Category: Real Estate

Economics Update

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Another Transportation Indicator of Non-Recovery

The Federal Reserve has released its Industrial Production and Capacity Utilization data, and it shows a 0.6% increase in December, though, as Dean Baker notes, it would have fallen but for increased electricity and gas consumption from the weather.

This is kind of in line with the LA/Long Beach port traffic data for December, the last 3 months of the year were down -9.2% year over year, though they were up +2.9% Y0Y in December.

As the associated graph pr0n shows, there is a big seasonal variation, so only YoY is the only meaningful data.

Still, the Empire State Fed Index is at 15.9, with numbers above zero indicating expansion, and Reuters/University of Michigan index of consumer sentiment rose to 72.8, though this was less than the forecast of 74.

Inflation is mooted, CPI rising by only 0.1% in December, and the figure, at least the initial inflation number, for the year was 2.7% inflation in 2009, largely on the fact that energy and other commodity prices are much higher, +50% on a gallon of gas, for example.

Ex-energy, we are still looking at deflation.

In real estate, once again, New York City is not doing, well, which means that no one is doing well, with properties across the 5 boroughs rising by only 0.12%, $1,200 on a million dollar property for the mathematically disinclined, and in Manhattan, rents fell 9.4%.

Finally, we had warm weather pushing oil down again, and the dollar rose.

Economics Update

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Unemployment, SA vs NSA, h/t Brad Delong

Well, it’s Thursday, and initial unemployment claims rose for the 2nd straight week, once again worse than forecast.

What might be more significant is the significant divergence between seasonally and non-seasonably adjusted numbers, because the NSA unemployment number was 800,000 initial claims. (see graph pr0n)

The 4 week moving average continued to fall though, down 9,000 to 440,750 and the continuing claims number fell by 211 thousand to 4.596 million, though it should be noted that all these numbers are seasonally adjusted, and it appears that the adjustments are getting a big hinky.

In any case, the DoL’s numbers are here.

Retail sales also were below forecast, with the December number showing a -0.3% drop, missing analysts expectations of +0.5%.

We do have some good news though, with business inventories rising in November; it is the 2nd straight month, and the 2nd month-to-month increase in 15 months.

In real estate, foreclosures rose 14% in December, and total defaults for 2009 hit a record, 2,824,674, up 21% from 2008, and more than double the number for 2007.

In central bank land, Chilean central bank kept it’s rate at 0.5%, as the economy in the Latin American nation remains mired in recession and deflation.

In the US, the bad financial numbers had Treasurys rising as investors looked for safety.

In energy, warmer weather continued to push oil prices down, while in currency, the dollar was essentially unchanged.

Economics Update

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H/t Calculated Risk

The Federal Reserve has released its “Summary of Commentary on Current Economic Conditions”, better known as the “Beige Book”, and there has been a small improvement.

I’m not sure where the improvement is, since transportation indices continue to disappoint, with the American Association of Railroads’ report on carload traffic showing the lowest level since 1988, and if goods aren’t moving, then people aren’t buying.

Meanwhile the trend in mortgages, with refinancing increasing and mortgages for purchases falling, continued this week.

Overseas, the GDPs of Britain and Germany both suffered the largest drop since before the 2nd World War, -4.8% and -5.0% respectively, while in Japan, machinery orders fell sharply in November.

In the world of US government finance, the US budget deficit doubled year over year in December, which probably had something to do with bond prices being mixed, with the 10-year bond falling slightly, and the 30-year bond rising slightly. (Yields move in the opposite direction of prices)

In energy, oil fell below $80/bbl, on reports of increasing US fuel inventories.

In currency, the dollar was mixed, down slightly versus the Pound and Euro, but up slightly versus the Yen.

Economics Update

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Slow news day, with the only non-energy/currency news being that non-foreclosure U.S. Mortgage Delinquencies 9.8% in November, a 5.5% increase over October, and a 21% increase year over year.

In the old reliables of energy and currency, we see gasoline prices back in the news, the the price of a gallon of regular unleaded approaching $3.00, though crude oil fell on forecasts of warmer weather in the US and Europe.

In currency, the dollar fell to a 3 week low, largely on the expectation of continued low rates, as well as indications of a recovery, and higher interest rates, in China.

Paul Krugman Destroys the Fannie/Freddie CRA Myth

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Paul Krugman looks at both home and commercial real estate, and notices that they had a virtually identical trajectory.

