Wednesday, April 16, 2014

Thursday: Unemployment Claims, Philly Fed Mfg Survey

by Bill McBride on 4/16/2014 08:55:00 PM

Some more data from DataQuick: California March Home Sales

An estimated 32,923 new and resale houses and condos sold statewide in March. That was up 28.2 percent from 25,680 in February, and down 12.8 percent from 37,764 sales in March 2013, according to San Diego-based DataQuick.

Last month’s sales were the lowest for a March since 2008, when 24,565 homes sold – a record low for the month of March. California’s high for March sales was 68,848 in 2005. Last month's sales were 23.9 percent below the average of 43,251 sales for all months of March since 1988, when DataQuick's statistics begin. California sales haven’t been above average for any particular month in more than eight years.
Of the existing homes sold last month, 7.4 percent were properties that had been foreclosed on during the past year. That was down from a revised 8.0 percent in February and down from 15.0 percent a year earlier. California’s foreclosure resales peaked at 58.8 percent in February 2009.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 7.4 percent of the homes that resold last month. That was down from an estimated 9.3 percent the month before and 18.7 percent a year earlier.
A common theme now: As distress sales decline, overall sales decline too.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 320 thousand from 300 thousand.

• At 10:00 AM, the Philly Fed manufacturing survey for April. The consensus is for a reading of 9.1, up from 9.0 last month (above zero indicates expansion).

Lawler: Preliminary Table of Distressed Sales and Cash buyers for Selected Cities in March

by Bill McBride on 4/16/2014 05:11:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in March.

From CR: Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.

Foreclosures are down in most of these areas too, although foreclosures are up in the mid-Atlantic area and Orlando - and a little in Las Vegas (there was a state law change that slowed foreclosures dramatically in Nevada at the end of 2011 - so it isn't a surprise that foreclosures are up a little year-over-year).

The All Cash Share (last two columns) is mostly declining year-over-year.  As investors pull back, the share of all cash buyers will probably decline.  Toledo's cash share is up.

In general it appears the housing market is slowly moving back to normal.

Short Sales ShareForeclosure Sales Share Total "Distressed" ShareAll Cash Share
Las Vegas12.9%33.3%11.7%11.2%24.6%44.5%43.1%57.5%
Mid-Atlantic 6.4%11.4%10.9%10.7%17.3%22.1%19.9%20.6%
So. California*7.7%18.7%6.4%13.8%14.1%32.5%29.1%35.1%
Hampton Roads    24.5%28.4%  
Northeast Florida    39.1%40.2%  
Toledo      40.7%38.9%
Des Moines      20.8%19.1%
Tucson      33.5%35.0%
Georgia***      33.8%NA
Houston  6.8%12.3%    
Memphis*  18.5%26.7%    
Springfield IL**  14.0%26.1%    
*share of existing home sales, based on property records
**Single Family Only

Fed's Beige Book: "Economic activity increased in most regions"

by Bill McBride on 4/16/2014 02:07:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Richmond and based on information collected before April 7, 2014."

Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. The expansion was characterized as modest or moderate by the Boston, Philadelphia, Richmond, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco Districts. Chicago reported that economic growth had picked up, and New York and Philadelphia indicated that business activity had rebounded from weather-related slowdowns earlier in the year. The Cleveland and St. Louis Districts both reported a decline in economic activity.
And on real estate:
Reports on residential housing markets varied. However, across most Districts, home prices rose modestly and inventory levels remained low. Residential construction increased in several Districts; only Cleveland, St. Louis, and Minneapolis reported a decrease. ...

Commercial construction activity strengthened since the previous survey period for the Kansas City and Dallas Districts. The Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco Districts reported modest to moderate expansion in commercial construction. Philadelphia noted mild growth, while Cleveland reported a slight decline in commercial construction.
emphasis added
Some positive comments on commercial real estate.  This is similar to the previous beige book, but it appears there is some weather related rebound in some areas.

