Home Sales Disappoint

Posted on July 25, 2017 by Popular Economics Weekly

The Mortgage Corner

Existing-home sales were at a 5.52 million seasonally adjusted annual rate in June, the National Association of Realtors said Monday. That was 0.7 percent above the year-ago rate, but 1.8 percent lower than in May and marked the second-lowest monthly total of 2017.

image

Graph: Econoday

Why? There’s a severe housing shortage with inventories down to a 4.3-month supply at the current sales rate. It is so bad that Zillow Chief Economist Svenja Gudell in a Marketwatch interview said, “There are about as many homes for sale now as there were in 1994 (1.96m), except there are about 63 million more people in this country now than there were then.”

The supply imbalance continues to push prices higher. The median sales price was $263,800 nationally, a 6.5 percent increase compared with the year-earlier period. The median price in California is now $500,000. That sets a fresh record and marks the 64th consecutive month of yearly price gains, with housing prices growing at roughly double the rate of wage gains.

It’s hard to understand why builders aren’t answering the call with demand so high and interest rates still at record lows. Part of the problem is there are so few entry-level homes being built.

“Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget,” said NAR economist Lawrence Yun. “The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines.”

First-time buyers were 32 percent of sales in June, which is down from 33 percent both in May and a year ago. The longer-term average is 40 percent for first-timers as a percentage of all buyers, which are mainly younger buyers.

image

Graph: Apartment List

CNBC reports new data from Apartment List that shows although 80 percent of millennials would like to purchase real estate, very few are in a good position to buy, largely because they have nothing saved. According to the report, “68 percent of millennials said they have saved less than $1,000 for a down payment. Almost half, or 44 percent, of millennials said they have not saved anything for a down payment.”

That is probably why mortgage lenders are now offering more exotic products, such as a 1 percent down payment for the conforming 30-year fixed rate with the lender chipping in another 2 percent, so that it satisfies the minimum 3 percent minimum down payment requirement for conforming loans.

Lenders are also offering high end buyers a 40-year fixed rate program for super jumbo loan amounts with the first 10 years at interest only payments. Payments then become standard 30 year principal and interest payments for the rest of the 30-year term.

Meanwhile the standard 30-year conforming fixed rate remains at 3.50 percent for 1 origination point in California, as it has been for months. There are still many buyers out there, in other words, but the most important population segment is the millennial generation who marry later and have those student debt problems.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Housing, housing market, Weekly Financial News | Tagged , , , , | Leave a comment

Full Employment Is Here, But No Inflation (Revised)

Posted on July 21, 2017 by Popular Economics Weekly

Financial FAQs

The Bureau of Labor’s JOLTS Job Openings and Labor Turnover Survey out Tuesday showed a huge boost in hiring and shrinkage of available jobs. What to make of it with almost nonexistent inflation, and the Fed’s Janet Yellen still making noises about raising interest rates?

image

Graph: Marketwatch

Job openings fell back 5.0 percent to 5.666 million in May from 6 million, and hiring shot up 8.3 percent at 5.472 million from 5 million in April. So the number of net new job openings shrank from 1 million to a mere 194,000, while more than 400,000 new jobs were created! This is big news, and sets a record for this series while the number of job openings are the second lowest of the year.

Meanwhile, Janet Yellen can’t seem to make up her mind on the direction of economic growth in her latest congressional testimony. So she won’t commit to further rate hikes at the moment, which without growing inflation would slow growth, rather than be a sign of inflation (and growth) ahead.

“As I’ve said on many occasions, the new normal with respect to what level of interest rates is neutral appears to be rather low, so we have raised the federal-funds rate target. I believe policy remains accommodative.”

In what is one of the very weakest 4-month stretch in 60 years of records, says the Census Bureau, core consumer prices could manage only a 0.1 percent increase in June. This is the third straight 0.1 percent showing for the core (ex food & energy) that was preceded by the very rare 0.1 percent decline in March. Total prices were unchanged in the month with food neutral and energy down 1.6 percent.

image

Graph: Econoday

The JOLTS report looks like employers’ job hirings are finally catching up with their job openings. Other movement in this report is a 1 tenth rise in the quits rate to 2.2 percent which hints perhaps at worker confidence and willingness to switch jobs which may be a positive for wage growth.

