Builders More Upbeat About New-Home Sales

Builders are feeling more confident about new-home sales, sales expectations for the next six months, and prospective buyer traffic, according to the May reading on the National Association of Home Builders/Wells Fargo Housing Market Index.

The index—which gauges builders’ sentiment on those three indicators—rose three points to 44 in May. Still, it takes a number over 50 on the index to indicate that more builders view conditions as good rather than poor.

All three indicators posed gains in May, with expectations for future sales reaching 53 on the index—the highest level since February 2007, NAHB reports.

“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates, and strengthening local economies,” says NAHB Chairman Rick Judson. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots, and labor.”

The new-home sector continues to battle against low inventories. It will take time for builders to “re-establish themselves following recession-related cutbacks,” says NAHB Chief Economist David Crowe. “Builders’ view of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force.”

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Condition of The Economy ~ April 2013

U.S. Snapshot
U.S. initial weekly unemployment insurance claims continued to decline. BlueChip consensus forecast indicates growth in 2013 with a modest acceleration in 2014. Credit grew but mostly for non-revolving credit. Total wholesale trade numbers slowed in March but only modestly up from year earlier levels.

Arizona
The trends of the last year continued in Greater Phoenix housing over the last month. Single family listings declined modestly as did the total sold. Normal sales continue to play a larger role in the mix as foreclosures continue to decline. Resale prices continue to increase and now stand almost 25% over a year ago. Days on market continue to decline. This is all good news.

Arizona weekly unemployment total claims have actually increased over the past month. They are, however, still almost 40% below year earlier levels. The Department of Economic Security modestly reduced its forecast for 2013 employment due to issues related to sequestration. The forecast still calls for growth in 2013 and more rapidly so in 2014, yet still slow by historic standards in Greater Phoenix.

National
Initial claims for unemployment insurance have been in a significant downtrend over the last month (this is a positive because there are fewer people filing). Initial weekly claims are down to 323,000 compared to 348,000 a month ago. The Blue Chip national consensus forecast suggests that real GDP will be up a modest 2.0% this year. This is because of the sequestration effect on the second and third quarters of this year. For 2014, a more respectable but still modest 2.7% growth is expected.

Credit outstanding continues to grow (up 3.4% at an annual rate in March). But, the real story is that there has been very little growth in revolving credit (credit card debt). Non-revolving credit (used for items such as cars and light trucks), continues to grow rapidly in response to continued car and truck sales.

Wholesale trade numbers in the U.S.showed modest growth in March compared to February, but are still up 4.7% from year earlier levels. While inventories were up in March, the inventory to sales ratio was up only modestly for the month and now stands at about 1.21 compared to 1.17 a year ago.

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Signs That Inflation Is Nearing

The Cost Of Living – COL in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The retreat in fuel expenses this month signals inflation will hover around the Federal Reserve’s goal.

The consumer-price index was up 0.7%, the first increase in four months and the biggest since June 2009, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% rise. The surge in gasoline accounted for almost 75% of last month’s total price advance.

Bloomberg reports that the cost of living in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The consumer-price index was up 0.7%, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% increase. The Federal Reserve Bank of New Yorks general economic index eased to 9.2 this month from 10 in February, which was the highest since May. Betty Liu and Sara Eisen report on Bloomberg Television’s “In the Loop.”

Gasoline Prices – Households may get relief as fuel expenses are cooling. The average cost of a gallon of regular gasoline, which surged to a four-month high of $3.79 on Feb. 26, was down almost 10 cents to $3.70 on March 13, according to AAA.

Food Costs - Food costs increased 0.1% after being little changed in January. They were up 1.6% over the past 12 months.

Inflation’s Bite – The rising cost of living gain squeezed paychecks. Hourly earnings adjusted for inflation fell 0.6%. They were up 0.1% over the past 12 months.

Overall consumer prices increased 2% in the 12 months ended in February, after a 1.6% year-over-year gain the prior month.

The core CPI also rose 2% from February 2012, following a 1.9% advance in the prior 12 month period.

There are two factors on the sideline that will inevitability unleash inflation:

Interest Rates – rates will rise. For now the Fed has been artificially holding down rates and the pressure is building and starting to show in consumer prices like gas and food. Rates have no place to move but up and that will dramatically affect all sectors of the economy, especially housing.

Money Supply - The Fed has been flooding billions of Fiat dollars, much of it electronic and all diluting the underlying value of the US dollars. All of it is backed by the credit and good faith of the government, not by a tangible asset such as gold. History is full of lessons of this practice going astray.

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Condition of The Economy ~ February 2013

Arizona

Total weekly unemployment insurance claims have been flat for the last several weeks. Even so, total claims are down 37.8% from a year ago compared to a decline of only 1.3% nationally. The national number is shocking. The Arizona data suggests slow growth.

