Housing Affordability at Record High

Posted on May 21, 2012 by Popular Economics Weekly

The Mortgage Corner

Nationwide housing affordability hit a new record high for a second consecutive quarter in the first three months of this year, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).  So much so, that new-home sales are exceeding housing starts, which is dropping new-home inventories, reports Calculated Risk.

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Graph: Calculated Risk

“For the last 2+ years, the builders have sold a few more homes than they started, and inventory levels are now at record lows,’ says Calculated Risk. “In Q1 (2012), builders started 6 thousand fewer homes than they sold.” Yet tight lending conditions continue to pose a major obstacle to many prospective home buyers.

“Homes in this year’s first quarter were more affordable than they have been at any time in more than 20 years, yet many potential sales are not happening because of overly tight lending conditions that are keeping hardworking families from obtaining a suitable mortgage,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB). “Without this significant hurdle, the housing and economic recovery could be proceeding at a much stronger pace.”

The latest Housing Opportunity Index data reveal that 77.5 percent of all new and existing homes that were sold in this year’s first quarter were affordable to families earning the national median income of $65,000. This beats the previous record set in the final quarter of 2011, when 75.9 percent of homes sold were affordable to median-income earners.

The main problem is either lack of equity for existing homeowners, where more than 30 percent are ‘underwater’ with a mortgage worth more than the property, or problems with credit or income standards, which Fannie and Freddie have made more restrictive. But both the Fannie Mae/Freddie Mac HARP 2.0 loan modification programs are helping, which allow unlimited loan-to-values. Fannie estimates some 9 million homeowners could be helped with that program, alone.

In fact, housing starts rebounded 2.6 percent in April after declining 2.6 percent in March. The April pace of 0.717 million units posted higher than analysts’ forecast for 0.690 million and is up 29.9 percent on a year-ago basis. In April, the comeback was led by the multifamily component but single-family also was healthy.

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Graph: Econoday

The $25 billion National Mortgage Settlement that we summarized in a past column will also help those with non-Fannie or Freddie loans. It is an agreement with 5 of the largest mortgage holders; including Bank of America, Citibank, Wells Fargo, Ally/GMAC, and JP Morgan/Chase Banks to not only drop mortgage interest to current mortgage rates, but reduce principal as well. But it could take up to 9 months to implement, since the banks have to comb through their records to find eligible borrowers.

South Coast, California real estate is also being helped by the increased affordability, and it is spurring sales. Santa Barbara Realtor Gary Woods reported for the Santa Barbara MLS that escrows continued to surge in April with about 145 Home Estate/PUDs starting the buying process. But, just like with sales, the median list price on those escrows slid from $816,750 in March to $789,000 in April. “With the inventory way down and a substantial number of sales drawing multiple offers I would expect prices to start rising but at this point that phenomenon has not occurred,” said Gary.

And so we have a window of opportunity for buyers that many are taking advantage of. Lenders are being deluged with mortgage applications, as mortgage rates are the lowest since the Mortgage Bankers Association has been surveying them. And as a mortgage broker myself, I am seeing underwriting turnaround times of as much as 18 days.

Harlan Green © 2012

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Builder Confidence Rises Five Points in May

Posted on May 16, 2012 by Popular Economics Weekly

The Mortgage Corner

It may not seem like much in such a depressed real estate market, but builder confidence in the market for newly built, single-family homes gained five points in May from a downwardly revised reading in the previous month to reach a level of 29 on the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the index’s strongest reading since May of 2007. And that will give a boost to several other industries, including construction and finance.

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Graph: Calculated Risk

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB). “It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase.”

More good news is that mortgage delinquencies continue to decline, reports the Mortgage Bankers Association. “The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 7.40 percent of all loans outstanding as of the end of the first quarter of 2012, a decrease of 18 basis points from the fourth quarter of 2011, and a decrease of 92 basis points from one year ago”, according to the MBA’s National Delinquency Survey. “The non-seasonally adjusted delinquency rate decreased 121 basis points to 6.94 percent this quarter from 8.15 percent last quarter.”

And Realtors in some markets are reporting multiple offers, reports Calculated Risk.

