Current Climate

1 March 2010

  The employment situation continues to dominate the deliberations of economic pundits. Apparently, this lagging indicator is not catching up fast enough to satisfy economists. Nevertheless, the unemployment rate fell from 10% in December to 9.7% in January. Further, the number of Americans filing for initial unemployment insurance fell by 8,000 the week ending January 23rd, and continuing claims for the week ending January 16th were down 57,000. Unemployment claims declined by more than 1,000 in five states with Pennsylvania leading the way with 25,819 fewer claims. Claims rose by more than 1,000 in just three states with California having the dubious honor of leading the pack, jumping 43,748.  In other news,   Real gross domestic product (GDP) increased at an annual rate of 5.9% in Q409 on the heels of a 2.2% increase the prior period.  

The Consumer Price Index (CPI) rose a nominal 0.2% on a seasonally adjusted basis in January.  Over the last 12 months, the index increased 2.6% before seasonal adjustment.

Personal income increased $44.5 billion or 0.4% in December and disposable personal income increased $45.9 billion or 0.4%. Personal and disposable income levels have grown consistently, between 0.3% and 0.5% per month, since August 2009.

The Conference Board Leading Economic Index® (LEI) increased 0.3% in January following a 1.2% gain in December and a 1.1% rise in November.  According to Conference Board economists, the US LEI has risen steadily for nearly a year now and the cumulative change based on the last six months is 9.8% on an annualized basis. Current economic conditions, as measured by the Conference Board Coincident Economic Index® (CEI) also indicate improvement since July 2009. The CEI rose 0.2% in January following no change in December and a 0.3% rise in November.

 

  Housing Highlights – This seesaw is beginning to make us nauseous.  However, some of the news is moderately uplifting.  Existing home sales increased 13.9% in Q409 in 48 states and the District of Columbia; 32 states saw double-digit gains to a seasonally adjusted annualized rate of 6.03 million units.  Year-over-year, sales were stronger in 49 states and DC and all but three had double-digit gains.  Distressed property accounted for 32% of Q4 transactions, down from 37% one year earlier.

On a regional basis, the strongest pace was in the West with sales rising 16.2% to an annual rate of 1.38 million, 18.2% higher than one year ago.  The Midwest jumped 14.5% to a similar pace representing a year-over-year gain of 29.9%.  In the South, existing home sales rose 13.8% to an annual rate of 2.23 million or 28.2% year-over-year; and The Northeast exhibited an increase of 11.1% for an annualized rate of 1.03 million, 33.6% higher than a year ago.

Home prices rose for the seventh consecutive month in December, albeit a modest 0.3%. Prices continue to set the pace. The median sales price for existing single-family homes was $172,900 in Q409, down 4.1% from Q408.  Condominium sales prices showed a median of $177,300, down 4.8% from Q408. Based on S&P’s Case-Shiller home price index annual report, national housing prices have dropped 32% from Q206, troughed in Q109, and rebounded 6.3% by the end of 2009.

According to Trulia.com, the share of homes on the market reflecting price reductions had declined an average 21% as of February 1st representing a marked decrease compared to November 2009 when 26% of listed homes had exhibited at least one price reduction. The average discount for price-reduced homes is holding steady at 11% of the original list price. Trulia has been tracking price reduction data since April 2009.

January saw an unexpected drop in new home sales. The 11.2% tumble from December was the third consecutive monthly drop based on Commerce Department data. Estimates call for 374,000 new home sales in 2009, 22.9% fewer than 2008.

At the end of December, the seasonally adjusted estimate of new home inventory was 231,000, representing an 8.1-month supply of homes at the current sales pace.

New home starts rose in January to a seasonally adjusted annual rate of 591,000, the highest level in six months. Total starts were up nearly 3% for the month and rose in three of four regions analyzed by the US Commerce Department. The Northeast led the fray bouncing upward 10%, followed by the West, up 9%, and the South, +1%.  Conversely, the Mid-Western region saw a decline of 3.2%. Single-family housing starts were at a rate of 484,000 in January, up 1.5% from December’s revised rate of 477,000.

