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Posts Tagged ‘Commerce Dept’

[Getting Graphic] Housing: The Auto Motown Doldrums May Mean Recession

August 24, 2006 | 7:03 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: NYT

[Click here to expand](

With all the buzz about the consumer’s 2/3 share of the economy and housing as the biggest purchase in many of our lives, [we have tended to be housing-centric [pbs]]( in the search through the tea leaves.

Sometimes I think that we can be better informed by looking at other industries for the health of the economy as it relates to the housing market rather than the other way around.

And since I was just in Detroit to visit family, what better way to look at the housing market, than to look at the impact of the auto industry on the economy? Afterall, 1 in 6 jobs is linked to this sector.

Floyd Norris does that for us in his [A Car-Sales Indicator Suggests a Recession Is Near or Already Here [NYT]]( using census data.

The accompanying chart shows the rate of change in sales by new-car dealers, comparing the most recent 12 months with the 12 months before that; it is adjusted for inflation. The rule — unveiled here for the first time — is that if the figure is down 2 percent or more, a recession is either under way or set to begin within a few months. The figure fell to a negative 2.4 percent when June sales figures were released last week by the Census Bureau.

There is, of course, no mystery now as to what the problems are for car dealers. They are pinched by the slumping real estate market because people can take less money out of home equity to buy cars. And soaring gasoline prices have made driving much more expensive and new-car payments more burdensome. In July, sales at gasoline stations accounted for 10 percent of all retail sales, the highest figure in decades.

We are starting to see warnings from large car dealerships. [This one is from AutoNation [OCR]](

The result? Its a double edged sword. An offset, or perhaps not enough of one. Recession means a weaker economy and falling borrowing costs, but it also means layoffs, lack of job growth and more consumer pessimism, which brings more complacency about housing.

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Sense of Direction: GDP Easing, Housing Cooling and The Rise Of Lawn Indicators

August 1, 2006 | 9:45 am | |

There are some signs that business is trying to pass along other costs to the consumer. Core inflation is up. With mortgage rates up since the first of the year, that leaves less room for a mortgage payment. And that is what has tempered demand – this is no new news to anyone, really. Yet there seems to be a sense of optimism that things will work out, without widespread carnage.

It would seem that the Fed has overestimated the willingness of business to take the baton from the consumer. Profits and cash are better but business is not spending with wanton abandon like consumers did.

Here’s a bunch of varying commentary concerning the housing market and overall economic conditions. Its fair to say that the pace of housing sales is declining and the economic conditions are slowing, the government keeps revising its initial housing stat releases downward, but beyond that, the devil is in the details.

In Caroline Baum’s opinion column this week [Fed May Get What It Bargained for — and More [Bloomberg]]( The Fed by instituting a 425 basis point increase to the federal funds rate since June 2004, is beginning to reap the rewards of its efforts. The economy is cooling. One of the primary reasons for the cooling has been the housing market, but also consumer spending on durables, investment in equipment and software.

That wasn’t the new or most important news last week, however. The Bureau of Economic Analysis also reported that real gross domestic product grew 2.5 percent in the second quarter, down from 5.6 percent in the first.

That surprised analysts who were expecting 3% annual growth.

In Fed’s the grand scheme of things, the burden of economic growth was supposed to pass from the consumer to business. But that does not appear to be happening.

However, despite a slowdown in GDP, [core inflation (excluding food and energy) rose to an 11-year high in June [MW]]({EB1271B8-89CC-4002-9369-DCA5D2945087}&dist=bnb) which keeps the pressure on the Fed to keep raising rates.

While consensus seems to be 50/50 for the Fed to pause in August, I believe that its going to be one and done. I believe the fed overshoots by about 2 rate movements as it relates to housing. Possible rate reductions in 2007 are on the horizon. I wouldn’t get too excited since the damage has already been done to the housing market.

In Kenneth R. Harney’s The Nation’s Housing column this week [Decoding Fed Speak On the Market’s Path [WaPo]]( he interviews David Berson, chief economist for Fannie Mae who also [has his own column](

In reference to housing, Mr. Berson says:

One of the few immutable laws of economics is that “unsustainable trends eventually come to an end.” And the end of the trend is pretty much where we are right now in housing.

Ben S. Bernanke, chairman of the Federal Reserve, was more opaque. In congressional testimony last week, Bernanke said, “The downturn in the housing market so far appears to be orderly.”

In [Berson’s Weekly Commentary column [Fannie Mae]]( this week, he writes:

Even with the declines in housing activity, and our forecast of an 8 to 10 percent decrease in home sales, we are still projecting that 2006 will be the third strongest year on record for home sales. We expect waning investor demand to drive most of the decline in housing activity, but the fall will be cushioned by strong demographics.

