seasonally adjusted “initial” unemployment claims declined by 24,000 to 456,000 claims from last week’s revised 480,000 claims while “continued” claims declined by 40,000 resulting in an “insured” unemployment rate of 3.6%.

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 5.49 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.98 million people that are currently counted as receiving traditional continued unemployment benefits, there are well over 10 million people on state and federal unemployment rolls.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

The following chart shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

Chicago Re-Busting!

Today another major metro housing market is inducted into the Re-Busting lineup of regions that have relented to the organic home price slide (as seen by the Radar Logic data) despite the generous efforts by the Feds.

Chicago must have appeared too many to have surely bottomed out early last spring after dropping over 30% from its 2007 peak and facing a massive dose of government stimulation.

Yet, short of a feeble spring bounce and reversion and an even more pitiful tax-credit expiration inspired blip in November, prices in Chicago have simply been sliding.

Today, Chicago home prices are setting new lows some 45% below the peak set in 2007 and 17.98% below the level seen just last year.

With the latest tax gimmick expiration expiring with nary squeak in prices for the area, this could be one metro market to keep an eye on for significant housing stress related macro spillover later this year.

Reading Rates: MBA Application Survey – April 21 2010

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, 1 year ARMs as well as application volume for 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 13 basis points since the last week to 5.04% while the purchase application volume increased 10.10% and the refinance application volume jumped 15.80% over the same period.

It’s important to recognize that now that the Federal Reserve’s mortgage related “quantitative easing” measures are complete, rates could soon be on the rise.

If rates continue to trend upward, purchase activity will slow despite the efforts of the federal government to incentivize home buying.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

BoughtAtTheBottom?

You read it right folks… I’m in! Big Time! Go long real estate! Get back in the water! Prices can only go up from here! … Booyahhh!

All joking aside my wife and I recently closed on our new metro Boston area home and are now busily shuffling stuff around, making regular trips to “The Depot” and IKEA and re-acclimating ourselves to the demands of home ownership.

This bit of news might come as a shock to longtime PaperEconomy (and PaperMoney) readers as I have consistently been one of the most negative and bearish bloggers on housing for the better part of the last five years.

But, be that as it may, we were bubble-sitters waiting for an opportunity to turn our good fortune from selling at the literal top of the market in late 2005 into a situation better meeting our specific needs.

That opportunity came late last year when a house showed up on the market that can only be described as a near duplicate of our old home except with 2.75x the property, a substantially more attractive and updated exterior and a location within the metro area nearly 15 miles closer to Boston proper.

In terms of price, our results were telling.

We paid no more (in inflation adjusted terms) than we paid for our old home which we purchased back in 2000 while the sellers took roughly a $40,000 hit from what they paid back in 2003.

So, this was quite a trade particularly given that the town is not generally known for screaming bargains.

In any event, I still believe that the Boston area is likely to see home prices decline further.

Our decision to buy now was more a function of our genuine need (two steadily growing kids and two dogs) for more space, our good fortune of having a very large down payment (changes the rent vs. buy argument a bit), the ridiculously low interest rate environment and lastly $8000 cash!!!!

In a way, our purchase represents an instance of the function that is supposed to take place during a market clearing process whereby weak and distressed asset holders are forced to discount, take losses and yield their assets to stronger buyers who are fundamentally more prepared for taking on any additional risks brought about by market dynamics.

I’m convinced that we could see prices slide further in Boston, possibly 5%, 10% or even 15% over the long run... especially in real terms, but in any case it is virtually impossible for my situation to ever end up distressed or “upsidedown” and I’m prepared to shouldering a loss of even 15%.

All in all, the purchase simply made sense for our particular situation.

Good luck to all other bubble sitters, especially those in the Boston market that have withstood endless ridiculous bullish housing propaganda and the massively seasonal swings of our market and remember that all available evidence suggests that bottoms to residential real estate markets can take several years to fully form so although you may at times feel that “time is of the essence” there is always plenty of time to make sure that your purchase is right for you.

Best to all!

IEIF France and European Property Prices

As I have noted before, one of the most interesting and damming bits of evidence that tipped many off to the existence of a significant real estate bubble during the early 2000s was the fact that dramatically increasing property prices were occurring in most industrialized nations.

