New Home Sales: November 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for November showing a monthly increase with sales climbing 1.6% since October and 9.8% above the level seen in November of 2010 but remaining at an epically low level of 315K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 158K units, lowest level seen in in at least 47 years while the median number of months for sale going flat at 7.4.

The monthly supply remained declined to 6.0 months while the median selling price declined 2.5% and the average selling price declined 13.77% from the year ago level.

The following chart show the extent of sales decline to date (click for full-larger version).

FHFA Monthly Home Prices: October 2011

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices declined 0.21% since September and declined 3.16% below the level seen in October 2010.

The FHFA monthly HPI are formulated from home purchase information collected from mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.

University of Michigan Survey of Consumers December 2011 (Final)

Today's final release of the Reuters/University of Michigan Survey of Consumers for December indicated improvement in consumer sentiment with a reading of 69.9 but falling 6.17% below the level seen last year while one year inflation expectations declined slightly at 3.1%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 63.6, and the Current Economic Conditions Index climbed to 79.6.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.

The Chicago Fed National Activity Index: November 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) continued to indicate weakness in national economic trends with the index remaining in contraction territory for a fourth consecutive month at -0.37 while the three month moving average went flat at -0.24.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

Bull Trip!: GDP Report Q3 2011 (Third Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q3 2011 GDP report showing that the economy continued to expand but at a notably slower pace than originally estimated with real GDP increasing at an annualized rate of just 1.8% from Q2 2011.

On a year-over-year basis real GDP increased 1.46% while the quarter-to-quarter non-annualized percent change was 0.45%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from the change in private inventories component resulting in an overall contribution of -1.35% to GDP while government expenditures with non-defense spending declined 3.8% and state and local spending declined by 1.6%.

Fixed investment purportedly made notable contributions to Q3 GDP with non-residential fixed investment increasing 15.7% from Q2 2011 while residential fixed investment increased 1.3% over the same period.  

Keep in mind that these results are likely very poorly estimated and are sure to be revised notably in following quarters and even years to come.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 22 2011

Today’s jobless claims report showed declines to initial unemployment claims and continued unemployment claims as initial claims fell to the lowest level seen since mid-2008.

Seasonally adjusted “initial” unemployment declined 4,000 to 364,000 claims from last week’s revised 368,000 claims while seasonally adjusted “continued” claims declined by 79,000 resulting in an “insured” unemployment rate of 2.8%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.50 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.53 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.04 million people on state and federal unemployment rolls.

NAR Revises the Great Housing Decline

Today, the National Association of Realtors (NAR) released a major benchmark revision to their existing home sales data resulting in notable downward revisions to all monthly results from 2007 and beyond.

While the Realtors were quick to point out that the “month to month characterizations of market conditions did not change”, the data certainly did with the trends post-bust now looking much more severe and a fair amount more consistent with what was reported for the new home market.

Of course the NAR suggests that there are a number of factors that contributed to the previously inflated results including growth in MLS coverage, FSBO related distortions and geographic population shifts.

Looking at the chart above (click for full-screen version) that compares the data pre and post-benchmark revisions, you can see that what the NAR is purporting to be the trend now looks substantially weaker and shows that the housing decline was notably more severe than previously reported with seasonally adjusted annualize home sales falling from a peak level of 7.25 million units in 2005 to just over 3.45 million in 2010, a level first seen in the early 1990s.

Existing Home Sales Report: November 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for November showing an increase in sales with total home sales climbing 4% since October and 12.2% above the level seen in November 2010.

Single family home sales increased 4.5% from October and rose 12.9% above the level seen in November 2010 while the median selling price declined 4.0% below the level seen in November 2010.

Inventory of single family homes declined 3.8% from October dropping 16.1% below the level seen in November 2010 which, combined with the relatively slow pace of sales, resulted in an still elevated monthly supply of 7.0 months.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.

Reading Rates: MBA Application Survey – December 21 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined yet again, dropping 3 basis points to 4.00% since last week while the purchase application volume declined 4.9% and the refinance application declined 1.6% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

New Residential Construction Report: November 2011

Today’s New Residential Construction Report showed that in November, both single family permits and starts increased from October with both measures continuing to show tepid results when compared on a year-over-year basis.

While the traditional business media jumped on this report as an indicator that housing is on the mend, closer inspection shows that the majority of the "strength" was in multi-unit structures, particularly structures with five or more units while single family activity remains historically subdued.

Single family housing permits, the most leading of indicators, increased 1.64% from last month to 435K single family units (SAAR), increasing 3.57% above the level seen in November 2010 but remaining an astonishing 75.81% below the peak in September 2005.

Single family housing starts increased 2.29% to 447K units (SAAR), but dropped 1.54% below the level seen in November 2010 and a stunning 75.48% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings December 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that all measures increased in December with the composite HMI index climbing to 21 while the "buyer traffic" index climbed from record lows to 19, the highest level seen since May 2008, as home builders continue to plod through the weakest activity seen in generations.

While all indicators made notable increases in November, it's important to note that conditions still remain epically distressed by historic standards.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Index of Stress: December 2011

The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.

As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants

Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

The latest results of the STLFSI indicate that the level of financial stress remains elevated with December's results near the highest level seen in since 2009 at .83.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey December 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for December indicated a notable improvement in the regions manufacturing activity with the current activity index climbing to a level of 10.3 while the future activity index improved to a level of 44.1.

The following chart shows the current and future activity indexes both with their corresponding 3-month moving averages. The red line marks the threshold between contraction and expansion for these diffusion indexes.

Production Pullback: Industrial Production November 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a pullback with total industrial production declining 0.22% from October and rising 3.74% above the level seen in November 2010.

Capacity utilization declined 0.30% from October climbing just 2.63% above the level seen in November of 2010 to stand at 77.79%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.

The Empire State Manufacturing Survey: December 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed a notable improvement for both current and future assessments of manufacturing activity with the current activity index climbing to 9.53 while future activity jumped to just 52.33.

Current prices paid increased to 24.42 while current new orders improved 5.1 and assessments of future new orders improved to 54.65.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 15 2011

Today’s jobless claims report showed a notable decline to initial unemployment claims and a slight increase to continued unemployment claims as a slight rising trend was firmly called into question for initial claims.

Seasonally adjusted “initial” unemployment declined 19,000 to 366,000 claims from last week’s revised 385,000 claims while seasonally adjusted “continued” claims increased by 4,000 resulting in an “insured” unemployment rate of 2.9%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.64 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.69 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.33 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – December 14 30 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined yet again, dropping 5 basis points to 4.03% since last week while the purchase application volume declined 8.2% and the refinance application climbed 9.3% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Economic Jolt: Job Openings and Labor Turnover October 2011

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” declined 3.20% since September climbing 13.55% above the level seen in October 2010 while private non-farm job “hires” declined 2.65% from September and rose 5.64% above the level seen in October 2010

Job “layoffs and discharges” declined 6.92% from September falling 2.61% below the level seen last year while quitting activity declined 3.56% from September remaining 9.85% above the level seen in October 2010.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).