Jon Lansner at the Orange Country, California Register: O.C. homes draw multiple-offer ‘avalanche’ (an excerpt from Steve Thomas’ report) “Below $500,000 range is NUTS. Homes priced at or near their market value are generating an avalanche of multiple offers. A home in this range is placed on the market and, within moments, cars filled with buyers are touring the home. …Upon writing an offer, buyers quickly find that they are one of many, sometimes over ten, offers on the home. Suddenly … In the end, the seller factors the highest price with the largest down payment. I know, you are thinking, “What about the appraisal?” In many instances, shrewd sellers and Realtors are leveraging the competition to drop the appraisal contingency and require the buyer to make up the difference between the appraisal price and the purchase price, IF there is an appraisal problem. … Supply has dropped to levels not seen since June 2005. … The expected market time for all of Orange County is 1.5 months, or six weeks.”

So, “While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back,” said NAHB Chief Economist David Crowe. “The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices.”

Harlan Green © 2012

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The War on Workers

Posted on May 15, 2012 by Popular Economics Weekly

Popular Economics Weekly

We are seeing what can only be called a war on workers by Tea Party Republicans in particular. Who are workers? The 80 percent of consumers who are wage and salary earners. And they have not done well since the 1970s while corporations have made record profits, as I have been saying.

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Graph: EPI

It is the current crop of conservative Republicans, such as Wisconsin Governor Scott Walker, who has even been caught on video declaring Republicans’ strategy of “divide and conquer” on public service workers and teachers, that have declared outright war. Their campaign would essentially wipe out the middle class by blocking all attempts to raise workers’ incomes in both the private and public sectors, and so their standard of living. Yet in doing so, Republicans will destroy the very foundation of our economic strength. Governor Walker’s efforts in particular have put Wisconsin at the bottom of Midwestern states’ job creation list.

Employers have always tried to maximize profits by limiting workers’ pay, but wage suppression today because of Republican efforts to limit collective bargaining is as bad as it was during the Great Depression. And the result has been disastrous for both jobs and economic growth.

For instance, the 40 years from 1961 to 2000, when the White House was shared equally by Republican and Democratic presidents (20 years each), pro-labor rights Democrats had the far superior record both for economic growth, and jobs. This can be found in numerous government data, but summarized by the Currency Thoughts blog. Bush 43’s record (GW Bush) was even worse.

% Per Annum      Democrat      Republican      Bush43

GDP Growth      4.1 percent      2.9 percent      2.2 percent

Employment      2.9 percent      1.7 percent      0.5 percent

Even more convincing proof that Republicans’ ideological war on workers will prolong this recession is their record on job creation. The Wall Street Journal has run articles on this fact. Since Harry Truman, 57.5 million jobs were created during Democratic Administrations, vs. 36.2 million jobs created during Republican Administrations.

President Clinton is the winner with 23.1 million jobs created during his 8 years, whereas President Reagan leads Repubs with 16 million created during his term. There are pundits who say these job totals are not totally accurate because policies created in one administration will affect job formation in the next. But that would have to work both ways, cancelling out any effects of one administration’s policies over another.

We aren’t even counting President Obama’s almost 4 million jobs created to date after our Greatest Recession that followed on the heels of GW Bush’s worst track record of just 3 million jobs created 2000-2008.

Why? This is one of the most basic economic truths, yet conservative Republicans in particular don’t seem to care. They want to believe that lower taxes will stimulate more jobs by transferring more revenue to the private sector. But that hasn’t happened—historically their policies have depressed the jobs and incomes of wage and salary earners that would stimulate more demand for their products.

And this is in spite of record corporate profits, which belies the ideology that greater tax cuts (even abolishing corporate taxes) will bring greater prosperity. In fact, as corporate profits have risen over the past 30 years, workers’ incomes have fallen. A recent New York Times’ article highlighted recent revisions of 2010 and 2011 Department of Commerce data. The new figures indicate that corporate profits accounted for 14 percent of the total national income in 2010, the highest proportion ever recorded. The previous peak, of 13.6 percent, was set in 1942 when the need for war materials filled the order books of companies at the same time as the government imposed wage and price controls, holding down the costs companies had to pay.

‘Employees have always received more than half the total national income, until now,” said the New York Times. (But) “In 2010, the percentage of national income devoted to wages and salaries fell to 49.9 percent, and it slipped a little more to 49.6 percent in the first quarter of this year. That continued decline may help explain the economic worries of many Americans who have jobs but still fear they are falling behind.”

