by Calculated Risk on 7/26/2011 02:45:00 PM

The following graph shows existing home sales (left axis) and new home sales (right axis) through June. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

Click on graph for larger image in graph gallery.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

On June Home Sales:
• New Home Sales in June at 312,000 Annual Rate
• Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

On House Prices:
• Case Shiller: Home Prices increase in May
• Real House Prices and Price-to-Rent
• Graph Galleries: Home Prices

by Calculated Risk on 7/26/2011 12:24:00 PM

Note: New Home sales NSA fixed in graph gallery.

Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here).

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.

Nominal House Prices

Click on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2011), and the monthly Case-Shiller Composite 20 SA (through May) and CoreLogic House Price Indexes (through May) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index is back to Q3 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is back to March 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 1999 levels, the Composite 20 index is back to August 2000, and the CoreLogic index back to March 2000.

In real terms, all appreciation in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index (through May).

This graph shows the price to rent ratio (January 1998 = 1.0).

Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices. In recent months, OER has been increasing - lowering the price-to-rent ratio.

On a price-to-rent basis, the Composite 20 index is back to October 2000 levels, and the CoreLogic index is back to March 2000.

Earlier ...
• New Home Sales in June at 312,000 Annual Rate
• Case Shiller: Home Prices increase in May
• Graph Galleries: Home Prices and New Home Sales

by Calculated Risk on 7/26/2011 10:00:00 AM

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 312 thousand. This was down from a revised 315 thousand in May (revised from 319 thousand).

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in June 2011 were at a seasonally adjusted annual rate of 312,000 ... This is 1.0 percent (±12.5%)* below the revised May rate of 315,000, but is 1.6 percent (±14.1%)* above the June 2010 estimate of 307,000.

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

Months of supply decreased to 6.3 in June from 6.4 months in May. The all time record was 12.1 months of supply in January 2009. This is still higher than normal (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of June was 164,000. This represents a supply of 6.3 months at the current sales rate.

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 fell to 60,000 units in June. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In June 2011 (red column), 29 thousand new homes were sold (NSA). The record low for June was 28 thousand in 2010 (following the expiration of the homebuyer tax credit). The high for June was 115 thousand in 2005.

This was below the consensus forecast of 321 thousand, and was just above the record low for the month of June - and new home sales have averaged only 300 thousand SAAR over the 14 months since the expiration of the tax credit ... moving sideways at a very low level.

by Calculated Risk on 7/26/2011 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for May (actually a 3 month average of March, April and May).

This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Some More Seasonal Improvement in Home Prices

Data through May 2011 ... showed a second consecutive month of increase in prices for the 10- and 20-City Composites. The 10- and 20-City Composites were up 1.1% and 1.0%, respectively, in May over April. Sixteen of the 20 MSAs and both Composites posted positive monthly increases; Detroit, Las Vegas and Tampa were down over the month and Phoenix was unchanged.
...
In May 2011, the 10- and 20-City Composites recorded annual returns of -3.6% and -4.5%, respectively. Both Composites and 11 MSAs – Atlanta, Dallas, Detroit, Las Vegas, Los Angeles, Minneapolis, New York, Phoenix, San Diego, Seattle and Tampa – saw their annual rates worsen in May compared to April.

Click on graph for larger image in graph gallery.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.8% from the peak, and up slightly in May (SA). The Composite 10 is 1.7% above the May 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 31.8% from the peak, and down slightly in May (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 3.6% compared to May 2010.

The Composite 20 SA is down 4.5% compared to May 2010.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 9 of the 20 Case-Shiller cities in May seasonally adjusted. Prices in Las Vegas are off 59% from the peak, and prices in Dallas only off 9.5% from the peak.

From S&P (NSA):

As of May 2011, 16 of the 20 MSAs and both Composites posted positive monthly changes. Phoenix was flat. Detroit, Las Vegas and Tampa were the markets where levels fell in May versus April, with Detroit down by 2.8% and Las Vegas posting its eighth consecutive monthly decline. These three cities also posted new index level lows in May 2011. They are now 51.2%, 59.3% and 47.5% below their 2005-6 peak levels, respectively.

There could be some confusion between the SA and NSA numbers, but this improvement is mostly seasonal. I'll have more ...

by Calculated Risk on 7/25/2011 10:18:00 PM

The Asian markets are mostly green tonight, with the Hang Seng up 0.75%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is off about 4 points, and Dow futures are off about 25 points.

Tuesday ...

9:00 AM: S&P/Case-Shiller Home Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May. The consensus is for flat prices in May, however I expect prices to increase NSA.

10:00 AM: New Home Sales for June. The consensus is for a slight increase in sales to 321 thousand Seasonally Adjusted Annual Rate (SAAR) in June from 319 thousand in May.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for July. The consensus is for the index to be at 4, up from 3 in June (above zero is expansion).

by Calculated Risk on 7/25/2011 07:10:00 PM

UPDATE: President Obama Press Conference at 9PM ET.

From the WSJ: Europe Rates Resume Climb

By Monday afternoon, Spain's [Ten year] debt was being traded at a yield of 6%, or 3.24 percentage points above the rate on German bonds, seen as a risk-free investment. The rate represented an upswing from 5.7% last Thursday, just as news of the new bailout deal for Greece began to emerge. On July 18, the rate hit 6.3%.

Italy was paying 5.5%, up from 5.2% on Thursday, but down from 5.8% on July 18.

Yields moved higher today, but are still below the previous peaks. The Greek 2 year yield is up to 28.1% (was above 39%).

