Saturday, June 25, 2011

Summary for Week Ending June 24th

by Bill McBride on 6/25/2011 11:11:00 AM

Probably the three most talked about stories of the week were 1) the Greek financial situation, 2) the release of oil from the petroleum reserves, and 3) Fed Chairman Bernanke’s press briefing following the FOMC meeting.

Oil prices fell sharply after the announcement of oil releases from reserves. And gasoline prices are expected to continue to decline (Gasoline prices are already down over 30 cents per gallon from the recent peak).

There were no surprises with the FOMC announcement or during Bernanke’s press briefing. The Fed’s forecast for growth was revised down, and the forecast for the unemployment rate and inflation were revised up. The Fed believes that most of the recent economic weakness was temporary, and the increase in inflation was transitory. QE2 will end as scheduled and the Fed is clearly on hold waiting for additional data.

This was a light week for economic data: Home sales – both existing and new home sales – were weak. However durable goods orders were a little better this month, and there were several house price reports suggesting prices increased slightly in April (Case-Shiller will be released next Tuesday).

Below is a summary of economic data last week mostly in graphs:

May Existing Home Sales: 4.81 million SAAR, 9.3 months of supply

The NAR reports: Existing-Home Sales Decline in May

Existing Home Sales Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May 2011 (4.81 million SAAR) were 3.8% lower than last month, and were 15.3% lower than in May 2010.

Year-over-year InventoryThe next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Inventory decreased 4.4% year-over-year in May from May 2010. This is the fourth consecutive month with a YoY decrease in inventory.

Existing Home Sales NSAInventory should increase over the next couple of months months (the normal seasonal pattern), and the YoY change is something to watch closely this year.

This graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2011.

Sales NSA are well below the tax credit boosted level of sales in May 2010, but slightly above the level of May sales in 2009. The level of sales is still elevated due to investor buying.

New Home Sales in May at 319 Thousand SAAR

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 319 thousand. This was down from a revised 326 thousand in April (revised from 323 thousand).

New Home Sales and RecessionsThis graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new one-family houses in May 2011 were at a seasonally adjusted annual rate of 319,000 ... This is 2.1 percent (±10.7%)* below the revised April rate of 326,000, but is 13.5 percent (±13.6%)* above the May 2010 estimate of 281,000.

NHS InventoryStarting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 64,000 units in May. The combined total of completed and under construction is at the lowest level since this series started.

New Home Sales, NSAThis graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In May 2011 (red column), 30 thousand new homes were sold (NSA). The record low for May was 26 thousand in 2010 (following the expiration of the homebuyer tax credit) and now 2011. The high was 120 thousand in 2005.

Although above the consensus forecast of 305 thousand, this was just above the record low for May - and new home sales have averaged only 300 thousand SAAR since the expiration of the tax credit ... moving sideways at a very low level.

AIA: Architecture Billings Index indicates declining demand in May

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

AIA Architecture Billing Index This graph shows the Architecture Billings Index since 1996. The index decreased in May to 47.2 from 47.6 in April. Anything below 50 indicates a decrease in billings.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this suggests another dip in CRE investment towards the end of this year - and into 2012.

Moody's: Commercial Real Estate Prices declined 3.7% in April, Prices at new Post-Bubble Low

Moody's reported that the Moody’s/REAL All Property Type Aggregate Index declined 3.7% in April.

CRE and Residential Price indexes Here is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are down 13% from a year ago and down about 49% from the peak in 2007. Prices are at new post-bubble lows - and at new lows for the index.

Other Economic Stories ...
From CoreLogic: CoreLogic® Reports Shadow Inventory Continues to Decline
DOT: Vehicle Miles Driven decreased -2.4% in April compared to April 2010
• FOMC Statement: No Change, "Economic recovery is continuing at a moderate pace"
FHA sells record number of REO in May, Freddie Mac Serious Delinquency Rate declines
Q1 real GDP growth revised up to 1.9%, Durable-goods orders up 1.9%

Best wishes to all!