So the bubble in commercial real estate, where Fannie and Freddie do not lend, and where the Commercial Reinvestment Act held no sway, had just the same sort of bubble.

From my perspective, the CRE bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble.

While I agree that the graph shows that government involvement in the US residential real estate market did not produce the crisis, I do think that the bubble was an artifact of excessively lax lending standards and excessively low interest rates, and these were an artifact of government policy, at least if you consider the actions of then Federal Reserve Board, and its Chairman Alan “Bubbles” Greenspan to be government acts.

Krugman Just Called Ben Bernanke a Wanker

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In his New York Times blog.

It was pretty polite, but it was also rather firm:

Here’s the story of two metro areas, Los Angeles (which has run out of room to sprawl) and Atlanta, the ultimate Sprawl City:

Huge bubble in LA; nothing in Atlanta. Looking at the national data was deeply misleading.

So here’s one of the charts from Bernanke’s paper at the meetings:

Yep, he’s using average US housing prices as a bubble indicator. This wouldn’t matter if the division between Flatland and the Zoned Zone was comparable across the advanced world, but it isn’t: other advanced countries lack sprawling metros comparable to Atlanta or Houston. So we aren’t learning much from this comparison.

And the whole thing suggests that the Fed hasn’t learned much about how to identify housing bubbles.

(emphasis mine)

Meow! I whole heartedly approve.

Economics Update

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H/t Calculated Risk

Well, the ADP private employment survey is saying that the private sector lost 84,000 jobs in December, and the Institute for Supply Management’s non manufacturing index rose to 50.1, up from 48.7 in November, and not as good as forecast, but still showing a smidgen of growth.

Real estate was rather grim though, with mortgage applications hitting (seasonally adjusted) a 6 month low, and mortgage purchase applications (top pic) hitting a 12 year low.

Basically this means that people are not buying homes, they are just refinancing, though, with interest rates inching up, they aren’t doing that as much either.

Additionally, a feature of suburban blight, the strip mall, is taking a hit with vacancies hitting 10.6%, an 18 year high.

I keep saying it, but no one listens: we need some inflation here.

In energy, the cold weather drove both crude oil and natural gas higher, while in currency, the dollar fell slightly vs. the Euro, as traders make up their minds about whether to be optimists of pessimists.

Economics Update

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If anyone thinks that real estate can lead us out of of a recession, or even that we can, as Mssrs. Obama, Geithner, Summers, etc., think that we can reinflate the bubble, you need to look no further than the National Association of Realtors (NAR) Pending Home Sales index, which fell 16% in November well under the forecast of -2%, though it is still up year over year.

They are trying to reinflate a balloon with a hole in it.

In any case, the horrible housing numbers drove treasury prices up as investors fled to safety.

It does appear, however, that foreign investors were going elsewhere, with the dollar falling against the yen, and in energy .

Economics: Year End Data Points

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H/t The Big Picture

The stock market is up significantly for the year, but note that the picture is for the Dow Jones Industrial Average, which is at best an imperfect gauge.

Also note that rents fell 3.5% in 2009, once you factor in things like months of free rent and flat screen TVs (!) for signing a lease.

That means that home prices need to fall an additional 3.5% to hit historical rent-own ratios.

But if the real estate news presages deflation, then the fact that commodities posted their biggest annual gain since 1971, which indicates that once a real recovery starts, prices may go up significantly.

Since, I actually favor inflation as a way to get out of this mess, people repay loans in devalued currency, and hence are better able to pay off those loans, I’m hoping for significant (6-10%) inflation in the near future.

Economics Update (For the Week)

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Yes, it does appear that the seasonal adjustment for the week after Christmas is whack

The lede for the week is obviously that first time unemployment claims fell to the lowest level in 17 months, down 22K to 432K, though, as Brad Delong notes, this is likely because of problems with the seasonal adjustment for this week. (See graph pr0n).

Continuing claims, as well as the 4 week average fell too, but emergency claims, for people (like me shortly) who exhausted their regular benefits (i.e. out of work more than 6 months), rose sharply, by 199 thousand to 4.82 million, a 4.1% jump in one week. (!)

Earlier this week, the Institute for Supply Management released its Chicago index, aka the Purchasing Managers’ Index (PMI), and it unexpectedly jumped to 60 in December from 56.1 in November………Only they just revised it, and oops, it the PMI was only 58.7, largely on a downward revision on employment…………Happy, happy, joy, joy.

