by Calculated Risk on 9/20/2011 01:41:00 PM

Since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - it makes sense that there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling total.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

Click on graph for larger image in graph gallery.

The rolling 12 month total for starts (blue line) is now above the rolling 12 month for completions (red line), and they are heading in opposite directions (although completions ticked up a little in August).

It is important to note that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). Still this is bright spot for construction.

Housing Starts and the Unemployment Rate

The following graph shows single family housing starts (through August) and the unemployment rate (inverted) through August. Note: there are many other factors impacting unemployment, but housing is a key sector.

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts have moved sideways for the last two and a half years and this is one of the reasons the unemployment rate has stayed elevated.

With the huge overhang of existing housing units, this key sector hasn't been participating in the recovery. This is what I expected when I first posted the above graph over two years ago!

The good news is residential investment in multi-family and home improvement is increasing modestly, but construction job growth will remain sluggish until the excess housing supply is absorbed.

Earlier:
• Housing Starts decline in August

by Calculated Risk on 9/20/2011 11:15:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for August 2011. In the past month, the indexes increased in 26 states, decreased in 17, and remained unchanged in seven for a one-month diffusion index of 18. Over the past three months, the indexes increased in 33 states, decreased in 16, and remained unchanged in one (Maryland) for a three-month diffusion index of 34.

Note: These are coincident indexes constructed from state employment data. From the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In August, 30 states had increasing activity, the lowest number since January 2010. Looking back at previous recessions, the current level is close to when the U.S. entered recession - however it is important to remember that August was an especially weak month due to the debt ceiling debate.

In February, 47 states showed increasing activity.

Here is a map of the three month change in the Philly Fed state coincident indicators. Several states have turned red again. This map was all red during the worst of the recession, and all green not long ago.

Earlier:
• Housing Starts decline in August

by Calculated Risk on 9/20/2011 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 571,000. This is 5.0 percent (±10 6%)* below the revised July estimate of 601,000 and is 5.8 percent (±12.0%)* below the August 2010 rate of 606,000.

Single-family housing starts in August were at a rate of 417,000; this is 1.4 percent (±10.3%)* below the revised July figure of 423,000. The August rate for units in buildings with five units or more was 148,000.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 620,000. This is 3.2 percent (±1.0%) above the revised July rate of 601,000 and is 7.8 percent (±1.4%) above the August 2010 estimate of 575,000.

Single-family authorizations in August were at a rate of 413,000; this is 2.5 percent (±0.9%) above the revised July figure of 403,000. Authorizations of units in buildings with five units or more were at a rate of 178,000 in August.

Click on graph for larger image in graph gallery.

Total housing starts were at 571 thousand (SAAR) in August, down 5.0% from the revised July rate of 601 thousand (revised from 604).

Single-family starts declined 1.4% to 417 thousand in August.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have been mostly moving sideways for about two years and a half years - with slight ups and downs due to the home buyer tax credit.

Multi-family starts are increasing in 2011 - although from a very low level. This was below expectations of 592 thousand starts in August, but permits increased in August suggesting a slight increase for starts in September.

Still "moving sideways".

by Calculated Risk on 9/19/2011 09:10:00 PM

From the WSJ: Greece Strikes Optimistic Note on Aid Talks

Greece said it had "a productive and substantive discussion" with its official creditors on Monday ... and a Greek finance ministry official said an agreement was close. ... A Greek official said an announcement was likely on Wednesday.
...
"We will publish this week decisions on the restructuring of public bodies," [Finance Minister Evangelos Venizelos] told a business conference Monday. "In light of the new budget, it is clear that our emphasis will be on the spending side."

From Bloomberg: Italy Rating Lowered by S&P, Outlook ‘Negative’

Italy’s credit rating was cut by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden.

The rating was lowered to A from A+, with a negative outlook, S&P said in a statement.

by Calculated Risk on 9/19/2011 05:30:00 PM

From economist Tom Lawler:

Based on a fair amount of data from local realtor associations/boards/MLS across the country, I project that existing home sales as estimated by the National Association of Realtors will come in at a seasonally adjusted annual rate of about 4.92 million for August, up 5.4% from July and up 15.8% from last August. Unadjusted sales should show a higher YOY gain – over 18% -- reflecting the higher business day count/seasonal factor this August vs. last August.

This estimate is significantly above the “consensus” forecast of 4.75 million SAAR, but it is what the local data available suggest. A sizable number of markets showed YOY gains of 20% or more (in some cases by a lot), including (but not limited to) a fair number of markets in the middle of the country. Of course, sales in many of those markets were extremely weak last August, which was pretty soon following the expiration of the homebuyer tax credit.

On the inventory side, there is absolutely no doubt that the inventory of homes for sale fell from the end of July to the end of August, and was down significantly from a year ago nationwide. E.g., the “Department of Numbers” website (formerly and more appropriately named “HousingTracker”) shows that active residential listings in the 54 metro markets it covers declined by 2.6% (monthly average of weekly data) from July to August, and were down 14.1% from last August. While these 54 metro areas don’t generally represent the US as a whole, other markets not in this report that I follow on average had similar, though somewhat smaller, declines. NAR inventory figures do not always follow what MLS listing reports might suggest, however. Moreover, NAR inventory numbers this year have not shown the same YOY % declines as various aggregated listings reports.