Such a strong jobs report should mean wages are about to rise, in other words. At least the Fed believes so, but it ain’t yet happening, no matter what Dr. Yellen says. Wages have been at 2.5 percent over the past 2 years; just enough to pay current bills, but not to boost retail sales, a major component of consumer spending, hence GDP growth.

Retail sales fell an unexpected 0.2 percent in June. This follows a revised 0.1 percent decline in May and a revised 0.3 percent gain for April which proved to be the quarter’s only respectable showing.

Econoday says it “…shows wide weakness with vehicle sales coming in with a marginal 0.1 percent increase, the same for furniture and also electronics & appliances. Declines include food & beverage stores, down a sharp 0.4 percent, and department stores down 0.7 percent following the prior month’s 0.8 percent plunge.”

So where is the inflation? Economic growth is still weak because demand is weak, and maybe declining. This is worrisome.

Today’s CPI retail inflation report should convince Dr. Yellen that no further Fed rate hikes are warranted. Annual inflation has increased just 1.6 percent; 1.7 percent without volatile food and energy prices. And we have June’s unemployment report with 222,000 new payroll jobs, another sign of full employment. (It is seasonally adjusted, which is why it differs from the JOLTS numbers.)

Then there is the fact that interest rates aren’t rising.  The 10-year Treasury yield is still at 2.26 percent, which would normally signal an incoming recession.  Let us hope not, since there are still jobs available and we have to first see wages rising!

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Politics, Weekly Financial News | Tagged , , , , , , | Leave a comment

Housing Starts Rebound, For How Long?

Posted on July 20, 2017 by Popular Economics Weekly

The Mortgage Corner

The Conference Board’s Index of Leading Indicators that predicts future growth says it is being boosted by a rebound in housing starts, which means more badly needed new homes being built. Its June report posted a 0.6 percent gain. Permits had been soft through most of the spring before gaining sharply in this week’s housing starts report.

But there’s concern whether this might last, though I predict full employment and the prospect of low interest rates for the rest of this year could prolong this trend.

Starts for all homes jumped 8.3 percent in June to a 1.215 million annualized rate with permits up 7.4 percent to a 1.254 million rate. As weak as the details were in the prior report, is how strong they are in the latest. Single-family permits rose a huge 4.1 percent to an 811,000 rate with multi-family permits up 13.9 percent to 443,000. Permits are strongest in the Midwest followed by the West and South.

image

Graph: Econoday

Actual starts for single-family homes rose 6.3 percent in June’s report to 849,000 with multi-family up 13.3 percent to 366,000. The Northeast is in front followed by the Midwest. Starts in the West are up slightly and are down noticeably in the South, probably due to the errant weather, including floods and a few tornadoes.

The LEI tracks 12 indicators of growth, including interest rates spreads and hours worked. The fact that housing permits provided the biggest boost to the LEI means that housing is probably a leading indicator of future growth as it has been in past recoveries.

So why has it taken so long for housing construction and sales to catch fire? The busted housing bubble left millions of vacant homes that first had to be reabsorbed into the housing market.

Then all those homeowners that lost their homes had to reestablish their credit bonafides. This is while Fannie Mae and Freddie Mac haven’t sufficiently lowered their credit and loan qualifying requirements that would add some 1 million prospective homebuyers to the list of eligibles, according to the Urban Institute.

Then there is the millennial generation saddled with too much student debt that the current administration doesn’t want to forgive or amend. The list goes on and on, in other words, for what needs to be done to bring back more affordable housing.

The NAHB, or National Association of Home Builders also puts out a builder sentiment index that attempts to predict future activity, but which may lag housing starts data. The report cites the effects of high lumber costs on home builders in showing construction, for instance, but shows slower activity evenly divided among the 3 components in its index.