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Graph of wages/benefits vs. profits: New York Times

The private sector war is being waged by conservative states with their Right-to-Work laws that say though it can’t be illegal to organize into unions (because it’s federal law), it can make it illegal for workers in individual states to have to join and pay dues to support the unions. Twenty four states in the Midwest and South now have such laws.

This should be a no-brainer, in other words, which is why in not heeding the most basic economic truths—one cannot create demand without more income to support it—Republicans have declared a defacto war on workers. It is the worst kind of blindness. Republicans are also destroying their own economic homeland, the U.S. economy, and our competitiveness in the ever more worldwide economy.

Harlan Green © 2012

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Ryan Budget Punishes the Poorest—A Return to ‘Les Miserables’?

Posted on May 12, 2012 by Popular Economics Weekly

Popular Economics Weekly

We know Victor Hugo’s message is alive and well when Paul Ryan’s latest budget proposal continues to punish the poorest for the sins of the wealthiest who caused the Great Recession, and have yet to be punished. Les Miserables’ Jean Valjean is punished for stealing a loaf of bread while the French aristocracy refused to share their wealth. Then came the French Revolution, of course

And Republican Paul Ryan’s latest budget proposal punishes the poor to pay for the excesses of the wealthiest that created the worst budget deficit since WWII. “We propose to stop fraud in the food-stamp program by ensuring that individuals are actually eligible for the taxpayer benefits they receive,” said Ryan at a recent press conference.

Yet congressional Republicans will do nothing to return the fraudulently obtained $trillions of the wealthiest beneficiaries of the burst housing bubble by raising their taxes. The fraud of those like Goldman Sachs who benefitted most has been well-documented by Chairman Philip Angelides’ Financial Crisis Inquiry Commission, which was set up to determine the causes of the financial meltdown that led to the Great Depression, among them criminal fraud.

“The bipartisan panel appointed by Congress to investigate the financial crisis has concluded that several financial industry figures appear to have broken the law and has referred multiple cases to state or federal authorities for potential prosecution, according to two sources directly involved in the deliberations,” said the Huffington Post.

“Though civil charges appear a more likely outcome should prosecution result, one source familiar with the panel’s deliberations said criminal charges should not be ruled out. The commission’s decision to refer conduct for prosecution underscores the severity of the activities it has uncovered and plans to detail in its widely anticipated final report, the sources said.”

One-quarter of the House GOP spending cuts come from programs directly benefitting the poor; such as Medicaid, food stamps, the Social Services Block Grant, and a child tax credit claimed by working immigrants.

“This plan hits the food and nutrition programs but totally exempts all the agricultural subsidies,” said House Democrat Chris Van Hollen. Republicans would also eliminate Social Services Block Grants, a $1.7 billion a year program that gives states money for Meals on Wheels, day dare, adoption assistance and transportation help for the elderly and disabled.

And the Bureau of Labor Statistics in its latest JOLTS report  said the number of job openings in March (not seasonally adjusted) increased over the year for total nonfarm, total private, and government. Job openings increased over the year for durable goods manufacturing, nondurable goods manufacturing, retail trade, health care and social assistance, and state and local government. Job openings in the Midwest and South regions increased over the year. The total number of job vacancies jumped 172K from an upward-revised level in February. The 3.737 million job openings for March 2012 is the highest since July 2008.

Lastly, the NFIB Small Business Confidence Survey shows both increased hiring and income.  It outperformed expectations in April, rising two full points to a level of 94.5, and thereby matching the recovery high set in February 2011. The employment-related measures improved as had been previously reported, and there were some pleasant surprises among the other components.

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Graph: NFIB

We can therefore say those who want to punish the poor, without punishing those who caused the Great Recession for their misdeeds has a historical precedent, thanks to Victor Hugo. Do we really want to repeat the mistakes of the French aristocracy?

Harlan Green © 2012

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We Can’t Stall the Recovery!

Posted on May 8, 2012 by Popular Economics Weekly

Financial FAQs

It is really disgusting that there isn’t the political will to grow more jobs, both here and in Europe. And creating more jobs is the key to bringing us out of the deep hole of the Great Recession, of course. For if we don’t climb out soon, the U.S. could become just another Third World country—not only in terms of income inequality, but other indicators of national well-being, such as health care.