Building permit activity jumped 10.9% in December as builders anticipated the spring selling season and the April 30th deadline for homebuyer tax credit eligibility, only to decline 4.9% in January to an annualized rate of 621,000 units.  Single-family building permits were up 0.4% month-over-month in January and multi-family permits were down a significant 26% to an annual rate of just 96,000 units.

Data from Altos Research shows housing supplies steadily declined over the last 16 months.  The company advises that there are 20% fewer homes for sale now than there were in 2008. 

The current Pending Homes Sales Index, a forward-looking indicator based on contracts signed in December, increased 1% and now stands 10.9% higher than December 2008. This compares to a 16.4% decrease in November, as the initial tax credit legislation was about to expire. In December, the Midwest led with a 5.2% increase, followed by the Northeast, +2.3%, and the South, +2.2%.  The index fell 3.8% in the West but remains 18.6% above one year ago.

According to the Mortgage Bankers Association (MBA) rates for 30-year home loans rose above 5% for the first time in three weeks, the week ending February 26th.  Previously, mortgage rates had fallen two weeks in a row, ending the week of February 19th at 4.93%.  Rates had dropped to a record 4.71% in December and were 5.04% one year ago.

Seemingly contradictory, the MBA also reported a decrease in mortgage applications of 8.5% on a seasonally adjusted basis.  Weather and distressed housing conditions served to stall activity as snowed-in potential home buyers hunkered down, seeing no urgency to make the purchase decision.        

Based on current sales activity, builder confidence improved in February rising two points to its highest level since November. The component gauging sales expectations over the next six months rose a single point, and the component gauging traffic remained flat. On a regional basis, February’s results were mixed.  While the Midwest and South each registered two-point gains, the Northeast and West each registered one-point declines, suggesting weather influence.



Barometric Beat – The current employment situation is truly an albatross, not only to the unemployed, but also to economists who just can’t quite make sense of the indicators, and to those who rely on them to strategize. We understand the conundrum the data present and wish the media would do less to exacerbate the problem.  Refreshingly, we found a recent article in The New York Times that expounds the need to be cautious when attempting to understand and apply employment figures to economic conditions and future projections. Floyd Norris wrote on February 22nd:  “It snowed this month in much of the United States and that may create unnecessary fears that a double-dip recession is upon us.”  He goes on to opine that the Bureau of Labor Statistics (BLS) report scheduled for release on March 5th will more than likely suggest that a “double dip” may be in our future based on current conditions. However, he points out that the data will focus on the week of the 7th through to 13th when much of the east coast was ravaged by blizzards. In this regard, he hypothesizes that many people who actually had jobs may have reported they did not work during that particular week and similarly, companies may indicate they had fewer people on their payrolls. He goes on to cite an historic example.  In January 1996, the BLS employment report called for the loss of 206,000 jobs as the result of severe weather. Analysts deciphered it as evidence of a deteriorating economy that was “flirting with recession.” However, a month later, a “stunningly strong rebound” showed the addition of 705,000 new jobs resulting in the unemployment rate falling 3/10 of a percentage point to 5.5%. After numerous revisions, it was finally determined that just 19,000 jobs had been lost that January, and 434,000 jobs were added the following month.  The end result: job growth accelerated in 1996 and 1997 and GDP accelerated 4.4% in 1996 and stayed above 4% in 1997, 1998 and 1999, and the much-anticipated recession did not occur.  We offer this as perspective. While the Market Barometer’s job is to report raw data, misinterpretation has the ability to paralyze our industry. This condition was the reason for the creation of this publication in 1991. And as was the case during that particular period, a desire to move forward will have the greatest propensity to alter the outcome, and ultimately, history.     