Remember last month when the Census Bureau reported that new home sales increased by 4.6% in May that confused us all? That number was revised down to a 0.5% in the latest release. The lesson: _don’t rely on new home sales data when first released (if at all).

In Toddie Gutner’s [Housing Prices Stronger Than You Think [BW]]( she cites an incredibly optimistic housing report that she deemed refreshing because everyone else is pessimistic. (However, refreshing needs to have some basis of logic. – love the comments to her post.)

For extreme pessimists, there is something for everyone this week. In Rick Ackerman’s [“For Sale” Signs Will Trip Crash [Goldseek]](, he observes a silent crash in real estate. If you want to pull out all the stops and cram as much gloom and doom into one column, then this is the one.

Although prices have yet to sink, except in such formerly white-hot markets as Miami and Las Vegas, the mushrooming inventory of unsold homes nationally implies that a broad and precipitous decline is gathering strength. For the time being, though, we can expect a growing number of homes to sit on the market for longer and longer until either of two things happens: sellers lower their prices, or buyers raise their bids.

Actually, it won’t be a splat that causes sellers to panic, but rather a certain, unpredictable threshold at which “for sale” signs on neighbors’ lawns become sufficiently numerous to induce a cold sweat.

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Surburbia Shows Its Muscle Even As Macro Trends Favor Urban

June 29, 2006 | 6:59 am |

On a global scale, modest North American urban growth is in sharp contrast to patterns seen in Asia with China expected to be 50% urbanized (city versus rural) by 2015.

The US coasts are expected to see the largest growth over the next 10 years. That comes as little surprise and consistent with the significantly higher housing appreciation rates seen in the west and the northeast over the past 10 years.

Here is an [amazing interactive map [BBC]]( that shows the global population patterns from 1955 projected through 2015.

However, according to the census bureau, despite the macro trends for urban renewal, including new urbanism, the suburbs are actually flourishing as homeowners look for cheaper housing and better schools. The top five fastest growing cities were suburban (defined as having less than 200,000 in population).

New York remained the nation’s largest city, with 8.1 million people. The city has added 135,000 people since 2000, but it lost 21,500 from 2004 to 2005, more than any other city.

Detroit, with its struggling economy, has lost 65,000 people since 2000, the most of any city. Philadelphia, which has lost about 50,000 manufacturing jobs since 2000, has lost 54,000 people during the same period.

San Francisco, with the highest real estate prices in the country, has lost 37,000 people since 2000, according to the Census Bureau.

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New Home Sales: To Good To Be True, Literally

June 27, 2006 | 7:18 am |

The New Home Sale stats were released yesterday and provided a “pick and choose” resource for how the housing market actually performed. Every month, the report provides a plethora of reasons why you shouldn’t rely on data that is adjusted, re-adjusted and shows a wide range of results.

Here’s what I mean, as shown in this text taken from the very top of [the released New Residential Sales report [pdf]](

Sales of new one-family houses in May 2006 were at a seasonally adjusted annual rate of 1,234,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.6 percent (±13.1%)* above the revised April rate of 1,180,000, but is 5.9 percent (±10.8%)* below the May 2005 estimate of 1,311,000.

In other words, the question is whether May 2006 New Home Sales were:

A. up 4.6% from April 2006, but down 5.9% from May 2005
B. up 17.7% from April 2006, but down 16.7% from May 2005
C. down 8.5% from April 2006, but up 4.9% from May 2005
D. down 8.5% from April 2006, but down 16.7% from May 2005
E. up 17.7% from April 2006, but up 4.9% from May 2005
F. somewhere in between
G. All of the above

The consensus of news coverage opted to use the nominal figures provided suggesting new home sale gains.

  • [New-Home Sales Rise 4.6% in May [LA Times]](,1,7244575.story?coll=la-mininav-business) _Sales of new single-family U.S. homes again defied predictions of a slowdown in May and rose 4.6%, according to a government report Monday that signaled resilient demand in the important housing sector._
  • [New-home sales rise 4.6% to 1.234 mln [MarketWatch]]( _Home builders say May’s figures ‘too good to be true’_
  • [US Treasuries sag on surprise new home sales jump [Reuters]]( _U.S. Treasury debt prices dipped on Monday after monthly new home sales rose unexpectedly suggesting the critical housing sector was not sagging as quickly as some believed._

UPDATE: As a reader just pointed out, the confidence level for the monthly change in the Northeast of -7.9% had a [confidence interval]( of 30.9%. The West was nearly as bad.