Why isn’t more being done, both here and in Europe? Paul Krugman’s piece on the death of the confidence fairy explains the fallacies behind the German’s belief that cutting back on government spending and benefits would cause interest rates to fall and employers to hire because they would have more confidence in the future.

“What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills,” asks Krugman? “One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.”

The confidence fairies in the U.S. are led by extreme right wing conservatives who continue their attempts to divert wealth to the wealthiest by reducing government spending enough "to shrink it down to the size where we can drown it in the bathtub", as Grover Norquist once famously said, architect of the no tax increase pledge signed by more than 200 Republican legislators, or Ron Paul, who wants to turn the clock back 150 years when the U.S. was a rural economy and there was less need for an effective national government that would benefit the majority of citizens.

The U.S. has done much better with the various fiscal stimulus plans, including the 2 percent payroll tax and GW Bush tax cuts, both due to expire this year. But since conservatives have not allowed additional stimulus measures, 2012 doesn’t look as favorable, says the Congressional Budget Office,  in a Bloomberg Marketwatch article.

“Since the stimulus began to wane in late 2010, real sales in the private sector have grown at a 2.8 percent annual rate, while government consumption expenditures and investment (goods and services the government buys directly) have fallen at a 2.8 percent annual rate, according to the Bureau of Economic Analysis. The other big category of government spending — transfer payments to individuals in the form of Social Security, Medicare, unemployment, food stamps and the like — has also turned negative, falling at a 0.9 percent annual rate after jumping nearly 17 percent in late 2009.”

So if Republicans succeed in preventing more stimulus spending, it could stall the U.S. recovery, not to speak of our standing among developed countries. As an example, the New York Times highlighted how far the U.S. has fallen behind in health care in a recently released World Health Organization study of premature births.  This is on top of many other studies that show the U.S. falling further behind in longevity, and even average heights, as our health care system continues to deteriorate.

It is no coincidence all developed countries have universal health care that Republicans continue to attack as too much government. That is why one of the largest casualties of the enormous diversion of wealth from the middle class to the wealthiest one percent has been affordable health care. Minnesota is just one battleground, where Republicans are attempting to block insurance exchanges that would make health insurance more affordable.

And we know why. “The exchange is the centerpiece of the new health care system envisioned by Mr. Obama,” said the New York Times article. “In the exchange, people who do not have insurance from employers will be able to get comparative information on health plans, insurers will compete on price and benefits, and the federal government will offer subsidies to lower- and middle-income people buying insurance.”

Can there be anything more important than improving the overall health of Americans? Improving their health care system is the first step taken by underdeveloped countries on their path to entering the modern world, while U.S. conservatives seem bent on returning the U.S. to a less-developed status to enhance their already wealthy supporters.

Harlan Green © 2012

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Manufacturing Continues Expansion (So Austerity Not the Answer)

Posted on May 2, 2012 by Popular Economics Weekly

“Manufacturing continues to lead U.S. recovery”, said the April ISM manufacturing survey that measures overall manufacturing activity. “The PMI registered 54.8 percent, an increase of 1.4 percentage points from March’s reading of 53.4 percent, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March.”

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Graph: Econoday

Why is this a surprise? Even exports continued to expand, showing the weak dollar is keeping U.S. products competitive. “Other details show a slight destocking in inventories which is welcome and points to the need for future orders in order to replenish inventories,” said Econoday. “Prices paid do remain elevated which is a negative for manufacturers. But overall, this report points to accelerating conditions and perhaps new leadership for the data.” Manufacturers cannot keep up with demand, in other words.”

The U.S. economy continues to confound its critics, whether those who believe we sink or swim with Europe, or are tied too closely to the Chinese economy, or those who believe austerity is the only answer. But European austerity measures in particular are a failure, as Nobelist Paul Krugman has been saying in columns, such as “Death of a Fairy Tale”, while our Fed continues to provide stimulus with record low interest rates.