Higher future sales still lead for 73 percent of respondents with higher present sales at 70 percent of those polled. But only 48 percent report higher traffic, which is below breakeven 50 for the 2nd month in a row. Regionally, the West remains the strongest for homebuilders followed by the Midwest and South and the Northeast far behind. So is optimism leading reality, if fewer buyers are lookng?

These are still terrific numbers, however, and it looks like lower interest rates are here for the rest of this year, with the conforming 30-year fixed rate holding at 3.50 percent for one origination point in California.

Why are rates still at such record lows with the Fed having already raised their overnight rate 3 times to 1.25 percent? Consumers aren’t borrowing more, which would increase loan rates.

image

Graph: Econoday

For instance, retail sales are still stuck below what is considered to be a robust demand for more goods and services. Annual sales are under 3 percent for the first time since August last year with the 3-month average below 4 percent. And 6 percent annual sales increases have been the norm during past recoveries.

This really means a certain middle and upper segment of income earners are doing well, but not the rest of US. The boosting of the minimum wage in the more prosperous cities and states is a start, but that is happening in only a handful of those states, as I’ve said.

Much more needs to be done, in other words, to help the still record income inequality that haunts this laggard recovery from the Greatest Recession since the Great Depression.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Housing, housing market, Weekly Financial News | Tagged , , , , , | Leave a comment

Full Employment Here, But No Inflation?

Posted on July 14, 2017 by Popular Economics Weekly

Financial FAQs

The Bureau of Labor Statistic’s JOLTS Job Openings and Labor Turnover Survey out Tuesday showed a huge boost in hiring and shrinkage of available jobs. What to make of it with almost nonexistent inflation, and the Fed’s Janet Yellen still making noises about raising interest rates?

image

Graph: Steve Goldstein

Job openings fell back 5.0 percent to 5.666 million in May from 6 million, and hiring shot up 8.3 percent at 5.472 million from 5 million in April. So the number of net new job openings shrank from 1 million to a mere 194,000, while more than 400,000 new jobs were created! This is big news, and sets a record for this series while the number of job openings are the second lowest of the year.

Meanwhile, Janet Yellen can’t seem to make up her mind on the direction of economic growth in her latest congressional testimony. So she won’t commit to further rate hikes at the moment, which without growing inflation would slow growth, rather than be a sign of inflation (and growth) ahead.

“As I’ve said on many occasions, the new normal with respect to what level of interest rates is neutral appears to be rather low, so we have raised the federal-funds rate target. I believe policy remains accommodative.”

In what is one of the very weakest 4-month stretch in 60 years of records, says the Census Bureau, core consumer prices could manage only a 0.1 percent increase in June. This is the third straight 0.1 percent showing for the core (ex food & energy) that was preceded by the very rare 0.1 percent decline in March. Total prices were unchanged in the month with food neutral and energy down 1.6 percent.

image

Graph: Econoday

The JOLTS report looks like employers’ job openings are finally catching up with their hiring. Other movement in this report is a 1 tenth rise in the quits rate to 2.2 percent which hints perhaps at worker confidence and willingness to switch jobs which may be a positive for wage.

Such a strong jobs report should mean wages are about to rise. At least the Fed believes so, but it ain’t yet happening, no matter what Dr. Yellen says. Wages have been at 2.5 percent over the past 2 years; just enough to pay current bills, but not to boost retail sales, a major component consumer spending, hence GDP growth.

Retail sales fell an unexpected 0.2 percent in June. This follows a revised 0.1 percent decline in May and a revised 0.3 percent gain for April which proved to be the quarter’s only respectable showing.

Econoday says it “…shows wide weakness with vehicle sales coming in with a marginal 0.1 percent increase, the same for furniture and also electronics & appliances. Declines include food & beverage stores, down a sharp 0.4 percent, and department stores down 0.7 percent following the prior month’s 0.8 percent plunge.”

So where is the inflation? Economic growth is still weak because demand is weak and maybe declining. This is worrisome.