National

The latest U.S. Blue Chip consensus forecast shows that the consensus now predicts that real (inflation adjusted) GDP will register year over year growth of 1.9% in 2013 and increase by 2.4% on a 4th quarter/4th quarter basis. This is true despite the fact the real GDP was down slightly in the 4th quarter of 2012. Growth is still expected to be mediocre in 2013. As mentioned above, U.S. initial unemployment insurance weekly claims remain high. The gains made a month ago appear to have been transitory. In fact,claims are down only 1.3% from a year ago.

Nonfarm business sector labor productivity decreased at a 2.0% annual rate during the fourth quarter of 2012. The decrease in productivity reflects increases of 0.1% in output combined with a 2.2% increase in hours worked. This is not good news. Productivity is commonly linked to standard of living. Productivity must grow for our standard of living to grow. Unit labor costs in non-farm businesses increased 4.5% in the 4th quarter of 2012. This is due to the combined effect of the 2.0% decrease in productivity and a 2.4% increase in hourly compensation. If this were to continue, it would create inflationary pressures.

The consumer continues to take on new debt at a steady and strong clip. But, whether it points to rising demand is more problematic. Consumer credit increased at an annual rate of 6.3%. But, the revolving side, which is the credit card side, to these totals isn’t always adding to the total. Revolving credit has been very flat, up a little bit one month and then down a little bit the next and is down $3.6 billion in the latest data. What is going up is non-revolving credit where vehicle sales come into play, and they have been very strong. But, this is also where student loans are tracked. And they continue to climb straight up without much monthly variation. Thus, aside from vehicles and student loans (how do you spell bubble), consumers aren’t taking on much debt, a factor that is limiting the contribution from the consumer sector.

National Economic Update

The Blue Chip consensus forecast remains basically unchanged. Real GDP is estimated to increase at a 1.7% annual rate in the fourth quarter of 2012. After an estimated real GDP gain of 2.2% in 2012, the panel expects a 2.0% gain in 2013. That assumes the fiscal cliff is resolved. In the absence of a resolution, the Congressional Budget Office expects real GDP in 2013 to decline and unemployment to increase. U.S. initial claims for unemployment insurance remain about where they have been for quite some time. This is surprising for this point in the cycle and is another indicator of the lackluster performance the economy continues to deliver.

On the positive side, the University of Michigan consumer sentiment index rose again in November to 84.9. This is up from 82.6 in October and 64.1 a year ago. The domestic consumer is the ultimate engine of the U.S. economy and this report points to a rising contribution from consumer spending. In that regard, U.S. consumer credit increased in September at a 5% annual rate. With revolving credit declining at a 1.5% annual rate while non-revolving credit, such as auto loans, increased at a 6.5% annual rate. Thus, consumers are borrowing again for durable goods.

The Institute for Supply Management’s index of non-manufacturing activity grew in October to 54.2. A reading of 50 or more indicates expansion in that sector. October was the 34th month of continuous growth.

According to the National Association of Realtors, growth in metropolitan area median home prices increased in the third quarter. According to NAR, 120 out of 149 metro areas had growth in prices in the third quarter. This is up 7.6% from a year ago. Greater Phoenix had an increase of 34.9% and Tucson was up 15.5%. This will allow more homeowners to escape from being underwater (more debt than value). ASU’s monthly report on the Greater Phoenix housing market shows that new home prices were actually down 3.5% over the past year (as of September). Median prices of normal resales were up 8.2%. Distressed properties had the largest gains. For example, bank owned sales prices were up 45.0% over the past year.

Arizona retail sales for September were up 2.6%% from a year ago. While not great, it is at least moving in the right direction. Motor vehicle dealer sales were up 21.5% from a year ago. Retail sales in Maricopa County were up 3.1% for the same period.

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Obama Victory Keeps Focus on Pending Rules, Reforms

The reelection victory of President Barack Obama over Republican challenger former Massachusets Governor Mitt Romney means initiatives begun in the last four years to address past housing market excesses and help boost the market recovery, including proposed Dodd-Frank banking rules and reform of the secondary mortgage market, could command attention going into the president’s second term.

In his acceptance speech from Chicago delivered after midnight, President Obama said he hoped to meet with Gov. Romney in the coming weeks to explore how the two could work together to move the country forward. He also called for immigration reform and vowed action on two Republican priorities, tax reform and deficit reduction.

“I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together,” President Obama said. “Reducing our deficit, reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil — we’ve got more work to do.”

The Obama administration two years ago released a white paper that contained options on reforming secondary mortgage market companies Fannie Mae and Freddie Mac, raising the possibility that reform of these companies, which have been in conservatorship for much of Obama’s term of office, could come under consideration in the new Congress.

NAR reports that it supports reforms that would pave the way for a return of private lenders into the mortgage market while maintaining an explicit, government-chartered, nonprofit federal presence in the market to ensure mortgage availability in good times and bad.