That’s not to say that the numbers aren’t better, they are better, much like the ATA Truck Tonnage Index November numbers, and the ShopperTrak year over year retail sales for last week, though the latter saw a drop in traffic.

In real estate, the 30-year fixed mortgage rate rose to a 4 month high, 5.14%, which is still at a level which is historically low, and the recent uptick in housing prices seems to have petered out, with the Case-Shiller index showing flat prices in October, following 4 straight months of price increases.

This is unsurprising, as home price subsidy new home buyer tax credit was supposed to end in November, and homes needed to close by November 30, which meant that there were a lot of sellers who knew that they had to move their houses quickly, or not at all.

Houses are still well above trend, both in terms of rent to own price to income ratio, though you still have claims that housing affordability is better than the historical numbers, because the mortgage rates are still incredibly (see above) low.

If rates return to their historical levels, about 9% for the 30-year fixed, we have a downward pressure on house prices of roughly 1/3, because people buy houses on monthly payment, not price.

We do have some good international news, with South Korean exports rising rapidly, and Chinese manufacturing growing at a 20-month high, though I wonder how much of the latter is the result of provincial bureaucrats goosing the numbers, or encouraging local industries to over produce, in order to score brownie points with Beijing.

Economics Update

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New Home Sales Not Just Ugly, but Fugly!
h/t Calculated Risk

Yesterday, I noted the jump in existing home sales, and posited that this was almost entirely due to people rushing to get in under the wire on the new home buyer house credit, well today, we have the new home sales numbers, and they plunged by 11.3%, which validates my thesis.

Basically, existing home sales numbers are recorded at closing, while new home sales are recorded when the contract is signed, which means that the new home sales numbers lead existing home sales by 30-60 days, so we have a snapshot of what happens when people rushing to secure a tax credit stop rushing, and it ain’t pretty.

It also explains why home mortgage application volume fell.

As I’ve said before, real estate won’t lead us out of a recession, it will follow.

On the other hand, personal income and spending rose in November, which is a sign of improvement, and the latest CNN/Opinion Research and Reuters/University of Michigan surveys show an improvement in consumer sentiment, though of the “slightly less suckage” rather than the “going well” variety..

One interesting development in the 3rd quarter of this year was that central banks have cut purchases of dollars for reserves to a record low, “30 percent of new foreign-exchange reserves,” which implies a slow walk away from the dollar by central banks.

Even so, the dollar rose today, and Oil also rose on a surprise drop in inventories………Which raises the question, why are inventories always surprising folks?

Economics Update

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H/t Barry Ritholtz

New home sales, effect of tax credit h/t Barry Ritholtz basic graph h/t Calculated Risk


H/t Calculated Risk

So, we have another revision of the GDP numbers for the 3rd quarter, and the GDP number falls again, down from an initial estimate of 3.5% to the first official figures of 2.8%, and now it has been revealed that the GDP grew at just 2.2%. (top pic)

The more accurate data that comes in, the worse the news.

As an aside, the US Bureau of Economic Analysis always does this, that is to say that the numbers get worse when better data comes in, which implies a systemic problem that needs to be fixed.

On the other hand, the UK initial numbers were revised in the opposite direction, with a contraction of -0.2%, up from the initial estimate of -0.3%.

The news from down under is not grand either, with the New Zealand economy’s GDP missing forecasts.

Still, the Philadelphia Bank of the Federal Reserve’s State Coincident Index looks better (bottom pic), with at least marginal levels of growth in 1/3 of the states.

On the other hand, we had some good news in real estate, where the National Association of Realtors has reported existing home sales rose 7.4%, to the highest level since February 2007:, though even the NAR admits that this is largely due to people rushing to buy houses before the home buyer tax credit expires.

As both CR and Barry Ritholtz note (2nd pic), this a function of changes and/or perceived changes in tax policy, so December will give a real picture of where the housing market is.

It should be noted that a remarkably unpleasant milestone was passed though with, the number of mortgages in national banks, which report to the OCC, reporting that for the first time ever, over one million mortgages were in foreclosure in the 3rd quarter.

Additionally, we are seeing signs of problems among small banks and businesses, with more small bank TARP recipients not paying dividends [on edit: a clarification, they are not paying dividents on their RARP money, so they are technically in default], and small business bankruptcies are up 81% YoY in California.