The U.S., U.K., France, Ireland, most of continental Europe, Canada, Australia and elsewhere were all simultaneously experiencing significant property booms thereby thwarting, more or less, many of the “limited supply” and “Superstar Cities” arguments that sought to justify individual regions explosive appreciation.

Today we know that this massive boom in real estate was more a function of financialization and credit availability rather than fundamentals.

One of the better outcomes of this period is that there is now much more attention being directed to property markets demanding better analysis and sponsoring a host of new and novel data for tracking individual property markets.

On that note, the Institut de l'Epargne Immobilière et Foncière (IEIF), a French research and analysis firm, has introduced a new catalog of daily and monthly property prices indices for France, Europe and the Eurozone.

As you can see from the chart, the early 2000s was an exception period of property price appreciation culminating in a “blow-off” peak in early 2007 as the leading edge of the sub-prime crisis ripped through the credit markets.

Similarly with the U.S. and U.K. markets, the France and Europe indices indicate that the initial vicious price slide hit a low in early 2009 and since have trended up.

It will be interesting to see how each region now trends as the U.S. has clearly started to weaken in recent months and the U.K. appears to be following suit.

Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index February 2010

The latest release of the Moody’s/REAL Commercial Property Index showed a notable decline of 2.6% since January breaking a three month streak of rising prices and continuing to suggest that the nation’s commercial property markets are experiencing a tremendous downturn with prices down some 25.81% on a year-over-year basis and a stunning 41.66% since the peak set in October 2007.

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.

Cleveland Re-Busting!

Today we welcome Cleveland as the latest entry in the “re-busing” series as the Radar Logic data for this metro housing market is showing the tell tale signs of government propping fatigue.

Although Cleveland is a very seasonal market with typical spring and winter swings in price, 2009 brought an exaggeration of the typical pattern with an exceptional early summer spike as well as vibrant run up into the November 2009 tax credit expiration.

Yet, as is becoming now very obvious, the government meddling only granted a temporary reprieve to those banking on price stability.

The price decline resumed in earnest once all the hoopla over the home buyer tax credit expiration blew over and prices have been down ever since.

In fact, Cleveland area home prices are now sitting at over a decade low some 32.76% below the level seen at the peak during 2005 and down 12.29% since just last year.

Sinking Ships – MA vs. RI March 2010

As I had noted in my original post, historically it has been very unusual for there to be more than a 1.5% difference (either more or less) between the unemployment rates if Massachusetts and Rhode Island.

Recently though, we have seen a historically unusual spread between Rhode Island’s high rate and Massachusetts’ far lower rate.

In fact, the latest 3.3% spread still nearly exceeds ALL spreads seen in at least 40 years.

The latest regional unemployment report shows that, in March, the Rhode Island unemployment rate declined slightly at 12.6% while the Massachusetts rate dropped to to 9.3%.

Massachusetts is still experiencing large year-over-year increases to unemployment jumping 20.78% on a year-over-year basis continuing to indicate that Mass is slogging through a period of serious job weakness.

Follow The Leader: Index of Leading Economic Indicators March 2010

Today’s results of the Conference Board’s Leading Economic Indicators showed another sharp monthly increase climbing 1.4% compared to February 2010 bringing the annual increase to a whopping 11.95% and leaving the index at a level of 109.6.

On the face of it this is clearly a Bullish development as this series (an aggregate of 10 component leading indices) is signaling a clear shift to exceptional expansion.

Yet, one has to keep in mind that the leading index is strongly influenced by growth in the money supply (M2), Average weekly manufacturing hours and the price of stocks (S&P500).

Could we be headed into a second dip (… similar to mid-1981) as the government’s massive Keynesian chicanery shows itself to have only propped demand but failed to encourage real “organic” demand?

Only time will tell…

Goldman Tidbits

Anyone really surprised that this is the way the big Wall Street investment banks work?

The system is rigged ... it’s just that simple…

Tidbits from the complaint:

Portions of an email in French and English sent by Tourre to a friend on January 23, 2007 stated, in English translation where applicable: “More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab[rice Tourre]…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”

(SAT: Tourre an Executive Director at Goldman Sachs is now only 31 years old)

Similarly, an email on February 11, 2007 to Tourre from the head of the GS&Co structured product correlation trading desk stated in part, “the cdo biz is dead we don’t have a lot of time left.”

(SAT: Keep in mind that Tourre was responsible for structuring and marketing CDOs that are now alleged to have been purposely created for failure.)