Current Climate - January 2010

12 January 2010

Current Climate – The elephant may have left the building. But not before raising some hairs on the backs of economist’s necks. After gaining 4,000 jobs in November, revised estimates for December show a loss of 85,000 payroll jobs, mostly in construction, manufacturing and wholesale trade, while the health care sector gained 22,000 jobs and temporary help services added 47,000 jobs. The end result: Both the number of unemployed persons and the unemployment rate were unchanged in December, suggesting a flat condition and perhaps the initiation of upward movement. The average monthly decline for the second half of 2009 was 41,000 compared to 171,000 per month for the first half of the year. A static 10% unemployment rate for December reportedly puts the average for 2009 at about 9.3%. 

 

§ Thirty-six states and the District of Columbia recorded month-over-month unemployment rate decreases in November. The largest month-over-month increase in employment occurred in Texas (+17,300), followed by Ohio (+5,400), Georgia (+4,800) and Arizona and Iowa, each with +4,300 new jobs. The unemployment rate stood at 9.4% in November. Trying to determine a regional perspective is difficult as the diversity of location with respect to this particular job market is infinite; i.e., there appear to be few common denominators. That said, 11 of the 17 Metropolitan Areas with jobless rates of at least 15% are in California, while North Dakota represents the opposite end of the spectrum with the Bismarck MSA registering the lowest unemployment rate of 3.4%, followed by Fargo and Grand Forks, both reporting a rate of 3.7%. 

 

§ The Conference Board’s Leading Economic Index (LEI) posted gains of 0.9% and 0.3% in November and December, respectively, making December the ninth consecutive month of gains. Conference Board economist Ken Goldstein was quoted as saying “The indicators point to a bright new year.” The Commerce Department reports that retail sales increased 1.3% in November representing the strongest expansion since August, and the University of Michigan/Reuters Index for consumer sentiment jumped 8.9% in December, month-over-month.

 

§ The economy grew at an annual rate of 2.2% in Q3 2009, the first gain in more than a year. The median projection by economists surveyed in December suggests a 3% GDP growth rate for Q4.

 

§ The Consumer Price Index (CPI) rose 0.4% in November. Over the last 12 months the index increased 1.8%, the first positive 12-month change since February 2009.

 

§ Personal income increased 0.4% and disposable personal income increased 0.5% in November, on the heels of 0.3% and 0.5% increases in October. 

 

§ The Dow Jones Industrial average continues to be bullish, hovering in the 10,500 range most of this year. At this writing the market closed at 10,618, 300 points higher than reported in our last issue.  

 

 

 Housing Highlights – Builder outlook on sales conditions has remained steady for the last three months in spite of new home sales taking an 11.3% month-over-month dive in November. This translates to a seasonally adjusted sales pace of 355,000 new home sales, 9% below the same month one year ago. But the good news is that existing home sales rose again in November, up 7.4% on the heels of a 10.1% jump in October, to a seasonally adjusted annual rate of 6.54 million units. Regionally, the West led the fray with a 10.6% increase, followed by the Midwest (+8.4%); the Northeast (up 6.6%) and the South, +4.8%. Year-over year increases in sales ranged from 28.1% in the West to 53.5% in the Midwest.

 

§ A couple of the hardest-hit markets are seeing significant activity. In Florida, sales of existing single-family homes were 61% higher than November of 2008, and condominium sales were up a remarkable 111%. November was the 15th straight month for sales increases in the Sunshine State and total sales are not far from peak levels in 2005 when Florida Realtors reported 17,219 transactions that November. Needless to say, the demand generator is pricing which fell 12% year-over-year in November to a median of $139,000. Tallahassee, which is typically the last Florida market to revive, reported 174 homes sold in November, an increase of 74% year-over-year and the market’s median sales price dropped a comparatively nominal 5% to $162,000. Another Sun Belt market is reviving as well. According to DataQuick, Las Vegas sales are up 44% from the beginning of the year. The 4,787 new and resale homes and condominiums was the highest number of (November) sales for Vegas since 2006 when 5,803 homes were sold. November marked the 15th consecutive month that sales exhibited a year-over-year increase. Conversely, Las Vegas had seen 31 consecutive months of declining sales prices -- that is until the median price jumped 3.8%, month-over-month in November. 