Similarly, important rulemaking by the Consumer Financial Protection Bureau to protect against future mortgage lending abuses, is slated to come to a head in early 2013. NAR has expressed concern with the approach in two of the rules, the qualified mortgage (QM) and qualified residential mortgage (QRM) rules.

The QM rule sets standards for lenders to ensure they make loans only to borrowers who have the ability to repay, and QRM requires lenders who originate loans for securitization retain 5 percent of the value of the loans unless they meet prescribed underwriting standards. In both cases, NAR has called for the rules to give flexibility to lenders in meeting consumer protections; otherwise pricing could put mortgage financing outside the reach of households of all but those with the strongest credit records.

In the presidential election campaign, Gov. Romney singled out QM as an example of a Dodd-Frank rule that was already hurting the market and raising the cost of mortgage financing because of the uncertainty it was causing, and he had vowed to reform it in a market-friendly way. It’s unclear under a second Obama administration how much the final versions of the QM and QRM rules will look like their proposed forms.

In the near term, NAR reports that it will be advocating for the extension of mortgage cancellation relief, which was enacted in 2007 to exempt underwater home owners of taxation on mortgage debt forgiven by a lender in a modification or distressed sale. The tax forgiveness expires at the end of 2012 and could be taken up before the end of the year, when the current Congress adjourns.

National Economic Update

There is good news this week. First, initial claims for unemployment insurance dropped to 339,000 claims last week, and it is down from 369,000 claims the previous week. This is a marked improvement from the levels of the past several months. The number was 15.7% below a year ago and 8.1% lower than a week ago. The four-week moving average is 9.8% below a year ago and 3.1% below a week ago. At least this indicator is now moving in the right direction. The other pleasant surprise was in the University of Michigan Consumer Sentiment Index. It jumped to 83.1 (preliminary) in October. This is up from 78.3 in September and higher than the consensus expectation of 78.5. While still very low by historic standards, at least there is finally some improvement.

In other news, the consensus forecast of U.S. economic growth for 2012 and 2013 slipped a bit over the past month according to the October survey. The downward adjustment in the consensus forecast of GDP growth this year resulted from a recent downward revision in the government’s latest estimate of growth in the second quarter coupled with consensus expectations of somewhat softer than previously expected growth in the final quarter of 2012. The drop in the consensus forecast of GDP growth in 2013 likely resulted from increasing concern about the “fiscal cliff”. In any event, the forecasts were only modestly lower in both cases. Expectations, though, continue to point to a continuation of the mediocre rates of growth that we have experienced in this recovery.

As for Arizona, weekly unemployment claims now stand 34.9% below year earlier levels and are down 4.4% in September relative to August. Total claims were 73,791 in September, 2012. In Greater Phoenix, total residential listings stood at 21,703, down 19.5% from a year ago. Total homes sold for the month was 6,478, down 17.9% from a year ago. The median price of sold homes in September, 2012 was $150,000. This is up over 30% from a year ago.

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National Economic Update ~ Has Housing Finally Turned Around?

S&P/CASE-SHILLER
The S&P/Case-Shiller national home price index, which tracks more than 80% of the housing market in the United States, climbed 6.9% in Q2 compared to Q1 of 2012.

“We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change,” said David Blitzer, a spokesman for S&P, in a statement. “The market may have finally turned around.”

Here is some supporting data:

• Two other key indexes covered in the S&P/Case-Shiller report also show gains. The 20-city index was up 6% for the quarter and the 10-city index rose 5.8%.

• National prices were up 1.2% compared with a year earlier, and the 20-city and 10-city indexes also gained y/y. It was the first time all three measures showed positive annual growth rates since the summer of 2010, when generous tax credits for homebuyers were in place.

• In July, new home sales were 25% better than a year earlier; existing home sales gained 10% y/y; and developers applied for 30% more residential building permits.

MARK ZANDI / MOODY’S
• The steep increase in home prices “feels really good after six years of straight down,” said Mark Zandi, chief economist of Moody’s Analytics.

• He cautioned about overstate the case for the housing recovery. The mix of homes being sold has changed lately, with fewer repossessed homes on the market, noting that those discounted sales of had driven down prices.

• Zandi believes the positive news on housing will carry over to the rest of the economy saying, “Housing is beginning to act as a tailwind for the recovery.”

MICHAEL FRATANTONI / MBA
• The home price improvement will likely have a positive impact on foreclosure rates, according to Michael Fratantoni, vice president for research and economics for the Mortgage Bankers Association.

• Foreclosures have already been falling and could drop more should the upswing in home prices continue.

• Rising home values means rising equity, resulting in fewer borrowers underwater. Plus an improving housing market will also give homeowners more confidence in their home investment.

• “There has also been a lot of concern about strategic defaults,” said Fratantoni. “That should ease now. When home prices go up, people have a financial incentive to hold onto their homes and they’re less likely to walk away.”