Thats crazy inaccurate. In other words, don’t use their month over month housing stats. Imagine doing month over month real estate stats in a local market with a much smaller data set?

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The Blip: Housing Starts Up, Building Permitting

June 21, 2006 | 12:01 am | |

The [Commerce Department released their new-home construction stats]( which showed a 5% increase in May over April, but starts are still 3.8% below last year. [Building permits were 8.5% below last year’s pace](

Total housing starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders under unusually good weather conditions. Issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September.

[Download the press release [pdf]](
[View regional charts [macroblog]](

There is some concern that [too much good news will prompt the Fed to take stronger inflationary measures [WaPo]]( than it has in the past.

However, this news didn’t strike me as particularly good. Is it really inflationary to have housing starts rise as sales are slowing and inventory is rising? That doesn’t make a lot of sense to me.

I think [the rise in new home construction is really blip and not the beginning of a trend [NYT]](

Economists had expected the rate of construction on new homes to increase only marginally from April to May, according to a survey by Bloomberg News. So the latest figures were somewhat surprisingly strong.

“After three months of large single-digit declines, a rebound was to be expected,” Goldman Sachs economists wrote in a research report today. “The one we got was larger than expected, but certainly not enough to overturn the idea that housing is in a contraction.”

If the Fed interprets this to mean the economy is inflationary, then housing will suffer further with more rate increases. This rise really shows that more housing is being produced during a period of rising inventory and falling demand.

In other words, this isn’t a sign of anything positive.

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Reality Is Harder Than Reported: New Home Sales Down 20% to 40% From Last Year

June 16, 2006 | 12:01 am |

There has been a lot made out of the flaws in the Department of Labor’s statmill lately and here is another example of it, but this time its much more severe (hat tip to [Lanser on Real Estate](

According to [John Burns Real Estate Consulting](, the recent stats are out of sync with reality. They show a spike in home sales when the construction industry shows a sharp drop. That also correlates with the [recent series of reports from home builders []]( in recent weeks. Construction is down because demand is down.

the Census Bureau is reporting that new home sales are only down 6% from one year ago, which we know is incorrect. For accurate new home sales estimates, see the press releases of publicly traded home builders – all of whom are reporting sales (orders) that are down 20% – 40% from one year ago. The [NAHB]( Housing Market Index, as well as almost every industry source we contact each month, supports the fact that sales are down 20%+ from one year ago in more than 70% of the markets we track (Texas, the Carolinas, Georgia and New Mexico are some of the major exceptions).

I hope the Fed sees through this as well when they make their next move (who am I kidding, they will be raising rates at the next FOMC meeting). I hope they are able to see the real estate economy the way it is, not the way it is reported.

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Overpriced Housing Markets Get (You Guessed It) More Overpriced

June 14, 2006 | 12:01 am |

Yet another 1Q 2006 national housing market report. This time the report is from [National City care of Global Insights]( Unlike a lot of the PR corporate housing report vehicle studies that are out there, this one is pretty good. Global Insights has taken great care to explain [their methodology [pdf]]( and the data that was used.

They take 2000 census data and grow the stats using the OFHEO study factoring out the refi data that pollutes it. Its a bit of a reach but overall it seems to be a reasonable methodology.

However, its still only a 1st quarter housing report but since it addresses affordability, its got a little more shelf life than some of the other housing studies that have been done.

Here is the summary ([download the report as a pdf](

* Overvaluation became more pervasive during the first quarter of 2006.
* Seventy-one metro areas, accounting for 39 percent of all single family housing value, were deemed to be extremely over-valued at that time. That represents an increase from 64 markets, and 36 percent of all single family market value, during the fourth quarter.
* As recently as the first quarter of 2004, overvaluation was insignificant. At that time only 3 metro areas, accounting for just 1 percent of all single family house value, were deemed to be extremely overvalued.
* The coastal states of California and Florida continue to show the highest concentration of overvalued markets, accounting for 17 of the top 20.
* Quarter-to-Quarter price appreciation is slowing in most metro areas, and is nearly flat in San Diego and Boston.
* Property price appreciation remains strongest among the most over-valued metro areas, and visa-versa. Between the fourth quarter of 2005 and the first quarter of 2006, the correlation between valuation and appreciation was +0.36, suggesting that house prices are diverging, not converging, with respect to normal valuations.

The report covers 84% of all 1-family US houses and is pretty gloom and doom because 39% of the markets are overvalued. The economic impact, if these tea leaves are accurate, could be significant.

Here’s some of the coverage.