So those who criticize economic stimulus measures aren’t looking at the real economy. With retail sales soaring, particularly motor vehicle sales (thanks to Obama’s Detroit auto bailout), the consumer has again been growing the economy. Retail sales are growing at 5 percent plus annually, just like in pre-recession, boom years. Core components excluding gasoline and auto sales showed widespread strength.  Standouts included building materials & garden equipment, furniture & home furnishings, electronics & appliances, and clothing, which tells us home buying might be next on their list.   Declines were seen in miscellaneous store retailers and in health & personal care.

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Graph: Econoday

Then what are we to make of the weak GDP numbers, with just a 2.2 percent growth rate, compared to 2011 Q4’s 3 percent? It was due to a huge drop in government spending, thanks to Republicans continued assault on state and local government spending. Wisconsin is just the most obvious example, but the red states with Republican legislatures continue to downsize their governments, restrict or abolish collective bargaining rights, while cutting taxes to their wealthiest and corporations.

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Graph: Econoday

This is why job formation has slowed of late. ADP estimates that April private payrolls will rise by only 119,000 in what would be significant monthly slowing vs. a revised 201,000 in March. This compares to Bureau of Labor Statistics’ estimates of 121,000 for private payrolls and 120,000 for total payrolls in Friday’s upcoming unemployment report for April. But remember that the BLS’s JOLTS report shows 3.5million job openings, and growing.

So it’s really Republicans’ efforts to downsize government spending that is holding back more job formation. For instance, 300,000 teachers have lost their jobs in the downsizing of state and local governments, a crime that puts us even further behind other countries’ educational achievements, according to Paul Krugman.

“What should we do to help America’s young? Basically, the opposite of what Mr. Romney and his friends want. We should be expanding student aid, not slashing it. And we should reverse the de facto austerity policies that are holding back the U.S. economy — the unprecedented cutbacks at the state and local level, which have been hitting education especially hard.”

Harlan Green © 2012

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What Has Caused Record Inequality (and Greater Recessions)?

Posted on April 29, 2012 by Popular Economics Weekly

Popular Economics Weekly

Economists Lawrence Mishel and Heidi Shierholz of the labor think tank Economic Policy Institute (EPI) have been asking a question in their latest work that is at the root of our various economic crises, “Why did the richest 1 percent of Americans receive 56 percent of all the income growth between 1989 and 2007, before the recession began (compared with 16 percent going to the bottom 90 percent of households)? Why are corporate profits 22 percent above their pre-recession level while total corporate sector employees’ compensation (reflecting lower employment and meager pay increases) is 3 percent below pre-recession levels?”

The answers have become becoming blindingly obvious in the glare of the Great Recession. A concerted effort by business interests in general, and Republicans in particular, instigated a massive transfer of newly created wealth from wage earners to the owners of capital via various measures, including lowering upper income tax rates, restricting employees collective bargaining, rolling back regulations on financial institutions, and the like.

Such a wealth transfer has caused tremendous harm to our economy and society. The major casualty has been recurring recessions since the 1970s brought on in large part by mountains of debt. In fact, most of that debt was taken out by households with declining incomes who took advantage of increasingly available credit to borrow to make up for their income shortfall.

What created the wealth? Information age technologies, which massively increased worker productivity. Labor productivity has increased 254 percent since 1948. Hourly wages, however, increased just 113 percent. That can be seen in Figure A from the EPI, which presents both the cumulative growth in productivity per hour worked of the total economy (inclusive of the private sector, government, and nonprofit sector) since 1948 and the cumulative growth in inflation-adjusted hourly compensation for private-sector production/nonsupervisory workers (a group comprising over 80 percent of payroll employment).

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Figure A: EPI

That transfer of wealth since the 1970s has been well documented in books such as, Jacob Hacker and Paul Pierson’s, “Winner Take-all Politics” that documents the massive lobbying effort by businesses to bring in business-friendly legislation and administrations resulting not only in the ownership of much of Congress, but an extremely conservative, corporate-friendly Supreme Court that in Citizen’s United now allows unlimited corporate donations to political campaigns, and so corporate control of 2 of the 3 branches of government for years to come.

The other side of that coin is blatant attempts by Republicans to suppress incomes by taking away collective bargaining rights of both private and public sector workers, such as happened in Wisconsin. The result is the almost disappearance of the middle class that has been the main driver of growth since WWII.