DOUG DUNCAN / FANNIE MAE
• Rising prices are likely to push potential homebuyers off the fence, where many have been waiting out the price decline, according to Doug Duncan, chief economist for Fannie Mae.

• “Their perception that we hit the bottom takes out the risk of buying into a falling market,” he said. “That should increase demand…if they also believe that mortgage rates have reached a bottom as well.”

National Economic Update ~ Continues To Improve

The Federal Reserve reported last week that consumer credit expanded in May by 8 percent over April to a total of $2.57 trillion, marking a $17.12 billion gain, the largest in five months.

Encouraging news in the economic sector was the growth in revolving debt, such as credit cards, which jumped by 11.2 percent to $870.2 billion. This followed a 4.9 percent drop in April and only meager increases earlier this year. Many experts hope that an increase in credit card use will spur consumer spending and help fuel economic recovery.

Non-revolving debt, such as car and school loans, grew 6.5 percent, slightly down from April’s 9.6 percent pace, to $1.7 trillion.

Employment
The Employment and Training Administration reported last week that initial claims for unemployment insurance filed in the week ending July 7 dropped to 350,000, a decrease of 26,000 from the previous week’s revised figure of 376,000. The four-week moving average was 376,500, a decrease of 9,750 from the previous week’s revised average of 386,250.

The Administration also reported that the total number of insured unemployed Americans for the week ending June 30 dipped to 3.304 million, a decrease of 14,000 from the preceding week’s revised level of 3.318 million. The four-week moving average was 3,308,500, an increase of 1,250 from the preceding week’s revised average of 3,307,250.

Manufacturing and Trade
Turning to trade, the Census Bureau and Bureau of Economic Analysis jointly reported last week that total May exports of $183.1 billion and imports of $231.8 billion resulted in a goods and services deficit of $48.7 billion, down slightly from April’s revised deficit of $50.6 billion. May exports were $0.4 billion more than April exports of $182.7 billion. May imports were $1.6 billion less than April imports of $233.3 billion.

In May, the goods deficit decreased $1.6 billion from April to $63.5 billion, and the services surplus increased $0.3 billion from April to $14.8 billion. Exports of goods were virtually unchanged at $130.7 billion, and imports of goods decreased $1.6 billion to $194.3 billion. Exports of services increased $0.3 billion to $52.4 billion, and imports of services increased $0.1 billion to $37.5 billion.

On an annual basis, the goods and services deficit increased $1 billion from May 2011 to May 2012. Exports were up $7.4 billion, or 4.2 percent, and imports were up $8.4 billion, or 3.8 percent.

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Arizona and National Economic Update

Consumer credit was the major newsmaker last week, with April consumer borrowing increasing at an annual rate of 3 percent to hit $2.55 trillion for the month, the Federal Reserve reported. Revolving credit, such as credit cards, decreased at an annual rate of 4.8 percent, ticking down to $862.3 billion. Non-revolving credit, such as car loans and student loans, increased at an annual rate of 7.1 percent to $1.68 trillion.

Much of the gains in non-revolving debt were due to student loans, according to Dana Saporta, director of U.S. economics research at Credit Suisse.

Unit labor costs in non-farm businesses increased 1.3 percent in the first quarter of 2012, while hourly compensation increased 0.4 percent. Unit labor costs rose 0.9 percent over the last four quarters.

In the week ending June 2, initial claims for jobless benefits dropped to 377,000, a decrease of 12,000 from the previous week’s revised figure of 389,000. The four-week moving average was 377,750, an increase of 1,750 from the previous week’s revised average of 376,000.

The total number of insured unemployed workers during the week ending May 26 hit 3,293,000, an increase of 34,000 from the preceding week’s revised level of 3,259,000. The four-week moving average was 3,279,500, an increase of 11,500 from the preceding week’s revised average of 3,268,000.

The U.S. economy is still growing but slowly, and there appears to be a little more risk than earlier in the spring. Credit is cheap but consumers will remain cautious due to the excessive publicity of the bad economic data and the exclusion of the good. This is also impacting business hiring decisions. Hopefully growth will accelerate to a more respectable rate by the end of the year, maybe by the end of fall. No doubt this will be wholly due to the re-election of President Obama or the election of Presidential Candidate Romney. Well, at least that’s what MSNBC and Fox News will be telling us.

Results No Excuses

Category Archives: Economy

Builders More Upbeat About New-Home Sales

Condition of The Economy ~ April 2013

Signs That Inflation Is Nearing

Condition of The Economy ~ February 2013

National Economic Update

Obama Victory Keeps Focus on Pending Rules, Reforms

National Economic Update

National Economic Update ~ Has Housing Finally Turned Around?

National Economic Update ~ Continues To Improve

Arizona and National Economic Update

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