by Calculated Risk on 2/17/2012 11:22:00 AM

An update by request: The following graph shows single family housing starts (through January) and the unemployment rate (inverted) also through January. 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 (blue) increased a little in 2009 with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing recently. This was one of the reasons the unemployment rate has remained elevated.

Click on graph for larger image.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recover.

However this time, with the huge overhang of existing housing units, this key sector hasn't been participating. The good news is single family starts should increase modestly in 2012, and construction employment should also increase.

by Calculated Risk on 2/17/2012 08:35:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis ... Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment. ...

The index for all items less food and energy increased 0.2 percent in January. The shelter index increased 0.2 percent, with the indexes for rent, owners' equivalent rent, and lodging away from home all rising 0.2 percent.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was below the consensus forecast of a 0.3% increase in CPI.

by Calculated Risk on 2/16/2012 10:26:00 PM

Earlier from the Philly Fed: February 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of
current activity, edged higher from a reading of 7.3 in January to 10.2, its highest level since October. ... The new orders index was positive for the fifth consecutive month and increased from 6.9 to 11.7.
...
The current employment index, which has been positive for six consecutive months, fell from a reading of 11.6 in January to 1.1 this month, suggesting little overall growth in employment.
...
The future general activity index fell from a reading of 49.0 in January to 33.3 this month. The index, which has increased for five consecutive months, remains at a relatively high level.

This indicates expansion in Febraury, at a faster pace than in January, and slightly above the consensus forecast of +8.4.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January.

The average of the Empire State and Philly Fed surveys increased again in February, and is at the highest level since April 2011.

All current manufacturing graphs

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments

by Calculated Risk on 2/16/2012 07:36:00 PM

The MBA noted that judicial states generally have the most loans in the foreclosure process. The graph below shows the percent of loans in the foreclosure process by state and by foreclosure process. Red is for states with a judicial foreclosure process. Because the judicial process is longer, those states typically have a higher percentage of loans in the process.

Nevada is an exception. But Nevada had the largest quarterly decline, and for the first time in years is not in the #2 spot behind Florida - Nevada has dropped to #4.

Other hard hit states, like California and Arizona, have also seen significant improvement. California and Arizona started 2011 in the 6th and 7th spot (respectively) with percent of loans in foreclosure, and have fallen all the way to 23rd and 17th by Q4.

Click on graph for larger image.

Florida, New Jersey, Illinois, Nevada, Maine, New York and Connecticut are the top seven states with percent of loans in the foreclosure process. And Vermont, Maryland, Hawaii, Maine, Connecticut and New York saw the largest increases in Q4.

With the mortgage servicer settlement, I expect the number of loans in foreclosure to start to decline in all states.

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments

by Calculated Risk on 2/16/2012 02:37:00 PM

With the recent increase in single family housing starts, a key question is: Are the home builders starting too many homes? The answer is no.

Part of the increase for starts in December and January can be explained by the unseasonably warm weather in most of the country. The reported number is seasonally adjusted, and usually January is the weakest month of the year for housing starts - so nice weather can make a difference. Building activity will pick up in March, and that will be a key month for starts.

However the builders are also responding to sales. As I've noted before, we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The Q4 2011 quarterly report was released today and showed there were 64,000 single family starts, built for sale, in Q4 2011, and that was slightly below the 68,000 new homes sold for the same quarter. This data is Not Seasonally Adjusted (NSA).

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Click on graph for larger image.

Single family starts built for sale were down seasonally in Q4 compared to Q3, but starts were up about 10% compared to Q4 2010. Even with the year-over-year increase, this was still close to the record low. Owner built starts were up slightly year-over-year, and condos built for sale are still very low.

The 'units built for rent' has increased significantly and is up about 67% year-over-year.

The second graphs shows the difference (quarterly) between single family starts, built for sale and new home sales.

In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory they built up in 2005 and 2006.

For the last two years, the builders have sold a few more homes than they started, and inventory levels are now at record lows. In Q4, builders started 4 thousand fewer homes than they sold.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations.

And here is an update to the graph comparing multi-family starts and completions. Note: it usually takes over a year on average to complete a multi-family project, so there is a lag between multi-family starts and completions. This graph uses a 12 month rolling total.

The 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 since mid-2010. Completions (red line) are now following starts up.

It is important to emphasize 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).

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments