by Calculated Risk on 4/30/2012 12:25:00 PM

The BEA released the underlying details today for the Q1 Advance GDP report. As expected, key non-residential categories - offices, malls and lodging - saw further declines in investment in Q1.

Note: Last year, there was a small overall increase in non-residential structure investment due to investment for power and communication, and mining and exploration of petroleum. This masked some of the decline in other categories.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q1 2008 and then declined sharply.

Investment as a percent of GDP fell to a new low in Q1 and is now down 64% from the peak. This decline will probably slow mid-year based on the architectural billings index, but with the high office vacancy rate, investment will probably not increase (as a percent of GDP) for several years.

Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 68% from the peak and at a new low in Q1 (note that investment includes remodels, so this will not fall to zero).

Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by about 82%.

Notice that investment for all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). This is happening again, and there will not be a recovery in these categories until the vacancy rates fall significantly.

The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is finally increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $164 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (over 1.0% of GDP), significantly above the level of investment in single family structures of $114 billion (SAAR) (or 0.74% of GDP). Eventually single family structure investment will overtake home improvement as the largest category of residential investment.

Brokers' commissions increased slightly in Q1, and has been moving sideways as a percent of GDP.

And investment in multifamily structures increased slightly as a percent of GDP. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

All Housing Investment and Construction graphs

by Calculated Risk on 4/30/2012 10:15:00 AM

The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2012 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. However, based on the initial evaluation, it appears the vacancy rates are too high.

It might show the trend, but I wouldn't rely on the absolute numbers.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate declined to 65.4%, down from to 66.0% in Q4 2011 and at the lowest level for this survey since the mid-90s.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range.

The Census researchers are investigating differences in Census 2010, ACS 2010, and HVS 2010 vacant housing unit estimates, but there is no scheduled date for any report.

The HVS homeowner vacancy rate declined to 2.2% from 2.3% in Q4. This is the lowest level since Q2 2006 for this report.

The homeowner vacancy rate has peaked and is now declining. However - once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

The rental vacancy rate declined to 8.8% from 9.4% in Q4.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate - and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that the housing vacancy rates are falling.

by Calculated Risk on 4/30/2012 09:52:00 AM

Chicago PMI: The overall index declined to 56.2 in April, down from 62.2 in March. This was below consensus expectations of 60.8 and indicates slower growth in April. Note: any number above 50 shows expansion. From the Chicago ISM:

April 2012: The Chicago Purchasing Managers reported the April Chicago Business Barometer decreased for a second consecutive month. After five months above 60, the Chicago Business Barometer fell to 56.2, a 29 month low. The index has remained in expansion since October 2009.
...
• PRODUCTION lowest level since September 2009;
• PRICES PAID down from March's 7 month high;

New orders declined to 57.4 from 63.3, and employment increased to 58.7 from 56.3.

by Calculated Risk on 4/30/2012 08:42:00 AM

The BEA released the Personal Income and Outlays report for March:

Personal income increased $50.3 billion, or 0.4 percent ... in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $29.6 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in March, compared with an increase of 0.5 percent in February. ... PCE price index -- The price index for PCE increased 0.2 percent in March, compared with an increase of 0.3 percent in February. The PCE price index, excluding food and energy, increased 0.2 percent, compared with an increase of 0.1 percent.

The following graph shows real Personal Consumption Expenditures (PCE) through March (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

PCE increased 0.3% in March, and real PCE increased 0.1%.

Note: The PCE price index, excluding food and energy, increased 0.2 percent.

The personal saving rate was at 3.8% in March.

As reported on Friday, PCE increased sharply in Q1 (PCE for January and February were revised up). Income in March was slightly better than expected.

by Calculated Risk on 4/29/2012 09:49:00 PM

From Nick Timiraos at the WSJ: Housing Ends Slide but Faces a Long Bottom

Nearly six years after home prices started falling, more U.S. housing markets appear to be nearing a new phase: a prolonged bottom.

Hitting a bottom, of course, isn't the same as a full-fledged recovery ... The good news is that housing construction and home sales appear to have hit a floor. Home builders cut back heavily in the past four years and began construction on just 434,000 single-family homes last year, the lowest level on record. Research firm Zelman & Associates estimates builders will start construction on 540,000 homes this year, a 24% increase.
...
Housing economists are debating whether that shadow inventory will spoil any housing recovery. "That'll be like a ball and chain," said Mark Fleming, chief economist at CoreLogic. "It won't prevent a recovery, but it could drag it out over several years."
...
Ms. Zelman ... said the shadow inventory is "not going to result in the double dip that people always talk about." She points to a burgeoning appetite for housing from investors, who are scooping up homes that can be converted to rentals, and six years of pent-up demand from traditional buyers who feel better about their financial prospects. "The fear is gone," she said.
...
While the foreclosure overhang is serious, some economists say there is a less-noticed tailwind that could balance things out: the sharp decline in new construction over the past four years. "A lot of the people who talk about 'shadow inventory' don't talk about how slow the overall housing stock has been growing," said Thomas Lawler, an independent housing economist

It appears housing starts, new home sales and residential investment have already bottomed and will increase in 2012. All three had a "long bottom" of several years.

I think house prices have "bottomed" too, but this is just the beginning of the bottoming process. I agree with Ms. Zelman that the "shadow inventory" will probably not push prices down further nationally (it probably will in some judicial foreclosure areas), but I think the "shadow inventory" will limit any price increases for some time.

Yesterday:
• Summary for Week ending April 27th
• Schedule for Week of April 29th
• The upward slope of Real House Prices