A “best guess” would be that the NAR’s inventory number for August will be down 2.5% from July, and down 13.5% from last August. If that turns out to be the case, then August’s “months’ supply” number (unadjusted inventory divided by seasonally adjusted monthly sales!) would come in at 8.7 months, down from 9.4 months in July, and 11.7 months last August.

CR Note: The NAR is scheduled to report August existing home sales on Wednesday at 10 AM ET.

by Calculated Risk on 9/19/2011 03:36:00 PM

From Bloomberg: Greece’s Next Aid Payment in the Balance as Review Resumes

European Union and International Monetary Fund inspectors began a teleconference today at 7:22 p.m. Athens time [12:22 PM ET] with Finance Minister Evangelos Venizelos and other officials to judge whether the government is eligible for an aid payment due next month...

No official announcement will be made after the call, which may last until the early morning and could resume tomorrow or at a later time, the Athens-based Finance Ministry said in an e- mailed statement. There is no Greek Cabinet meeting scheduled tomorrow ...

"The only thing that is on the table is full compliance with the agreed targets. No more, no less," [European Commission economics spokesman Amadeu Altafaj] said, adding that only after today's conference call will the commission "be in a position to communicate further on the next steps." ...

Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year.

We might not hear anything for a few days.

The Greek 2 year yield increased to 61.4%. The Greek 1 year yield increased to 126%.

by Calculated Risk on 9/19/2011 01:10:00 PM

From Eric Wolff at the North County Times: The bigger the loan, the longer to foreclose

When it comes to foreclosing, lenders see some delinquent homeowners as more equal than others.

Mortgage debt of more than a half-million dollars seems to get lenders to look the other way for an extra month compared with those who owe far less, according to a North County Times analysis of foreclosure records.
...
"Just like any other business, when you have larger losses, you're going to be more cautious when you make any decisions than with a smaller loss," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, an industry group. "There's no policy in place at any of the servicers I talked to ---- not anything top down."

Eric Wolff discusses several possible reasons including accounting rules, legal issues and lenders being more careful with larger loan amounts.

by Calculated Risk on 9/19/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) declined in September to 14 from 15 in August. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Virtually Unchanged in September

Builder confidence in the market for newly built, single-family homes dipped by a single point to 14 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for September, released today. The index has now held between 13 and 16 for six consecutive months.
...
"The fact that the HMI continues to hover within such a narrow, low range reflects builders' awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today's uncertain economic climate," added NAHB Chief Economist David Crowe. "While some bright spots are beginning to emerge in about a dozen select metro areas, the broader picture remains fairly bleak due to the weak economy and job market."
...
Each of the HMI's three component indexes recorded declines in September. The component gauging current sales conditions slipped one point to 14, while the components gauging sales expectations in the next six months and traffic of prospective buyers each declined two points, to 17 and 11, respectively.

The Midwest was the only region to post a gain in its HMI score for September, edging up one point to 11. Meanwhile, the Northeast and South each posted two-point declines to 15 and the West posted a three-point decline to 12.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the September release for the HMI and the July data for starts (August housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 9/19/2011 08:31:00 AM

The BuildFax Residential Remodeling Index was at 130.4 in July, up from 129.5 in June. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 24% year-over-year--and for the twenty-first straight month--in July to 130.4, the highest number in the index to date. Residential remodels in July were up month-over-month almost a single point (.6%) from the June value of 129.5, and up year-over-year 25.6 points (24.5%) from the July 2010 value of 104.7.
...
In July, the West (3.4 points; 3%) and Midwest (4.9 points; 5%) all had month-over-month gains, while the South (3.3 points; 3%) and Northeast (2.7 points; 3.4%) saw a decline.
...
"As millions of Americans believe that they will not be able to secure a new home due to a variety of factors including tight credit, limited buyers and challenging job prospects, they are more and more turning to renovating and remodeling their current properties, sending remodeling activity to record levels," said Joe Emison, Vice President of Research and Development at BuildFax.

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: Permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 24.5% from July 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

Weekend:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th
• Links for Sovereign Debt Series

by Calculated Risk on 9/18/2011 08:57:00 PM

From the WSJ: Greece Seeks Further Cuts

Greece's government held an emergency cabinet meeting Sunday to plan new measures to bring its unruly budget deficit into line, after heated warnings from the other euro-zone nations over the weekend that its efforts were insufficient and might threaten the delivery of future aid.

During a late-evening break in the meeting, Finance Minister Evangelos Venizelos pledged that Greece would adopt a raft of new budget-cutting measures endorsed by the "troika" ... Greece agreed in March this year to lay off 80,000 public-sector workers by 2015. But the government has also hired around 25,000 new workers in the past two years to fill shortages in select areas of the public sector.

Now, with Greece unlikely to meet its deficit targets this year, the troika has upped the target for public-sector layoffs to 100,000 ...

The population of Greece is around 11.3 million, so this is similar to about 3 million layoffs in the U.S.

From the NY Times: Greece Nears a Tipping Point in Its Debt Crisis

The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt.

The payment is just one installment in a larger package of 110 billion euros in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, was agreed to in July, though that has yet to be ratified.

To reach the financial targets, Greek leaders discussed a range of draconian layoffs and pay reductions ... While these measures have long been planned, but never carried out, to the frustration of foreign lenders, the discussion of these cuts represented a marked change in approach for the Greek government, with the emphasis on reductions over revenue increases.

The Greek 2 year yield declined to 55%. The Greek 1 year yield is at 110%. Both significantly off the highs.

Yesterday:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th
• Links for Sovereign Debt Series