Today’s CPI retail inflation report should convince Dr. Yellen that no further Fed rate hikes are warranted. Annual inflation has increased just 1.6 percent; 1.7 percent without volatile food and energy prices. And we have June’s unemployment report with 222,000 new payroll jobs, another sign of full employment. (It is seasonally adjusted, which is why it differs from the JOLTS numbers.)

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Weekly Financial News | Tagged , , , , , , | Leave a comment

Minimum Wage Raises Should Boost Employment, Spending

Posted on July 12, 2017 by Popular Economics Weekly

Financial FAQs

Minimum wages are about to rise in several cities, and eventually states. San Francisco and Los Angeles minimums rose last weekend to $14 and $12 per hour, respectively, and ultimately to $15 per hour by 2021. But Seattle, Washington, Washington D.C., Chicago, Maryland, and New York will be raising their minimum wages, as well.

This should finally boost incomes, and maybe consumption for the rest of 2017. Central Banks are beginning to raise their rates, as well, which means they see stronger growth ahead.

But this all depends on the consumer, as businesses won’t spend and boost hiring until they see consumers spending more. Friday’s unemployment report told us we see growing demand ahead. The various QE programs and extremely low inflation have kept long term rates below 3 percent for several years because consumer incomes have been trending down lately, as I’ve said.

 

image

Graph: Econoday

For instance, personal income has been struggling, posting only a 3.5 percent year-on-year rate the last two months with the trend line pointing to just under 3 percent, reports Econoday. And that has kept spending in a narrow 4-5 percent range, as well.

Last week’s ISM service sector activity report could mean more hiring ahead, since the service sector employs roughly two-thirds of American workers. Its non-manufacturing survey continues to report extending strength with the index up 5 tenths in June to 57.4. New orders, at 60.5, remain unusually strong with backlog orders, at 52.0, also rising in the month. New orders for export, at 55.0, are also up solidly though to a lesser degree than domestic orders.

“The non-manufacturing sector continued to reflect strength for the month of June. The majority of respondent’s comments are positive about business conditions and the overall economy,” said Anthony Nieves, Chair of the Institute for Supply Management Non-Manufacturing Business Survey Committee.

But this is anecdotal evidence only, and actual government statistics don’t reveal increased activity yet. Factory orders show manufacturing activity still rising at 5 percent, but autos and aircraft orders are down now, after surging earlier this year.

image

Manufacturing was once known to have high paying jobs. That’s old history with pay, now at about $26.50, only 25 cents above the average. And payroll growth has also been slow with this trend also fighting to stay above zero.

“Backlogs are the bottom line and, despite all the confidence in all the private surveys, they are still under water, says Econoday. “Until unfilled orders pile up, gains for factory payrolls and wage will be limited. Despite a big jump in ISM’s employment index, actual factory payrolls rose only 1,000 in Jun

So while jobs continue to be filled, wages aren’t rising in tandem, and that is another sign that there are still 6 million workers looking for jobs. Until that happens we cannot say we have reached full employment.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Politics, Weekly Financial News | Tagged , , , , , | Leave a comment

Great Employment Report

Posted on July 7, 2017 by Popular Economics Weekly

Popular Economics Weekly

The U.S. created 222,000 new jobs in June as hiring accelerated in the spring, showing that companies are still finding ways to add staff despite a growing shortage of skilled workers.

The increase in new jobs was the largest in four months and second biggest increase of the year. Hiring was also stronger in May and April than previously reported, said the Bureau of Labor Statistics.

image

Graph: Econoday

The most important take from the labor report was that a total of 361,000 new workers entered the labor force, which is why the unemployment rate ticked up slightly from 4.3 to 4.4 percent.

Also good news was that governments hired 35,000 more workers. It was a sign that state governments are financially healthy again, and beginning to spend on needed infrastructure repairs. How are they doing this?

California is one of seven states raising gas taxes (since the federal government won’t) to pay for the backlog of work that needs to be done, and at a time of record low gas prices. It will also boost economic growth. They aren’t waiting for congress and the White House to make up their minds on spending priorities, in other words.

