by Calculated Risk on 2/25/2012 08:18:00 AM

There were few economic releases last week, but once again most of the data suggested some increase in economic activity. Of course the better than normal weather helped again, especially for housing.

The key economic release last week was new home sales. Although the Census Bureau report showed a small decline in sales from December, this was because December was revised up from a 307 thousand sales rate (Seasonally Adjusted Annual Rate) to 324 thousand. After averaging a 300 thousand sales rate for the 18 months following the expiration of the tax credit, new home sales have averaged a sales rate over 320 thousand for the last 3 months. Not much of an increase from a historical perspective, but it appears new home sales have bottomed. Of course it is just 3 months of better sales, and the critical selling months are coming up.

For existing home sales, the key number is inventory - and the NAR reported inventory declined 20.6% year-over-year in January. The sharp decline in inventory has lead to a scramble to explain the decline. Both Tom Lawler and I posted some thoughts on the decline (something we've been tracking all year, so we weren't surprised), see: Comments on Existing Home Inventory and Lawler: Declining Inventory of Existing Homes for Sale: Don’t Forget Conversion to Rentals

Other positive data included another drop in the four week average of initial weekly unemployment claims, an increase in consumer sentiment, and another positive reading for the Architecture Billings Index, and for manufacturing, an increase in Kansas City (10th District) manufacturing survey showing faster expansion in February.

Overall this was another solid week. Here is a summary in graphs:

• New Home Sales in January at 321,000 Annual Rate

Click on graph for larger image.

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 321 thousand. This was down from a revised 324 thousand in December (revised up from 307 thousand).

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. This was below the revised December rate of 324,000 and is 3.5 percent above the January 2011 estimate of 310,000.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this 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 was at 57,000 units in January. The combined total of completed and under construction is at the lowest level since this series started.

This was above the consensus forecast of 315 thousand, and sales for October, November and December were revised up. With the record low levels of inventory, any pickup in sales should translate into more construction.
New Home Sales graphs
• Existing Home Sales in January: 4.57 million SAAR, 6.1 months of supply

The NAR reported: Existing-Home Sales Rise Again in January, Inventory Down

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

Sales in January 2012 (4.57 million SAAR) were 4.3% higher than last month, and were 0.7% above the January 2011 rate.

But the key number in the report was inventory.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.31 million in January from 2.32 million in December. This is the lowest level of inventory since March 2005.

The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply.

Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.6% year-over-year in January from January 2011. This is the eleventh consecutive month with a YoY decrease in inventory.

Months of supply decreased to 6.1 months in January, down from 6.4 months in December.
All current Existing Home Sales graphs
• AIA: Architecture Billings Index indicated expansion in January

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

From AIA: Architecture Billings Index Remains Positive for Third Straight Month

This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in January (slight expansion). Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, 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 further declines in CRE investment in early 2012, but perhaps stabilizing later in 2012.
All current Commercial Real Estate graphs
• Weekly Initial Unemployment Claims unchanged at 351,000

The DOL reports:

In the week ending February 18, the advance figure for seasonally adjusted initial claims was 351,000, unchanged from the previous week's revised figure of 351,000. The 4-week moving average was 359,000, a decrease of 7,000 from the previous week's revised average of 366,000.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 359,000.

The 4-week moving average is at the lowest level since early 2008.

Note: Nomura analysts argue some of the recent improvement is related to seasonal distortions, see Financial Times Alphaville: US jobs and seasonality: the DeLorean edition.
All current Employment Graphs
• Other Economic Stories ...
• From the Chicago Fed: Index shows economic growth in January again above average
• DOT: Vehicle Miles Driven increased 1.3% in December
• LPS: Number of delinquent mortgage loans declined in January, In foreclosure increases slightly
• Kansas City Fed: Tenth District Manufacturing Activity Increased Further in February

by Calculated Risk on 2/24/2012 10:18:00 PM

Once again we have to consider the impact of high oil prices on the US economy. Bloomberg reports brent crude futures are up to $125.47 per barrel, and WTI is up to $109.77.

From the WSJ: Gas Prices Annoy Consumers but Don't Dim Outlook Yet

Prices at the pump have risen in recent weeks as tensions with Iran have sparked fears of a supply disruption, driving up the cost of crude oil. Prices of crude hit a nearly 10-month high on Friday, rising $1.94 a barrel to close at $109.77 on the New York Mercantile Exchange, their highest level since early May. Nationally, the average price of a gallon of regular gasoline hit $3.647 on Friday, according to the auto club AAA, up nearly 27 cents from a month earlier and up 11.8 cents in the past week.
...
"Consumers are not as concerned with the current level of gas prices as they were in past episodes," said Jonathan Basile, an economist with Credit Suisse.