[Housing bubble correction could be severe [USNWR]](
[‘Overpriced’ housing gets more overpriced [CNN/Money]](
[Study: More US housing markets are overvalued [BG]](
[More housing markets overvalued, study shows [MH]](

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This Just In From The Census Bureau: New Home Sales Stats Tell Us Absolutely Nothing

May 25, 2006 | 12:01 am | |

Every month the Census Bureau and HUD release stats on new residential one family home sales. This month the abstract from the release was as follows:

Sales of new one-family houses in April 2006 were at a seasonally adjusted annual rate of 1,198,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.9 percent (±11.5%)* above the revised March rate of 1,142,000, but is 5.7 percent (±9.8%)* below the revised April 2005 estimate of 1,270,000. The median sales price of new houses sold in April 2006 was $238,500; the average sales price was $298,300. The seasonally adjusted estimate of new houses for sale at the end of April was 565,000. This represents a supply of 5.8 months at the current sales rate.

[Download the full release [pdf]](

[Listen to Professor Robert Shiller discuss the current real estate market. [see audio section – Bloomberg]](

Economists were projecting a 6% decline from March to April [but the final stats showed a 4.9% increase [Bloomberg]](, sending bond yields up today over inflation concerns.

But here’s why these stats from Census are essentially meaningless. Apparently I am not alone on this.

  • The historical data is constantly revised (significantly) – Amazingly, the prior [5 months of data was just revised [BW]]( and while the number of homes available grew 27% over the prior year and prices were up 1%.

  • The margin of error is greater than the stat – According to the press release, the 4.9% increase [is actually somewhere between 16.4% above to 6.6% [Lanser OCR]]( below the revised March rate of 1,142,000, but is somewhere between 15.5% below to 4.1% above the revised April 2005 estimate of 1,270,000.

  • It doesn’t consider the breakdown of investor units[How many of the new home sales [TMR]]( are classified as second homes or investment properties? A deeper look into the numbers reveals that the South and West regions represented 960,000, or 80.1%, of the new homes on which paper was written. These regions host more than a few retirees, snowbirds, and also harbor plenty of vacation spots. If the sales figures represent second homes and investments to the home buyers in those regions, then we can infer that there are still plenty of speculators in the market.

  • Its a small data set and it doesn’t apply to local markets – The number of transactions is about one-seventh that of existing home sales. Since these are national stats, they are not appropriate to rely on for local market analysis.

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[Getting Graphic] The Joy Of Heavy Lifting REDUX: Census Releases Real Population Trends

April 21, 2006 | 12:01 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

In our post yesterday [The Joy Of Heavy Lifting: U-Haul From The Closing](, U-Haul’s PR department took a joy ride with their stats (but it was kinda fun while it lasted).

Some noticeable trends are the large exodus from New York (200,000+/Year from 2000-2004) [but there was a population gain due to the increase in immigration [WCBS/AP]]( The 1990’s exodus to other states from California and from the Northeast appears to have eased since 2000, [but not in metropolitan New York [NYT]](, a Census Bureau analysis says.

Massachusetts was second on the list while there was a [significant gain in Nevada, Arizona and Florida](

[Click here for full graphic [BG]](

Source: Boston Globe

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February New Housing Sales: Can’t Blame The Weather

March 27, 2006 | 12:01 am |

Peter Coy in his post [Big Drop in New-Home Sales [Hot Property]]( says:

Don’t blame it on the big snowstorm that hit the Northeast, giving New York’s Central Park a record snowfall: sales actually rose in the Northeast. (over prior month, not prior year -ed)

[Census Bureau: New Residential Sales In February 2006 [pdf]](

Existing home sales positive results were explained by unusually mild winter weather, why doesn’t this apply to new home sales?

New home sales fell further than expected an inventory levels are higher than any time in the past 10 years. The median sales price dropped to $230,400 from $237,300 a year ago. The seasonally adjusted estimate of new houses for sale at the end of the month was 548,000, representing 6.3 months of supply at the current sales rate, [the highest month’s supply number in 10 years. []](

Here we have another month with the 1-2 punch. Existing home sales are released the day before new home sales and more often than not, the results are not in sync. The surge in existing home sales is attributable to the unusually warm weather in January. Yet new home sales for February were down.

Why have the results been so different?

The market is changing. NAR’s existing home sales lag because they are based on closed sales. New home sales stats by the Census Bureau are supposedly current because they represent new contracts and we should see new home sales as a more reliable indicator. Right?

Here are some problems with this logic.

  • New home sales represent a small fraction of existing home sales (1M versus 7M) so they can be more volatile.