California Gov. Jerry Brown just signed into law its increase in higher fuel taxes and vehicle fees, which gives the state an estimated $52 billion more money to help cover the state’s transportation needs for the next decade.

The money comes largely from a 12-cent increase in the base gasoline excise tax and a new transportation improvement fee based on vehicle value. Other money will come from paying off past transportation loans, Caltrans savings, and new charges on diesel fuel and zero-emission vehicles. “The bulk of the revenue raised will go to various state and local road programs, as well as public transit, goods movement and traffic congestion,” said the Sacramento Bee announcement.

image

Graph: KABC-TV

Seven states raising the gas taxes, according to The Institute on Taxation and Economic Policy (ITEP). Indiana, Montana and Tennessee lead the raises. California’s increase just kicked in July 1. Iowa and Nebraska, meanwhile, are the only states to lower their gas taxes.

April and May employment were also revised higher by 47,000 jobs, in the BLS unemployment report, “which signals that the apparent weakness in past months was just a blip due in part to late data reporting,” said Danielle Hale, managing director of housing research at the National Association of Realtors, as reported by Marketwatch.

It is, all in all, a very optimistic employment report. Government spending is the biggest plus, as that has been the most significant lack in the eight years of this recovery from the Great Recession. All those infrastructure upgrades are needed, right?

I have cited several times that of the more than 600,000 bridges in the U.S., at least 200,000 are more than 70 years old and need immediate repairs, not to speak of our electrical grid that is as old. In fact, not much has been done to our transportation network, in general. Most of our highways are more than 70 years old, as well.

This should be a no-brainer. Productivity and hence economic growth depends on these repairs and upgrades. Washington has been unable to do the needed work because it is locked in political gridlock, so it’s great news that the states want to take up the slack. Even conservatives can agree on that.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Weekly Financial News | Tagged , , , | Leave a comment

Interest Rates On the Rise!

Posted on June 30, 2017 by Popular Economics Weekly

Financial FAQs

Central Banks everywhere seem to be following our Federal Reserve in selling bonds they had accumulated to keep interest rates low for so long—in fact, since the end of the Great Recession. They also seem to be crossing fingers that this will boost growth.

The 10-year Treasury yield rose 1.8 basis point to 2.285 percent, contributing to a 14 basis point jump over the past week. The 30-year bond, or the long bond, gained 1.7 basis point to 2.831 percent, according to Marketwatch.

Our Fed Chair Janet Yellen took the lead in calling for more Fed rate hikes this year at the last FOMC meeting; as well as beginning to sell some of the $4.5 billion in Treasury bonds it had accumulated during the various Quantitative Easing programs first initiated by former Fed Chair Ben Bernanke.

The QE programs and extremely low inflation have kept long term rates below 3 percent for several years. The Fed’s actions in tightening credit mean they see higher inflation and growth ahead. But so far it’s just words. They are hoping that talking up interest rates will have the effect of boosting growth, for some reason.

I just don’t see how, since consumer spending and business investment are still at post-recession lows. First quarter GDP’s final growth estimate rose from 1.2 to 1.4 percent and it’s averaged 2 percent annually since 2009, the end of the Great Recession. That’s the reason for the various QE bond buying programs that have taken so many bonds out of the market.

image

Graph: Econoday

So the question is, as the Fed begins to sell them back into the bond market will interest rates rise? They are taking a gamble, since consumers aren’t spending as they should, and inflation is falling, rather than rising—another sign of weak demand.

image

Graph: Econoday

Real disposable personal income has fallen precipitously since 2014, and the Fed’s preferred PCE inflation index is down to 1.4 percent annually. That should be a danger sign, rather than a sign of higher growth.

Maybe the Fed is looking at consumer optimism, still holding at November post-election highs. Both the University of Michigan sentiment survey and Conference Board’s confidence survey show extreme optimism about future prospects.

Why such optimism? We are nearing full employment, or perhaps there is the hope that Republicans may be able to pass an infrastructure bill that would boost state and federal work projects.

