RSS Feed by Calculated Risk on 8/17/2010 03:30:00 PM
Tuesday, August 17, 2010
Regional Reports: Home Sales fell sharply in July
From DataQuick:
A total of 18,946 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in July. That was down 20.6 percent from 23,871 in June, and down 21.4 percent from 24,104 for July 2009, according to MDA DataQuick of San Diego.Other reports show similar declines as home sales fell sharply all across the country in July. We are now seeing double-digit months of supply nationwide - and we might even see the months of supply metric reach 1 year. The previous months-of-supply high for this downturn was 11.2 months in 2008.
This was the slowest July since 2007, when 17,867 homes were sold, and the second-slowest since July 1995, when 16,225 sold.
Housing economist Thomas Lawler's preliminary estimate for existing home sales in July is 3.95 million SAAR. If so, this would be fewest sales since 1996. Lawler's estimate for inventory in July was 4.04 million (although it is a bit of a mystery how the NAR calculates inventory). That would mean 12.3 months of supply!
A normal housing market usually has under 6 months of supply. The following graph shows the relationship between supply and house prices (using Case-Shiller).
Click on graph for larger image in new window.This graph show months of supply and the annualized change in the Case-Shiller Composite 20 house price index.
Below 6 months of supply (blue line) house prices are typically rising (black line).
Above 6 or 7 months of supply, house prices are usually falling. This isn't perfect - it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.
The dashed red line is the estimate for months of supply in July. Through the roof! And I expect we will see double-digit months-of-supply for a number of months.
This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don't expect huge declines like in 2008.
Fed's Kocherlakota: Markets misinterpreted FOMC’s decision
by Calculated Risk on 8/17/2010 02:15:00 PM
From Minneapolis Fed President Narayana Kocherlakota: Inside the FOMC
The FOMC’s decision has had a larger impact on financial markets than I would have anticipated. My own interpretation is that the FOMC action led investors to believe that the economic situation in the United States was worse than they, the investors, had imagined. In my view, this reaction is unwarranted. The FOMC’s decisions were largely predicated on publicly available data about real GDP, its various components, unemployment, and inflation. I would say that there is no new information about the current state of the economy to be learned from the FOMC’s actions or its statement.Kocherlakota points out that the Fed's balance sheet was falling quicker than anticipated because of the high level of refinancing as mortgage rates have declined.
But Kocherlakota fails to note that the mortgage rates have declined because of the weaker economy - and the Fed appears to be behind the curve in adjusting their views lower.
Kocherlakota is forecasting that real GDP growth in the 2nd half of 2010 will be about the same as in the first half:
Based on estimates from our Minneapolis forecasting model, I expect GDP growth to be around 2.5 percent in the second half of 2010 and close to 3.0 percent in 2011. There is a recovery under way in the United States, and I expect it to continue.Although Kocherlakota forecast is possible - and is a weak recovery - I think the economy will slow in the 2nd half.
And I think the growing view isn't that the economy is worse than investors had imagined, but that the Fed is once again behind the curve on the economic outlook.
Q2: Quarterly Housing Starts by Purpose
by Calculated Risk on 8/17/2010 11:49:00 AM
This morning the Census Bureau released the "Quarterly Starts and Completions by Purpose and Design" report for Q2 2010. 
Click on graph for larger image in new window.
This graph shows the NSA quarterly starts intent for four categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.
Condo starts in Q2 were just above the all time record low (4,000 vs 3,000 in Q4 2009).
Units built for rent set an all time record low in Q1 (19,000 units in Q1 2010) and rebounded to 31,000 units in Q2. Some of this increase is seasonal, but it does appear that many large apartment owners think the vacancy rate has peaked - and some builders and owners are starting to build new apartments (probably for delivery in 2011).
Starts for owner built units increased too. In Q2, there were 44,000 owner built units started - up from 38,000 in Q2 2009.
And the largest category - starts of single family units, built for sale - increased to 93,000 in Q2 from 86,000 in Q1. Some of this was seasonal, and some was related to the tax credit (although most of the tax credit starts were probably in Q1).
Of course single family starts, built for sale, will decline sharply in Q3.