In energy, OPEC kept oil production levels flat, but has promised to more rigorously enforce the current limits, which is a de facto (but rather small) cut in production, which drove oil higher, even though the dollar rose on the surprisingly strong home sale report.

Economics Update

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More bad news in real estate, with commercial real estate prices falling to a 7-year low, and the latest figures on home prices showing a year over year decline of 7.8%.

More generally, the Chicago Bank of the Federal Reserve’s economic index rose slightly in November, from -1.02 in October (indicating growth below the historical trend) to -0.32 (indicating growth below, but closer to the historical trend).

We also had good news in Japan, where exports rose sharply.

In treasurys, bond prices fell, as investors moved into US equities.

To move into those equities, foreign investors bought dollars, which drove the dollar, and the rising dollar drove oil down.

Economics Update

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Well, someone sliced and diced the numbers, and the unemployment picture continues to improve, with unemployment dropping in 36 States in November, though this U3, and not the more expansive, and to my mind more accurate U6.

We are also seeing a marked improvement in German business confidence this month.

In real estate, we have another shoe dropping, with Moody’s Investors Service stating its intend to review $143 billion in residential mortgage backed securities (RMBS) with an eye toward downgrading them, because their loss rates have continued to climb.

In currency and energy, the reversed the past few days’ course, with oil rising, and the dollar weakening, but these may just be traders unwinding positions that they accumulated over the past week.

Economics Update

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h/t Calculated Risk

Yea, sure, the recession is over. That’s why initial jobless claims rose again this week, up 7000 to 480,000, and continuing claims rose as well, though the 4-week average fell.

I’m beginning to think that those “stunning” NFP payroll numbers in November were an artifact of a seasonal correction of some kind.

In any case, real estate is not looking so hot, with the 30-year fixed mortgage rate rising again, and the estimates for the “shadow inventory” in housing , basically homes that are being foreclosed on, or are being held off the market by the foreclosing institutions to keep from depressing prices too much was revised upward:

The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic.

The “shadow inventory” rose from 1.1 million a year earlier. Such properties include those taken over by banks and mortgage companies and those where the loans are at least 90 days delinquent, the Santa Ana, California-based research firm said in a report today. The number of unsold homes listed for sale was 3.8 million in September, down from 4.7 million a year earlier, First American said.

So I think that any claim to a recovery in residential real estate has been, greatly exaggerated.

That being said, the Conference Board’s Index of Leading Economic Indicators, as well as the Philadelphia Federal Reserve Bank’s Business Outlook Survey both showed signs of growth, though, as Calculated Risk notes, the recovery is weaker than in earlier months, indicating, perhaps, the start of a “W” downturn.

In either case, the LEI and the Philly Fed report did not seem to have much of an effect on Treasuries, which rose, meaning that the yield dropped, largely on concerns about Greece.

This sentiment also drove the dollar up.

In energy, the strong dollar drove oil down, but natural gas rose, largely on the cold weather and smaller than expected inventory numbers.

Economics Update

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Rent-price ratio h/t Calculated Risk

So, the Open Marked Committee of the Federal Reserve left rates unchanged, though they do seem set on ending their quantitative easing over the next few months:

In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009.

Full FOMC statement is after the break.

The bond markets responded with Treasurys falling, and yields rising.

We actually saw a non trivial inflation rate in November, with the Consumer Price Index rising 0.4% in November, though that was energy and food, the core rate was 0%.

There is a troubling data point in the data though, rent, and owners’ imputed rent both fell, which is not a problem in terms of inflation, but is in terms of real estate.

Basically, even with house prices having fallen in the past 2 years, they are still above the traditional price-to-rent ratio trend, and as rents, fall, homes have to fall further to get back to the traditional (and sane) range, so there is more pain in real estate.

In more real estate news, new home construction jumping 8.9% from October to November, though it is down 12.4% year over year, (PDF link) while mortgage applications, and the rate for a 30-year fixed mortgage, rose marginally last week.

The statements on the unwinding of quantitative easing pushed the dollar up.

In energy, oil rose again, on reports of falling inventories.