When oil prices are increasing, I usually turn to Professor Hamilton's blog. In earlier research, Dr. Hamilton showed that prices had to rise above previous prices to be a significant drag on the economy. Last August he wrote: Economic consequences of recent oil price changes

In my 2003 study, I found the evidence favored a specification with a longer memory, looking at where oil prices had been not just over the last year but instead over the last 3 years. My reading of developments during 2011 has been that, because of the very high gasoline prices we saw in 2008, U.S. car-buying habits never went back to the earlier patterns, and we did not see the same shock to U.S. automakers as accompanied some of the other, more disruptive oil shocks. My view has been that, in the absence of those early manifestations, we might not expect to see the later multiplier effects that account for the average historical response summarized in the figure above. If one uses the 3-year price threshold that the data seem to favor, the inference would be that we'll do just fine in 2011:H2, because oil prices in 2011 never exceeded what we saw in 2008.

So far gasoline prices aren't above the 2011 peak levels, although they are getting close. I'm not sure 2008 counts since that is more than 3 years ago.

Another post from Hamilton two days ago: Crude oil and gasoline prices. Just something to think about ...

Note: The graph below shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 2/24/2012 06:13:00 PM

Home, Home On The Range,
Where the Feds often will play
Where seldom is heard,
A bid for this turd,
And the skies are not cloudy all day
by Soylent Green is People
From the FDIC: FDIC Approves the Payout of the Insured Deposits of Home Savings of America, Little Falls, Minnesota

As of December 31, 2011, Home Savings of America had $434.1 million in total assets and $432.2 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $38.8 million. Home Savings of America is the eleventh FDIC-insured institution to fail in the nation this year, and the second in Minnesota.

We haven't seen a payout in some time ... I guess no one wanted this one.

by Calculated Risk on 2/24/2012 05:10:00 PM

Assets to ashes
Feds in Georgia discover
Deposits to dust
by Soylent Green is People
From the FDIC: Ameris Bank, Moultrie, Georgia, Assumes All of the Deposits of Central Bank of Georgia, Ellaville, Georgia

As of December 31, 2011, Central Bank of Georgia had approximately $278.9 million in total assets and $266.6 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $67.5 million. ... Central Bank of Georgia is the tenth FDIC-insured institution to fail in the nation this year, and the second in Georgia.

Here is a "central bank" that failed ...

by Calculated Risk on 2/24/2012 03:16:00 PM

CR Note: Yesterday I posted some thoughts on the sharp decline in listed inventory. Here are some additional comments from housing economist Tom Lawler:

While there has been a lot of discussion among analysts on the reasons behind the “stunning” plunge in existing SF homes listed for sale over the past several years, few have mentioned what appears to have been a substantial increase in the number of SF homes purchased by investors with the explicit intention to rent the homes out for several years. One reason, of course, is that there are not good, reliable, and timely statistics on the number of SF homes rented out, much less any data at all on the intended holding-period of folks renting out SF homes. There are, of course, lots of anecdotal stories about a surge in the number of investors (including LLCs, hedge funds, etc.) buying SF properties, especially REO properties, because of attractive rental yields; there are some data from local MLS on leasing activity showing a surge in the past several years; and there are certainly surveys pointing not just to an increase in investor buying of homes, but a rise in the cash share of investors purchases over the past several years. But there is a dearth of actual data.

Data from the ACS does suggest that the share of occupied SF detached homes that were occupied by renters increased rather dramatically in the latter part of last decade, The below table is based on decennial Census data for 2000, and the 5-year, 3-year, and 1-year estimates from the ACS for 2006-10, 2008-10, and 2010.

While last year there was a drop in completed foreclosures, there was no corresponding drop in the sales of REO properties, many of which were to investors not planning to “flip” properties, but to rent them out. Short sales also increased last year, and anecdotal evidence suggests that a non-trivial share were to investors looking to rent the properties out. I’d guess that the 2011 data will suggest that the share of occupied SF detached homes occupied by renters will come in at around 16%.

Net, a not insignificant share of the decline in the share of homes for sale reflects the acquisition of SF (and condo) properties by investors as multi-year rental properties.

Percent of Occupied Single Family Detached Homes Occupied by Renters
	2000	2006-07 Avg.	2008-09 Avg.	2010
US	13.2%	12.8%	14.3%	15.1%
Maricopa County	10.4%	13.5%	16.8%	19.8%
Clark County	12.5%	18.2%	22.0%	24.4%
Sacramento County	18.8%	16.7%	20.2%	22.4%
Lee County	10.6%	12.3%	14.6%	17.3%