Comparing Housing Starts and New Home Sales
Monthly housing starts (even single family starts) cannot be compared directly to new home sales, because the monthly housing starts report from the Census Bureau includes apartments, owner built units and condos that are not included in the new home sales report.
However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. This is not perfect because of reporting differences and changes in cancellation rate - but it is close. The quarterly report shows that there were 93,000 single family starts, built for sale, in Q2 2010, and that is just below the 97,000 new homes sold for the same period. This data is Not Seasonally Adjusted (NSA).
This suggests that home builders are starting about the same number of homes that they are selling (unlike in 2005 and 2006 when builders built far too many spec homes).
Industrial Production, Capacity Utilization increase in July
by Calculated Risk on 8/17/2010 09:15:00 AM
From the Fed: Industrial production and Capacity Utilization
Industrial production rose 1.0 percent in July after having edged down 0.1 percent in June, and manufacturing output moved up 1.1 percent in July after having fallen 0.5 percent in June. A large contributor to the jump in manufacturing output in July was an increase of nearly 10 percent in the production of motor vehicles and parts; even so, manufacturing production excluding motor vehicles and parts advanced 0.6 percent. The output of mines rose 0.9 percent, and the output of utilities increased 0.1 percent. At 93.4 percent of its 2007 average, total industrial production in July was 7.7 percent above its year-earlier level. The capacity utilization rate for total industry moved up to 74.8 percent, a rate 5.7 percentage points above the rate from a year earlier but 5.8 percentage points below its average from 1972 to 2009.
Click on graph for larger image in new window.This graph shows Capacity Utilization. This series is up 9.8% from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 74.8% is still far below normal - and well below the the pre-recession levels of 81.2% in November 2007.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.This is the highest level for industrial production since Oct 2008, but production is still 7.3% below the pre-recession levels at the end of 2007.
The increase in July was above the consensus of a 0.5% increase in Industrial Production, and an increase to 74.5% for Capacity Utilization.
Single Family Housing Starts decline in July
by Calculated Risk on 8/17/2010 08:30:00 AM
Click on graph for larger image in new window.
Total housing starts were at 546 thousand (SAAR) in July, up 1.7% from the revised June rate of 537 thousand (revised down from 549 thousand), and up 14% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).
Single-family starts declined 4.2% to 432 thousand in July. This is 20% above the record low in January 2009 (360 thousand). 
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 mostly been moving sideways for over a year - with a slight up and down over the last several months due to the home buyer tax credit.
Here is the Census Bureau report on housing Permits, Starts and Completions.
Housing Starts:This was below expectations of 565 thousand, and is good news for the housing market longer term (there are too many housing units already), but bad news for the economy and employment short term.
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 546,000. This is 1.7 percent (±9.7%)* above the 9.7%) revised June estimate of 537,000, but is 7.0 percent (±7.5%)* below the July 2009 rate of 587,000.
Single-family housing starts in July were at a rate of 432,000; this is 4.2 percent (±8.7%)* below the revised June figure of 451,000.
Building Permits:
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 565,000. This is 3.1 percent (±2.0%) below the revised June rate of 583,000 and is 3.7 percent (±2.2%) below the July 2009 estimate of 587,000.
Single-family authorizations in July were at a rate of 416,000; this is 1.2 percent (±1.2%)* below the revised June figure of 421,000.
Monday, August 16, 2010
One Year Supply of Houses? and other stuff
by Calculated Risk on 8/16/2010 06:44:00 PM
First on housing ...
"The Composite, which was reasonably flat in June, showed a marked decrease in July, falling more than half a percentage point (0.63%)."
Moody’s housing economist Celia Chen has released a forecast of housing that is pretty dire. If the U.S. enters a doubledip recession, writes Chen, home prices could fall another 20% before stabilizing in early 2012. That compares to a baseline forecast that calls for another 5% decline in home prices and a bottom early next year. Chen puts the odds of a near‐term double‐dip at one in four. As observers of the actual housing market, while we cannot say these numbers are right, we certainly support Chen’s concern. However, we think the order of events will be reversed: it is our belief that housing prices will decrease in the autumn, perhaps precipitously, and that may cause a second dip in the U.S. economy.
Other reports of interest ...