Press Release

Release Date: December 16, 2009

For immediate release

Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Economics Update

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H/t Calculated Risk


H/t Calculated Risk


The 2006 spike is just before the new bankruptcy law
h/t Calculated Risk,

Well, we are in for a bumpy ride, with the Federal Reserve Bank of New York’s Empire State Manufacturing Survey falling 21 points in November. (top pic)

It’s still positive, barely, meaning that there is expansion, but it is a rather precipitous drop.

We also saw US industrial capacity utilization rise in November, (2nd pic down) so it appears that there is an upswing going on, albeit a slow one.

Even so, we are saw both homebuilder sentiment falling (3rd pic down), credit card chargeoffs rising (bottom pic), and the Architecture Billings Index falling in November on the other side of the ticket.

In energy, oil rose for its first time in 10 days, and in currency, the dollar was up, hitting an October high.

Did Prosperity Gospel Housing Crash?

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Hanna Rosin has a fascinating article about the increasingly popular Prosperity Gospel, which teaches that virtue is rewarded with wealth in this world, may have been at the core of the housing bubble and associated crash:

America’s mainstream religious denominations used to teach the faithful that they would be rewarded in the afterlife. But over the past generation, a different strain of Christian faith has proliferated—one that promises to make believers rich in the here and now. Known as the prosperity gospel, and claiming tens of millions of adherents, it fosters risk-taking and intense material optimism. It pumped air into the housing bubble. And one year into the worst downturn since the Depression, it’s still going strong.

It’s something that I’ve never thought about, but I do tend to see the correlation between someone assuming that their own personal virtue will somehow trump the house price to income ratio, and engaging in reckless behavior, and as Rosin further notes:

Demographically, the growth of the prosperity gospel tracks fairly closely to the pattern of foreclosure hot spots. Both spread in two particular kinds of communities—the exurban middle class and the urban poor. Many newer prosperity churches popped up around fringe suburban developments built in the 1990s and 2000s, says Walton. These are precisely the kinds of neighborhoods that have been decimated by foreclosures, according to Eric Halperin, of the Center for Responsible Lending.

Certainly, they fit hand in glove with the housing boom and bust, as does the explicitly atheist philosophies of Ayn Rand and Objectivism, which would tend to imply at least a supporting role.

Of course, this attitude has its genesis at the beginning of European colonization of this country.

The Pilgrims, as good Calvinists, believed that predestination implied financial success, and this idea has carried forward 4 centuries since.

As a Jew, I see the focus on rewards in heaven in most mainstream Christian denominations to be a bit unseemly, Judaism downplays the afterlife, focusing on the mission of Tikkun Olam (Mending the world), but prosperity gospel has always seemed to me to be, a perversion of faith as well as being insincere: After all, what is there to religion if you get something for nothing.

I would note that Rev. Rick Warren, with whom I agree on very little is of largely the same opinion, saying that, “This idea that God wants everybody to be wealthy? There is a word for that: baloney. It’s creating a false idol. You don’t measure your self-worth by your net worth. I can show you millions of faithful followers of Christ who live in poverty. Why isn’t everyone in the church a millionaire?”

All in all, it’s an interesting read, and gives a view of a theology that I find profoundly disturbing.

Why is the Best Person on Obama’s Economic Team is a Bush Appointee

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I am referring, of course to Sheila Bair, who is now trying to use the FDIC’s leverage over banks that have loan loss sharing agreements with the agency to offer principal reductions on homes:

Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

The FDIC, which has taken over 124 failed banks this year, may seek to have lenders that sign loss-sharing agreements when acquiring the assets do more than cut interest rates or defer the loan’s principal, Bair said today in an interview at Bloomberg’s Washington office.

“We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”

Good for her, though it reflects very poorly on Obama that his people are being shown to be in the pockets of the finance industry.

Economics Update

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H/t New York Observer

We have another sign of “green shoots,” with wholesale inventories rising for the first time in 13 months.

I’m not sure if this is a trend, or if wholesale inventories are hitting a kind of “zero bound”, where it just cannot go any lower.

We also saw treasurys falling, and yields rising, after a weak auction of 10 year treasuries.

In real estate, mortgage applications hit a 2-month high, largely on people refinancing to lock in lower rates, but more significant is the fact that the best estimate of losses in home value in 2009 was $500 billion, which, surprisingly enough is a major improvement, as home values fell $3.6 trillion.

In currency, the dollar fell today, most likely on profit taking after 3 straight days of gains, and in energy, oil fell on more reports of strengthening inventories.