Big Business chose to raise their own incomes and that of their shareholders, but not their workers’ incomes, in other words. Yet Big Business was more than willing to lend consumers money via Wall Street and relaxed banking regulations, so much so that the personal savings rate dropped to almost zero during the Bush II administration, as the Calculated Risk graph clearly shows after peaking in 1980. Those consecutive recessions—6 since 1973—have been a tremendous drag on economic growth, in spite of the productivity increases.

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Graph: Calculated Risk

According to the Federal Reserve’s Survey of Consumer Finances, the percentage of households holding revolving credit card debt rose from 16 percent in 1970 to 71 percent in 2004.

“Essentially, economic policy has not supported good jobs over the last 30 years or so,” said EPI. “Rather, the focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions. These policies have served to erode the bargaining power of most workers, widen wage inequality, and deplete access to good jobs. In the last 10 years even workers with a college degree have failed to see any real wage growth.”

All has been part of an even larger trend, the maturing of our economy from industrial to a service-oriented economy dependent mostly on consumer demand, rather than capital investment as in the past. The result has been documented by Rutgers Economic Historian James Livingston. Though most economic activity over the past 100 years is generated by consumer spending, it hasn’t benefited most consumers.

This has to change. We can no longer tolerate such a diversion of wealth that has weakened our economic and social fabric so much that we have fallen behind the rest of the developed world in education, health care, ageing infrastructure, and even environmental protection.

Harlan Green © 2012

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Rental Markets Strongest in Q1

Posted on April 27, 2012 by Popular Economics Weekly

The Mortgage Corner

After hitting bottom in 2010, Reis Reports, a leading rental property analyst, reported in Q1, “After five quarters of improvement, it is apparent that we are in the midst of a recovery in the office sector”, said the report. “National asking and effective rent growth improved slightly in the first quarter, continuing the slow upward trend that began in the first quarter of 2011. Annual gains of 1.6 and 2.1 percent, respectively, also indicate a moderate pace of improvement, but are unimpressive.”

The sector continues to be hampered by the anemic pace of improvement in the labor market. There is certainly positive churn in leasing, but rents remain at levels last seen in 2007, and five-year leases coming due in 2012 run the risk of being signed at equivalent or lower rent levels, exerting a dilutive effect on landlord incomes.”

Office Effective Rent Growth

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Graph: Reis Reports

Apartment Vacancy and Rent

Apartment leasing was more favorable, with the national vacancy rate now below 5 percent. Activity showed little signs of slowing during the first quarter, partly because of the relatively mild winter in the Northeast, said Reis. Net absorption, or the net change in occupied stock, remains strong with 36,488 units leasing up. Tight supply conditions with only 7,342 apartment units coming online in the first quarter are helping the performance of apartment properties around the nation. National asking and effective rents remain strong, with effective rents (asking rents net of concessions) increasing at its fastest rate since end-2007. Asking rents grew by 0.5 percent and effective increased by 0.9 percent in the first quarter. Reis expects effective rent growth to accelerate even more as vacancies tighten within the 4 percent band; with availability so scarce, landlords have little incentive to concessions.

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Graph: Reis Reports

Neighborhood and Community Shopping Center Effective Rent Growth

Asking and effective rents both increased by 0.1 percent, in line with the changes from the fourth quarter of 2011. This is the second consecutive quarter of rent increases and another cautiously optimistic sign for neighborhood and community centers. Additionally, relative to the first quarter of 2011, both asking and effective rents grew 0.2 percent. This represents a slight acceleration versus the fourth quarter when year-over-year asking and effective rents were either unchanged or marginally negative. These data points offer more, but still insufficient, evidence of a nascent recovery.

But, “We remain cautious about pronouncing a turnaround until we observe a couple more quarters of improvement,” said Reis. “As we have observed in the recent past, two consecutive quarters of improvement are not necessarily the beginning of a trend and are insufficient to declare that a recovery is underway.”

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Graph: Reis Reports

So it seems apartment leasing and construction is leading the real estate recovery, as builders are still reluctant to start much new single family construction. Econoday reports that optimism continues for the apartment industry, according to the latest results of the National Multi Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The findings reflect a gradual recovery for the multifamily sector that faced a 50-year low in apartment starts in 2009.