 

§ Based on the 25-MSA RPX Monthly Housing Report produced by Radar Logic, housing prices declined a modest 0.7% for the month ending October 15th, the smallest decline for that period since 2005. The report also shows that prices actually increased month-over-month in 11 of the 25 MSAs. According to IHS Global Insight, the two-year-long housing price slide ended in Q309 with an increase of 0.2% over the previous quarter. In year-over-year terms, house prices increased 0.9%, on average, in Q309. While the benchmarks indicate a renaissance, 161 of the top 330 metro areas still report declines in prices, nevertheless representing a significant improvement over Q408 when prices dropped in 317 of the 330 metro areas. 

 

§ Housing starts rose a significant 8.9% in November to an annualized rate of 574,000. While the rate was 12.4% below what it was in November 2008, increases were nationwide. The Northeast leads the trend, rising 16.4%, followed by the South, up 12.3%. The Midwest and West regions were up a comparatively modest 3% and 1.9%, respectively.

 

§ The number of homes for sale declined 2.4% in November in the metro areas covered by ZipRealty, Inc.  In comparison, the rate of decline has averaged 1.8% in November over the last 25 years. The data do not include the New York MSA, but according to a local appraisal firm, inventory was down 7.1%, month-over-month in October and down 18% year-over-year.

 

§ Building permit activity rose 6% in November to a seasonally adjusted annual rate of 584,000 units, the highest level in a year. Single-family permits were up 5.3% to 473,000 units while multi-family permits rose 8.8% to 111,000 units. Three out of the four regions posted gains in housing permits with the Midwest posting the only decline (1.9%). November permit activity was 7.3% below the November 2008 level of 630,000.

 

§ The Pending Home Sales Index remains above the level of a year ago, in spite of falling 16% in November after nine straight months of growth. The November drop was expected in light of the anticipated expiration of the federal tax credit. However, another surge is anticipated in the Spring as homebuyers respond to the expansion of the bill. Buyers who have a contract in place to purchase a primary residence by April 30 have until June 30 to finalize the transaction to qualify for a credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

 

§ The national average 30-year loan commitment rate was 4.88% in November, down from 4.95% in October and 6.09% in November of 2008. The first week of the New Year saw an uptick and at this writing the rate is 5.09%, down from 5.14% the week prior. The Fed continues to hold the short-term interest rate at historically low levels, and speculation has it that this will not change until 2011, effectively serving to sustain attractive mortgage rates.       

 

 

Barometric Beat– All of the news is good news. You can’t twist it, manipulate it, or otherwise bastardize it -- but mainstream media persists in trying. In a recent blog posted on Bowden’s Beat we pointed out two articles that had been published on a national news website (on the same day) that were utterly contradictory. One article posited that “Jobs are on the Way” while the other, entitled “Joblessness is Here to Stay, flew in the face of it. While we admire the website for giving both positions exposure, they served to further confuse the issue by confronting facts with opinion.   While the positive article cited numerous real-time examples of upward employment movement, the negative article opined about what may happen if the US continues some of its policies, i.e., the crystal ball approach. In this regard, the positive article suggested that prognosticators have been behind the curve for years, citing an example published in the Wall Street Journal written by a Stanford professor entitled “Obama’s Radicalism is Killing the Dow.” The commentary noted that the article was published in March 2009 and since then the Dow had rallied more than 60%. Other paradoxical examples of the median maxim “bad news sells” include a recently published opinion that while the housing market “appears” poised for rejuvenation, it is an “illusion” and the rally is “artificial” supported purely by government stimulus. Conversely, another article points to the fact that there is no better time to purchase real property due to low prices, interest rates and incentives, and therefore, the rally has legs. And speaking of interest rates, many prognosticators had mortgage rates reaching 7% in 2009, yet here we are in 2010 continuing to hover at 5%. In our humble opinion, while the stimulus programs have helped to absorb standing inventory and spur buyer activity, first-time buyers are not the only market segment with interest in real estate. Thanks to the mounting stabilization of the housing industry, investors are re-entering the market, and move-up buyers are a very real consequence of the subsidized first-time buyer frenzy. To quote Marian Schaffer of SouthernWayofLife.com: “The Baby Boomer generation’s buying ability is powerful – more so than first time home buyer credits will ever be.” While we concur, we also know that Gen-X and Gen-Y represent every bit as large and powerful a cohort and the leading edge of these segments is moving into what we call “peak earning years.” In this regard, they will provide the demand for diversity in new and re-positioned master-planned communities. The challenge is to be ahead of the curve, not behind it. < >                                                                                                                                                                                                                                                                                                                                                                