Yellen: Three Big Questions for the FOMC

by Bill McBride on 4/16/2014 12:20:00 PM

From Fed Chair Janet Yellen: Monetary Policy and the Economic Recovery. Excerpts:

Is there still significant slack in the labor market?
I will refer to the shortfall in employment relative to its mandate-consistent level as labor market slack, and there are a number of different indicators of this slack. Probably the best single indicator is the unemployment rate. At 6.7 percent, it is now slightly more than 1 percentage point above the 5.2 to 5.6 percent central tendency of the Committee's projections for the longer-run normal unemployment rate. This shortfall remains significant, and in our baseline outlook, it will take more than two years to close.

Other data suggest that there may be more slack in labor markets than indicated by the unemployment rate. For example, the share of the workforce that is working part time but would prefer to work full time remains quite high by historical standards. Similarly, while the share of workers in the labor force who are unemployed and have been looking for work for more than six months has fallen from its peak in 2010, it remains as high as any time prior to the Great Recession. ...

The low level of labor force participation may also signal additional slack that is not reflected in the headline unemployment rate. Participation would be expected to fall because of the aging of the population, but the decline steepened in the recovery. Although economists differ over what share of those currently outside the labor market might join or rejoin the labor force in a stronger economy, my own view is that some portion of the decline in participation likely represents labor market slack.

Lastly, economists also look to wage pressures to signal a tightening labor market. At present, wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration.

Is inflation moving back toward 2 percent?
I will mention two considerations that will be important in assessing whether inflation is likely to move back to 2 percent as the economy recovers. First, we anticipate that, as labor market slack diminishes, it will exert less of a drag on inflation. However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.10 Second, our baseline projection rests on the view that inflation expectations will remain well anchored near 2 percent and provide a natural pull back to that level. But the strength of that pull in the unprecedented conditions we continue to face is something we must continue to assess.

Finally, the FOMC is well aware that inflation could also threaten to rise substantially above 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent, but we must always be prepared to respond to such unexpected outcomes, which leads us to my third question.

What factors may push the recovery off track?

Myriad factors continuously buffet the economy, so the Committee must always be asking, "What factors may be pushing the recovery off track?" For example, over the nearly 5 years of the recovery, the economy has been affected by greater-than-expected fiscal drag in the United States and by spillovers from the sovereign debt and banking problems of some euro-area countries. Further, our baseline outlook has changed as we have learned about the degree of structural damage to the economy wrought by the crisis and the subsequent pace of healing.
Currently Yellen sees substantial slack in the labor market, and is more concerned about low inflation than high inflation. This suggests rate will be low for a long time.

A comment on Housing Starts

by Bill McBride on 4/16/2014 11:27:00 AM

There were 203 thousand total housing starts in Q1 this year (not seasonally adjusted, NSA), down 2% from the 208 thousand during Q1 of 2013.  Note: Permits were up 6% in Q1 2014 compared to Q1 2013 - still weak growth, but positive.

The weak start to 2014 was due to several factors: severe weather, higher mortgage rates, higher prices and probably supply constraints in some areas.

It is also important to note that Q1 was a difficult year-over-year comparison for housing starts.  There was a huge surge for housing starts in Q1 2013 (up 34% over Q1 2012).  Then starts softened a little over the next 7 months until November.

Starts Housing 2013 and 2014Click on graph for larger image.

This year, I expect starts to be stronger over the next couple of quarters - and more starts combined with an easier comparison means starts will be up solidly year-over-year.

 In 2013, the year-over-year comparisons ranged from a high of 42% to a low of just 2% - so there is quite a bit of variability.  Overall starts finished up a solid 18.5% last year compared to 2012, and I still expect solid growth this year.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family completions in 2014, but probably still below the 1997 through 2007 level of multi-family completions.  Multi-family starts will probably move more sideways in 2014.

Single family Starts and completionsThe second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts have been moving up, and completions have followed. 

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

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