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Graph: Econoday

“Market conditions improved across the board, even from the rather strong level of three months ago,” said NMHC Chief Economist Mark Obrinsky. “Demand for apartment residences – and apartment properties – continues to grow. We anticipate this increasing further in the coming years due in part to the large number of younger households moving into the housing market and a greater preference shown for renting.”

The Market Tightness Index increased to 74 from 60. Nearly half (49 percent) reported tighter markets – reflecting lower vacancy rates and/or higher rents – compared to only one percent reporting looser markets.

Harlan Green © 2012

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Employment Will Drive Recovery in 2012

Posted on April 26, 2012 by Popular Economics Weekly

Popular Economics Weekly

It seems the lingering doubts about better growth in 2012 have nothing to do with reality. Predictions that job growth may have slowed come from a recent uptick in weekly initial jobless claims, but such numbers are notoriously subject to revisions, while the Bureau of Labor Statistics’ Job Openings Layoffs and Transfer Survey (JOLTS) that measures actual job layoffs and openings says employment is surging.

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Graph: Wrightson ICAP

Which should we believe? JOLTS, because it has shown steady improvement since its mid-2009 low, and isn’t subject to large swings! The hire rate has steadily improved to 3.3 percent from its 2.9 percent low, while the number of job openings has increased from 2.2m to 3.5m in February 2012.

There are other signs, as well. Calculated Risk reports the Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2012. In the past month, the indexes increased in 48 states, decreased in one state (Rhode Island), and remained stable in one state (South Dakota), for a one-month diffusion index of 94.

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Graph: Philadelphia Fed

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. In March, 49 states had increasing activity, up from 47 in February. The number of states with increasing activity has been at or above 47 for the last seven consecutive months. The states with highest growth indexes are dark green.

And labor productivity has been sliding as employers continue to try to squeeze more out of their workers, who are already maxed out, instead of hiring additional workers. But the NFIB small business survey says small businesses which hire something like two-thirds of new workers have been adding workers.

The composite survey rose by one tenth of a point to 93.9, which left it just below the high point reached in last winter’s economic pick-up. The economic expectations index continued its recovery from last summer’s low point by five points, but the other measures that go into the headline index were mixed. Needless to say, tight credit conditions have been the biggest obstacle to small business growth.

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Graph: Wrightson ICAP

One moderately encouraging aspect of the report is the fact that the credit expectations indexes held onto the previous month’s gains, according to Wrightson ICAP. “The indexes for current and expected credit conditions held steady at their December levels, which matched the best readings in those measures since the collapse of Lehman. Small business owners still view credit availability as somewhat restricted, but conditions have eased again since the summer,” said Wrightson ICAP.

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Graph: Econoday

Lastly, the bears had to have been disappointed with the Conference Board’s latest Index of Leading Indicators (LEI) report—still no sign of pending collapse in the recovery. The index of leading economic indicators continues to signal healthy growth ahead. And signals outside this factor are also positive especially growth of building permits — which is an important and hopeful signal of badly needed recovery for the housing sector. The stock market is also a positive as is the report’s reading on lending conditions.

Harlan Green © 2012

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The National Mortgage Settlement

Posted on April 12, 2012 by Popular Economics Weekly

The Mortgage Corner

The $25B National Mortgage Settlement has finally been signed off by a federal judge, and 5 of the largest banks will begin the process of providing relief to the estimated 9 million present or former homeowners who are either now underwater with their mortgages, or who have already lost their home due to foreclosure.

Who May be Eligible for Assistance

Because of the complexity of the mortgage market and this agreement, which will be performed over a three-year period, borrowers will not immediately know if they are eligible for relief. Borrowers from states who did not sign the settlement will not be eligible for any of the relief directly to homeowners. Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.

The settlement provides assistance for:

  • Homeowners needing loan modifications now, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.

State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

  • Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
  • Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.

TIMELINE

  • Over the next 30 to 60 days, settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.
  • Over the next six to nine months, the settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
  • This settlement will be executed over the next three years.

WHERE YOU CAN GO FOR HELP

For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. Keeping in mind the timeline above, you may contact the banks directly if you need additional information:

Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement.  You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:

These sites will also include links to information about mortgage and foreclosure programs you may be eligible to access.  You may also call 1-888-995-HOPE (4673)

Harlan Green © 2012

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