 

Judith Shé, Managing Editor

Current Climate

24 November 2009

 The lagging indicator is starting to catch up. According to the Bureau of Labor Statistics, the unemployment rate crept up by a nominal 0.4 percentage point to 10.2% in October. For perspective, the rate was 10.8% in 1982, one of two double-dip or “W” recessions. The current unemployment rate is the highest since April 1983. That said, the 190,000 job loss in October is a significant improvement from the losses seen through 2008 which averaged 260,000 jobs per month; a Q4 2008 rate of 550,000 per month; and, 448,000 per month, on average, for the first nine months of this year. Further, initial unemployment claims continue to decline falling by 12,000 claims for the week ending November 7th. The bullish stock market shrugged off the jobless news ending the week 3% higher followed by achieving its highest level in more than a year (10,226.94) the following Monday. At this writing, the DOW closed at approximately 10,300 which is 500 points (5%) higher than reported in our October issue.

 

Leading economic indicators increased for the 7th straight month in October. Advance estimates for Q3 Gross Domestic Product (GDP) shows expansion at its quickest pace in two years and matching its average growth rate of the last 80 years. GDP increased 3.5% in October on the heels of a 0.7% decline in Q2. Gross private domestic investments jumped 11.5% in Q3 compared to 23.7% contraction in Q2. The increase in GDP primarily reflected positive contributions from personal consumption expenditures, exports, private inventory investment, federal government spending, and residential fixed investment. Residential investments rebounded 23.4%, which was the first since Q4 2005 that that particular indicator hasn’t been in the negative. 

 

The Consumer Price Index (CPI) rose 0.3% in October after decreasing 0.2% over the last 12 months. Primary factors included rising energy and transportation costs, however, the food index, also increased in October, rising 0.1% after declining in two of the previous three months. The current growth in the food category was achieved solely within the food away from home sub-sector, suggesting that consumers are returning to old spending patterns. This is supported by signs of continuing retail recovery. October U.S. comparable-store sales rose by 2.1% year-over-year according to the International Council of Shopping Centers Chain Store Sales Index. The gain was the strongest since April 2008, when sales rose 3.3%, and was the second consecutive monthly increase after 13 monthly declines. All major segments outperformed their year-to-date results including the luxury sector which posted a 1.8% increase. Neiman Marcus reported a 6% gain.  

 

 Housing Highlights

 

And here is the conundrum. In spite of stabilizing economic conditions, consumer confidence continues downward, falling to a reading of 47.7 in October from a revised September figure of 53.4. This is the second month in a row that the index has declined and is the lowest it has been since July. Nevertheless, the reading is up from 38.8 this time last year. The East North Central and Mountain regions were the only two regions to post monthly increases in consumer confidence, rising 24.14% and 22.98%, respectively. 

 


  • The nation’s homebuilders have similar contentions. Based on the NAHB/Wells Fargo Housing Market Index, home builders have experienced what they consider to be a nominal change in conditions with November’s index holding steady at 17. At 17, approximately one in six builders believed the market to be good or fair. Prior to the current housing situation, the index had not been below 20 in its 24-year history. The index has now been lower than 20 for 19 consecutive months. However, when the survey was conducted at the beginning of the month, builders were facing the imminent expiration of the first-time home buyer tax credit, which is no longer the case. It will be interesting to see where the pulse is in December.