A Paulson employee explained the investment opportunity as of January 2007 as follows:

“It is true that the market is not pricing the subprime RMBS wipeout scenario. In my opinion this situation is due to the fact that rating agencies, CDO managers and underwriters have all the incentives to keep the game going, while ‘real money’ investors have neither the analytical tools nor the institutional framework to take action before the losses that one could anticipate based [on] the ‘news’ available everywhere are actually realized.”

New Residential Construction Report: March 2010

Today’s New Residential Construction Report continued to indicate a tepid recovery for the new home construction market showing the continued significant year-over-year increases to both permits and starts.

It’s clear now that the government’s housing stimulus tax credit and loose FHA lending policies have worked to prop both new and existing home sales.

The government’s efforts, which now include an extension of an even more broad housing tax credit, have sponsored demand and provided the new home market with a more fertile environment to clear.

Nonetheless, at 531K single family units (SAAR), the level of national housing starts still remains at depressed levels.

Single family housing permits, the most leading of indicators, increased significantly on a month-to-month basis at 543K single family units (SAAR), jumping a whopping 50.8% as compared to March 2009 but still remaining an astonishing 69.80% below the peak in September 2005.

With the substantial headwinds of rising unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling 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 2010

Yesterday, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing increasing results for all measures.

It's important to recognize that although each sentiment index has now shown notable year-over-year increases, their levels still remain near the worst levels seen in over 20 years.

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 2010

Today, the Federal Reserve released their monthly read of industrial production showing continued growth in total industrial production.

It's important to recognize that the latest results of the Ceridian-UCLA Pulse of Commerce Index continued to successfully predict this months year-over-year total production index increase with notable accuracy.

While this report appears very positive and leans in favor of continued recovery, it's important to note that the rate of improvement, as seen by the total index, appears to be slowing possibly as a result of the waning of government stimulus and related effects.

“Final product” consumer durable goods increased 1.97% on a month-to-month basis while jumping some 11.96% above the level seen just one year ago.

It’s important to note that although the Federal Government's “cash-for-clunkers” policy breathed life into the vehicle components of the durable goods category, home appliances, furniture and carpeting still remains weak with a decline 1.09% on a year-over-year basis.

Construction supply production was revised to show a continuous 42 month long decline overall while wood products currently shows the first annual increase in 43 months increasing 0.24% since March 2009.

The motor vehicle and business vehicle components are clearly indicating that the government sponsored bounce and residual effects provided by the "cash for clunkers" policy appears to have now likely peaked out.

Finally, HVAC (heating ventilation and air conditioning) increased notably in March jumping 2.26% on a year-over-year basis.

The following charts (click for larger) show the overall consumer durable component along with the Home Appliances, Furniture and Carpeting sub-component on both a time series and year-over-year basis, construction supply production with the wood products sub-component, and general and business related vehicle production all overlaid with the last two recessions for comparisons purposes.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims April 15 2010

Today’s jobless claims report showed another notable increase to initial claims and a surprise jump in continued claims with a subtle flattening shaping up for both series while total continued claims including federal extended benefits appear to be on the rise.

Seasonally adjusted “initial” unemployment claims increased by 24,000 to 484,000 claims from last week’s revised 460,000 claims while “continued” claims increased by 73,000 resulting in an “insured” unemployment rate of 3.6%.

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 5.97 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 5.04 million people that are currently counted as receiving traditional continued unemployment benefits, there are well over 11 million people on state and federal unemployment rolls.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

The following chart shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

Atlanta Re-Busting!

Continuing the “RE-Busting” series let’s take a look at the latest sorry inductee, Atlanta as seen by the Radar Logic home price data.

The spring and early summer of 2009 was an optimistic period for home buyers in Atlanta… The weather was described by some to be “fantastic”, the worst of the economic/housing decline was said to be over and the Feds were doling out cash for first time home “buyers” like casino bucks.

Home prices boomed increasing 14% between just April and late July but little did these unwitting “buyers” know that the government’s tax-carrot was dangled over an abyss of asset price deflation.

The trend topped out in early August and slid back to the lows by mid-September.

Worse yet, even the first expiration of the first time home buyer tax gimmick couldn’t prevent a further decline as home prices continued to slide to where they sit today at a low for the series (lower than at any point in over 10 years) some 36.66% below the peak level seen in June 2007 and 21% below the level seen at the mini-peak of the summer of 2009.