The Portuguese 2 year yield is down to 15.3% (was above 20%)

The Irish 2 year yield is up to 15.4% (was above 23%).

The Italian 2 year yield is up to 4.0%. And the Spanish 2 year yield is up to 4.2%.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/25/2011 03:58:00 PM

This is more technical for analyst and reporters: On Friday the Census Bureau will release the Q2 Housing Vacancies and Homeownership. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. Unfortunately the report is based on a fairly small sample, and does not track the decennial Census data.

Economist Tom Lawler has pointed out the discrepancies in the homeownership rate before, and he points out that the vacancy rates are "silly" too.

From economist Tom Lawler: HVS Rental Vacancy Rate Silliness: The Case of Richmond, Virginia

In early 2009 the Richmond, Virginia press wrote numerous articles after quarterly HVS data on metro area rental vacancy rates “showed” that the rental vacancy rate in the Richmond, Virginia metro area in the fourth quarter of 2008 was 23.7%, the highest in the country. This shocked local real estate folks, including folks who tracked rental vacancy rates in apartment buildings in the area. The Central Virginia Apartment Association, e.g., found that the rental vacancy rate based on a survey of 52 multi-family properties in the Richmond, VA metro area was around 8% -- above a more “normal” 5%, but no where close to 23.7%. And while the HVS attempts to measure the overall rental vacancy rate (and not just MF apartments for rent), the data seemed “whacky.”

When I talked to Census folks back then, they said that there quarterly metro area vacancy rates were extremely volatile and had extremely high standard errors, and that folks should focus on annual data.

However, “annual average” data from the HVS showed MASSIVELY different rental vacancy rates in Richmond, Virginia than did the American Community Survey, which also produces estimates of the vacancy rate in the overall rental market.

Here are some annual data comparisons of the HVS rental vacancy rate and the American Community Survey (ACS) rental vacancy rate (which is also for the overall rental market) from 2006 through 2009, as well as the Census 2010 rental vacancy rate for April 1, 2010.

HVS Rental Vacancy Rates: The Case of Richmond, VA Metro Area
	HVS (annual average)	ACS (annual average)	Census 2010 (April 1)
2006	13.8%	8.1%
2007	16.3%	8.1%
2008	20.8%	9.1%
2009	18.5%	7.8%
2010	13.5%		8.8%

I am showing Richmond not because it is the most “outlandish,” but rather because the HVS data “mistakes” create huge confusion in the local press. Census analysts had no clue why the HVS data produced such outlandish estimates relative to the ACS – it could be massive sampling errors, significant non-sampling errors, or both.

There are several other MSAs where the HVS rental vacancy rates just look plain “silly.” Some Census analysts agree that the HVS MSA data aren’t reliable, and even that several state data aren’t reliable, but, well, er, the national data are probably “ok” – which they are not.

From CR: Media and Analysts: There are serious questions about this report. Here are some previous post by Lawler on the HVS:
• Census Bureau on Homeownership Rate: We've got “Some 'Splainin' to Do”
• Lawler: Census 2010 and the US Homeownership Rate
• Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
• Lawler: The “Excess Supply of Housing” War
• Lawler: Census Releases Demographic Profile of 12 States and DC: Confirms Bias of HVS
• Lawler: Census 2010 and Excess Vacant Housing Units
• Lawler: On Census Housing Stock/Household Data
• Lawler: Housing Vacancy Survey appears to massively overstate number of vacant housing units
• Lawler: US Households: Why Researchers / Analysts are “Confused”

by Calculated Risk on 7/25/2011 01:49:00 PM

From James Surowiecki at the New Yorker: Smash the Ceiling

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized.
...
One argument you hear for having a debt ceiling is that it’s useful as what the political theorist Jon Elster calls a “precommitment device”—a way of keeping ourselves from acting recklessly in the future, like Ulysses protecting himself from the Sirens by having himself bound to the mast. As precommitment devices go, however, the debt limit is both too weak and too strong. It’s too weak because Congress can simply vote to lift it, as it has done more than seventy times in the past fifty years. But it’s too strong because its negative consequences (default, higher interest rates, financial turmoil) are disastrously out of proportion to the behavior it’s trying to regulate. For the U.S. to default now, when investors are happily lending it money at exceedingly reasonable rates, would be akin to shooting yourself in the head for failing to follow your diet.

The smart option: Eliminate the debt ceiling!

Note: Still no worries. The debt ceiling will be raised.

by Calculated Risk on 7/25/2011 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity expanded in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.6 to 10.8, suggesting output growth picked up this month.

The new orders index rose sharply from 6.4 in June to 16 in July. ... Labor market indicators reflected more hiring and longer workweeks. The employment index came in at 12.1, up from 5.3 in June. Twenty-two percent of manufacturers reported hiring new workers, the highest share this year. The hours worked index rose from 1.5 to 7.9.

There are two more regional manufacturing surveys that will be released this week (Richmond and Kansas City), and those surveys will probably show a slight improvement too.

by Calculated Risk on 7/25/2011 08:30:00 AM

No surprise (this is a composite index) ... from the Chicago Fed: Index shows economic growth again below average in June

The Chicago Fed National Activity Index increased to –0.46 in June from –0.55 in May; however, the index remained negative for the third consecutive month. Three of the four broad categories of indicators that make up the index improved in June, but only one made a positive contribution to the index.

The index’s three-month moving average, CFNAI-MA3, declined to –0.60 in June from –0.31 in May, remaining negative for a third consecutive month and reaching its lowest level since October 2009.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image in graph gallery.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This index suggests the economy was still growing in June, but below trend.