 


  • The Lieberman-Isakson Amendment has been passed, extending the tax credit through April 30, 2010. But the amended bill is far more generous than the original. First time home buyers will continue to receive a tax credit of up to $8,000 but existing homeowners have been added to the mix and will be eligible for a credit of up to $6,500. The bill also increases qualifying income limits from $75,000 for singles and $150,000 for joint filers to $125,000 and $225,000, respectively.  The maximum home value associated with the program is $800,000. The House and Senate also acted to keep the conforming loan limit at $729,750 for high-cost areas through the end of 2010.  In combination, these revisions will serve to maintain activity at the entry level but now have the power to fuel the ignition of the move-up market as well. It has been estimated that these changes will result in approximately two million sales for an economic contribution of approximately $22 billion.


 


  • Home buyers rushing to take advantage of what they believed to be an expiring tax credit drove existing home sales up a record 9.4% in September to a seasonally adjusted annual rate of 5.57 million, the highest level in more than two years. The National Association of Realtors® (NAR) estimates that the initial tax incentive initiative will be responsible for about 350,000 sales this year.


 


  • Coordinately, existing home inventory levels posted a second consecutive month of declines falling 7.49% to a preliminary 3.63 million units in September. This is the largest monthly decline in inventory since December 2008. At the current sales pace, there is a 7.8 month supply on the market compared to 9.3 months in August.


 


  • Similarly, the number of home listings within 27 major US metros slipped 2.82% in October, month-over-month, and is down 28.65% year-over-year. (Source: ZipRealty) The combined number of MLS-listed single-family home and condominiums totaled 593,794, down from 611,026 in September. Markets with significant month-over-month declines (5% - 5.8% range) include Las Vegas, Minneapolis, Chicago and Seattle. West Coast markets lead the list of largest year-over-year declines (53.3% average). These included Los Angeles, San Diego, San Francisco Bay Area and Las Vegas.      


 

§ In October, sales were up 14% nationally with all four regions participating. The strongest region was the South, up 18.5%. The Northeast showed an increase of 16.3%, and the Midwest was up 13.6%. In comparison, the West, which had been leading the parade previously, showed an increase of 7.7%. 

 


  • On a quarterly basis, most states continued to experience rising existing home sales in Q3. Total existing home sales increased 11.4% to a seasonally adjusted annual rate of 5.3 million units from 4.76 million in Q2 and are now 5.9% above the 5.01 million unit pace year-over-year. Sales increased in 45 states and the District of Columbia, month-over-month and were higher in 32 states and DC, year-over-year; 28 states and the District saw double-digit gains. 


 


  • New home sales posted their first monthly decline since March after five consecutive monthly increases to a seasonally adjusted rate of 402,000 units. The Midwest was the only region to post an increase, jumping 34% month-over-month and 12.7% year-over-year. New home inventories declined to 253,000 and have not recorded a monthly increase since May 2007. New home inventory is now at its lowest level in more than 14 years.


 


  • Not surprisingly, housing starts posted a 10.6% decline in October to a seasonally adjusted level of 529,000 units. Total permits also slipped, falling 4% to a 552,000 unit pace as builders remain cautious about the future and keep a focus on equilibrium.


 


  • Pending home sales (PHS) rose again for the eighth consecutive month, the longest streak since the measurement was instituted in 2001. A forward-looking indicator, the PHSI rose 6.1% in September and is 21.1% higher than a year ago. The index is at its highest level since December 2006.


 

§ On the pricing front, the Case-Shiller Home Price Index reports continued moderation in the annual declines of residential prices marking approximately seven months of improved readings since early 2009, and the fourth month in a row. Nineteen of the 20 metro areas and both Composites showed an improvement in the annual rates of decline month-over-month. Cleveland was the only exception. “Broadly speaking, the rate of annual decline in home price values continues to improve” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. Based on the data, as of August 2009, average home prices across the United States are at 2003 levels.

 

§ In response to the belief that the home buyer tax credit was about to expire, mortgage applications dropped for the week ending November 13th. Lenders responded in kind by dropping mortgage rates to an average 4.91%, and again the following week to 4.83%.

 

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