But then Congress has to begin work on legislation that both Republicans and Democrats can agree on. They shouldn’t wait on much more partisan legislation that isn’t likely to pass—like reforming health care and cutting taxes, which no one seems to be able to agree on.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Politics, Weekly Financial News | Tagged , , , , , , , , | Leave a comment

What Health Care System Do Americans Want?

Posted on June 29, 2017 by Popular Economics Weekly

Popular Economics Weekly

This is a quiz. What country had the second-highest mortality from noncommunicable conditions — like diabetes, heart disease or violence — and the fourth highest from infectious disease? Also, what country has the highest chance of dying an early death–from adolescence to adulthood to old age?

The United States of America—where else, since the U.S. is the only developed country in the world without universal health care? A recent New York Times Business Insider article by Eduardo Porter highlighted a recent study by the Institute of Medicine and the National Research Council of 16 of the richest countries in the world that set out to assess our nation’s health.

The results are devastating, and show how far America has fallen behind in caring for its citizens. And the new Senate version of repeal and replace Obamacare strips even more benefits and money from Obamacare

This problem should have nothing to do with ideology, and whether access to affordable health care should be a privilege or a right. Too many Americans are dying of drug overdose and violence. Too many Americans suffer from depression, a major cause of drug abuse.

And too many Americans are obese, making them less productive and more prone to accidents in the workplace. “The United States ranks in the bottom fourth among the 30 industrialized nations in the Organization for Economic Cooperation and Development in terms of days lost to disability,” says Porter. “Women will lose 362 days between birth and their 60th birthday; men about 336. Mental health problems like depression will account for most.”

image

Graph: LastTechAge.com

But all of these statistics hide the real problem—rampant income inequality. The U.S. ranks 106th of the 149 countries in income inequality as ranked by the CIA’s World Factbook; with a Gini inequality index of developing countries like Peru and Cameroon. Finland and the Scandinavian countries are at the top of equality, Germany and France are 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

And the poorer the person, family, or community, the more prone to illness and drug use is that person, or family, or community. This is where the Senate version of repeal and replace Obamacare hurts the most—in the poorer red states that voted for President Trump.

“What’s more, the United States’ higher tolerance of poverty undoubtedly contributes to higher rates of sickness and death,” says Porter. “Americans at all socioeconomic levels are less healthy than people in some other rich countries. But the disparity is greatest among low-income groups.”

Finally contributing to our health crisis is the incredible amount of violence—both due to guns (33,000 per year killed by guns), workplace accidents, and drug abuse, that a universal health care system would treat via mental health coverages as well.

In other words, there are much higher costs because we don’t have a healthy healthcare system and we the citizens are paying those costs, rather than those pushing for the $1.1 trillion in tax cuts that Obamacare utilizes to pay for many of those costs.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Economy, Politics, Weekly Financial News | Tagged , , , , | Leave a comment

Housing Shortage Continues

Posted on June 27, 2017 by Popular Economics Weekly

The Mortgage Corner

It was very good news that new-home sales rose nearly 3 percent in May to a 610,000 annualized rate. The report, always volatile, included a big upward revision to April which however, at 593,000, is still the year’s low. But that isn’t close to the 1 million plus new homes built annually during the housing bubble.

Existing home sales also proved better than expected, up more than 1 percent to a 5.620 million rate. Low unemployment and low mortgage rates are major positives for housing. But that only exacerbates the shortage of homes on the market.

image

Graph: Econoday

And that doesn’t even take into account the 1 million prospective homebuyers who could buy a home, if Fannie and Freddie would ease their qualification standards to that which prevailed throughout the last 2 decades. But because the U.S. Treasury won’t release its stranglehold on supervision of the GSE’s, for fear that taxpayers might again be at risk if another housing bubble materializes, there is little prospect of this aid coming to first-time and entry-level buyers, in particular, that must then rely on the more expensive FHA alternative.

