by Calculated Risk on 6/19/2012 01:39:00 PM

Over on Yahoo today: McBride: Total Housing Starts Decline in May, but the Trend Is Positive

Here are some more thoughts ...

For the housing industry, the recovery has started. As I've noted before, the debate is now about the strength of the recovery, not whether there is a recovery. My view is housing will remain sluggish for some time, and I expect 2012 to be another weak year, but better than 2011.

Economist Michelle Meyer at Merrill Lynch, who remains cautious on housing, wrote the following this morning:

We look for residential investment to increase 8% in Q2, following the 19% pop in Q1. This will add 0.2pp to GDP growth in the quarter. Assuming similar gains in the second half of the year, real residential investment should be up 10% this year, adding 0.2pp to annual GDP growth. This is the first annual contribution since before the housing bubble burst in 2006.

... Although housing demand is improving ... it is still slow and many potential homebuyers are restricted due to tight credit. Moreover, homebuilders are continuing to compete with the overhang of distressed inventory in many markets. The gain in homebuilding is about relative strength - multifamily building (to satisfy the increase in renters) and single family construction in non-distressed markets.

The question about house prices is not as clear. Although I think prices have bottomed for the national repeat sales indexes, others are more pessimistic. As an example, from RadarLogic this morning:

Radar Logic also contends that there is a grave risk that economic forces outside the housing market will deliver a significant blow to housing demand. Given the excess supply in the market, such a reduction in demand could in turn result in another precipitous decline in housing prices.

The excess supply consists of homes that are currently on the market as well as homes that are not currently for sale but could enter the market when home prices start to strengthen. As home prices start to firm, home owners who are eager to sell but have been unable or unwilling to do so at prior price levels will put their homes on the market. The increase in supply will cut off price appreciation and, to the extent that the newly unleashed supply exceeds demand, push down home prices.

I think this is an argument for little or no increase in house prices, not for an additional "precipitous decline".

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

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. The 12 month total for starts is steadily increasing, and completions (red line) is lagging behind - but completions will following starts up over the course of the year (completions lag starts by about 12 months).

This second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

For the fourth consecutive month, the rolling 12 month total for starts has been above completions. This usually only happens at a bottom, although the recovery for single family starts will probably remain sluggish.

by Calculated Risk on 6/19/2012 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 3.4 million job openings on the last business day of April, down from 3.7 million in March, the U.S. Bureau of Labor Statistics reported today.
...
Although the number of total nonfarm job openings declined in April, the number of openings was 1.0 million higher than at the end of the recession in June 2009.
...
The quits rate can serve as a measure of workers’ willingness or ability to change jobs. In April, the quits rate was unchanged for total nonfarm, and essentially unchanged for total private and government. The number of quits was 2.1 million in April 2012, up from 1.8 million at the end of the recession in June 2009.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for April, the most recent employment report was for May.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings declined in April to 3.416 million, down from 3.741 million in March. However the number of job openings (yellow) has generally been trending up, and openings are up about 13% year-over-year compared to April 2011.

Quits declined slightly in April, and quits are now up about 10% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs

by Calculated Risk on 6/19/2012 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 708,000. This is 4.8 percent below the revised April estimate of 744,000, but is 28.5 percent above the May 2011 rate of 551,000.

Single-family housing starts in May were at a rate of 516,000; this is 3.2 percent above the revised April figure of 500,000. The May rate for units in buildings with five units or more was 179,000.

Building Permits:
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 780,000. This is 7.9 percent above the revised April rate of 723,000 and is 25.0 percent above the May 2011 estimate of 624,000.

Single-family authorizations in May were at a rate of 494,000; this is 4.0 percent above the revised April figure of 475,000. Authorizations of units in buildings with five units or more were at a rate of 266,000 in May.

Click on graph for larger image.

Total housing starts were at 708 thousand (SAAR) in May, down 4.8% from the revised April rate of 744 thousand (SAAR). Note that April was revised up from 717 thousand. March was revised up too.  

Single-family starts increased 3.2% to 516 thousand in May. April was revised up to 500 thousand from 492 thousand.

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

This shows the huge collapse following the housing bubble, and that total housing starts have been increasing lately after moving sideways for about two years and a half years.

Total starts are up 55% from the bottom start rate, and single family starts are up 41% from the low.

This was below expectations of 720 thousand starts in May, but the decline was because of the volatile multi-family sector. Single family starts were up, and building permits were up sharply. And previous months were revised up. This is a fairly strong report.

All Housing Investment and Construction Graphs

by Calculated Risk on 6/18/2012 09:53:00 PM

With Spanish 10 year bond yields solidly above 7%, the focus will remain on Europe, especially Greece and Spain. And there will be another meaningless statement from the G20 tomorrow, which reminds me of this great line (and funny commentary) from Matthew O'Brien at the Atlantic: 'Call Me Maybe' Explains the Euro Crisis—Seriously

The only thing more maddening than "Call Me Maybe" is the euro crisis. One is a banal string of saccharine statements, punctuated by swift choruses of action. The other is a pop song. And neither will go away.

• At 8:30 AM ET, Housing Starts for May will be released. The consensus is for total housing starts to increase to 720,000 (SAAR) in May, up from 717,000 in April.

• At 10:00 AM, the BLS will release the Job Openings and Labor Turnover Survey for April. The number of job openings has generally been trending up.


Did I mention Spanish 10 year bond yields are above 7%?

by Calculated Risk on 6/18/2012 06:45:00 PM

From Jon Hilsenrath at the WSJ: Clogged Credit Weighs on Fed Policy Makers

The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve ...
...
Fed officials are weighing new steps at their policy meetings Tuesday and Wednesday, following a period of disappointing jobs growth and financial turbulence in Europe. ... The credit divide factors into their thinking.

Analysts think the policy options under discussion are:

1) extend the extended period to 2015, the current statement reads "the Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014".

2) Expand and extend the "program to extend the average maturity of its holdings of securities" (Operation Twist).

3) Launch QE3 (probably with more MBS buying).

None of these programs will bridge the credit divide.  And not much of a hint from a usual source ...