This is while the housing shortage continues, even though prices are up a median $252,800 for resales and $345,800 for new homes, a 6 percent rise, whereas household incomes are rising just 2.4 percent annually. The FHFA house price index is another of the week’s highlights, up sharply in April to a year-on-year rate of 6.8 percent.

This should boost housing construction, but housing starts are also lagging. And we are hardly in bubble territory. Bubbles occur when there is too much of something—whether housing, or credit—so that the resulting oversupply causes prices to plummet at they did during the Great Recession.

image

Graph: Calculated Risk

Calculated Risk shows the “Distressing Gap” that occurred with the housing crash, when oversupply of distressed housing caused new-home construction to plummet. It hasn’t yet recovered, but “in general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years,” says Calculated Risk’s Bill McBride.

The National Association of Home Builders reported builder confidence in the market for newly-built single-family homes weakened slightly in June, down two points to a level of 67 from a downwardly revised May reading of 69 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

New-home inventories remain too low to satisfy surging demand that comes from low interest rates and full employment. Full employment is a two-edged sword, however, as it also means labor shortages and unfilled jobs. Where are those workers, when just 2 million are currently employed in construction, and there were as many as 6 million employed during the housing bubble? It could be the recession hangover, such as memories from the housing crash that has discouraged many from re-entering the workforce. Hence the 4 percent drop in labor participation rate since the end of the Great Recession.

“As the housing market strengthens and more buyers enter the market, builders continue to express their frustration over an ongoing shortage of skilled labor and buildable lots that is impeding stronger growth in the single-family sector,” said NAHB Chief Economist Robert Dietz.

Builders can’t keep up with the housing demand, in other words—especially now that the Millennials, those between the ages of 18 to 36, are coming into adulthood and outnumber all other population groups. A good percentage will want to own a home someday as their primary asset.

The younger baby boom generation dominated in 2010.  By 2016 the millennials have taken over.  “The six largest groups, by age, are in their 20s – and eight of the top ten are in their 20s,” reports Bill McBride and the U.S. Census Bureau. 

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Housing, housing market, Politics, Weekly Financial News | Tagged , , , , , , , | Leave a comment

Consumers Not Shopping Anymore?

Posted on June 23, 2017 by Popular Economics Weekly

Popular Economics Weekly

What has happened to second quarter economic growth? Economists had been predicting 3 percent plus GDP growth for Q2, but consumers are cutting back instead. Retail sales have fallen with inflation, not a good sign for demand, while consumer sentiment is barely holding onto the optimism after President Trump’s election. Maybe it’s because nothing is getting through Congress that he can sign into legislation.

image

Graph: Econoday

Econoday reports that consumers aren’t remaining very optimistic about present or future conditions; an indication there isn’t a quarter-end bounce. June’s preliminary consumer sentiment index is 94.5, down from several months at the 97 level and the least optimistic reading since the November election. The current conditions component, which offers a specific gauge on month-to-month consumer spending, shows a similar decline.

image

Graph: Econoday

Lack of inflation is a serious indication that demand in general is weak, as I said. Consumer spending makes up 69 percent of GDP and has been this year’s big flop, but the FOMC in its June statement said “household spending has picked up in recent months”. Really? Consumer spending did rise 0.4 percent in April and 0.3 percent in March but that’s no better than average. And the first piece for May spending, retail sales, fell 0.3 percent which is far below average.

The housing market seems to be holding up, as long as interest rates stay at historic lows. The 10-year Treasury bond yield is still hovering at 2.15 percent, and 30-year fixed rate mortgages are still below 4 percent.

Housing had been sliding but May’s very solid 1.1 percent rebound in existing home sales to a higher-than-expected 5.620 million annualized rate is hopeful and will be covered in a following column. Today’s report is mostly solid throughout and includes gains for single-family homes, up 1.0 percent to a 4.980 million rate, and also condos, up 1.6 percent to a 640,000 rate.

Tomorrow the Conference Board’s Index of Leading Indicators may give us more signs of future growth, and nwew-home sales on Friday. Both are leading indicators of future growth, so stay tuned.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, Economy, Weekly Financial News | Leave a comment