  • New home sales are more heavily weighted with focus on higher end construction and that is currently one of the weaker market segments. The February existing home sale median sales price was $209,000 and the new home median sales price was $230,400, a 10.2% spread.

So which is the better indicator? Really, neither is better. But they are the best we have at the moment. I try not to get too worked up about either indicator when they are released.

One other thought. The coverage and the press releases focus on the the seasonally adjusted and annualized results rather than actual.

I don’t mean to sound cycnical but I guess thats sort of like a real estate broker on the day of a huge closing/commission. $$$ x 5 days x 52 weeks = Annual Commissions. Perhaps thats the problem.

I’d love to see more analysis with the raw numbers.

[February Existing Housing Under High Pressure (And Partly Sunny) [Matrix]](

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It Kinda Grows On You: Population, Home Ownership Rates And Demographics

February 21, 2006 | 12:01 am | |

There has been a lot of discussion of homeownership rates and demographics lately. It has been of even more concern as the recent housing boom makes the transition to a more balanced market, and then we ask, whats next? The idea is that the mix of the population that is growing is more indicative of future housing needs than an overall growth rate or totals. Here’s a lot of info to digest but its good reading.

Homeownership Rates
In Berson’s Weekly Commentary [Homeownership rates this decade are up most for the youngest age groups [Fannie Mae].](,+Housing+%26+Mortgage+Market+Analysis&t=Berson’s+Weekly+Commentary) [Warning: Berson’s link lasts one week. For an acrhive of stories including this one go here.](;jsessionid=GQATCTK1I5SX1J2FQSHSFGI?p=Media)

While homeownership rates remained flat in 2005, homeownership rates have increased substantially over the past five years. According to the U.S. Census Bureau, the national homeownership rate was 68.9 percent in 2005 — up from 67.4 percent in 2000. The small drop in the overall homeownership rate to 68.9 percent in 2005 from 69.0 percent in 2004 was well within the margin of error for sampling variability. The increase in homeownership this decade was not consistent among all age groups. While older households saw negligible increases in homeownership (and even declines in the last year), younger households saw large increases in their homeownership rates.

Younger Generations Expect Higher Income
Last summer’s article [A simple model of the housing market]( by the Federal Reserve Bank of San Francisco looked at age distribution of homeownership and the elasticity of demand.

Even as discussion of the current run-up in house prices points to the extremely favorable demographic conditions for demand, little has been said (lately) about what will happen once these demand conditions ebb. The worst-case scenario for house price declines depends on three factors: an inelastic demand for housing, a fair degree of myopia when forming expectations, and an inelastic supply function. However, recent research in urban economics suggests that two of these factors—expectations formation and the supply response—are probably more flexible than once thought.

Basically the study concluded that:

The effect of the exiting baby boomers on house prices would be gradual, and the overall magnitude of price changes would not be great.

Furthermore, a negative demand shock like the aging and exiting of baby boomers is only one of many factors to consider in anticipating the future of house prices. The productivity gains in the 1990s can be viewed as a positive demand shock. To the extent that younger generations now expect higher permanent income, this increase in expected wealth should help support house prices.

Age And Mix Of Population More Important Than Total Growth
In this 10 year old USC School of Urban Planning and Development article [Real Demographics of Housing Demand in the United States]( population growth has always been recognized as a primary force driving demand, but the new recognition has centered on the ages of potential home buyers–not simply their numbers. Ethnicity, family type, and immigrant or native-born status are also factors to consider, but the age of the population remains the single most important aspect of demographics.

NYC Forecasts Surge In Population
In fact, city planners in NYC expect the population to continue to rise by [another one million people over the next 20 years [NYT].]( With the suburbs at capacity, urban areas are not at the same competitive disadvantage as in years past.

[Click here for full graphic [NYTimes]](

Source: NYTimes

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A Ho Hum Year Ahead – Shaken But Not Stirred

February 7, 2006 | 12:01 am |

In Berson’s Weekly Commentary [Total home sales for 2005: another record year [Fannie Mae].]( 2005 was all about breaking records when looking at the annual numbers.

According to the National Association of Realtors, total existing home sales were up by 4.2 percent to 7.07 million units. Condo and co-op sales were up by 9.3 percent, while single-family sales were up by 3.6 percent. The Census Bureau reported that new home sales were up by 6.6 percent to 1.28 million units.

Fannie Mae Projects:
* Total home sales will decline from last year’s record, falling by around 8.0 percent to 7.71 million units — mostly as investor and second home demand decline.
* December marked the third consecutive monthly decline in total existing home sales, so the trend may already be beginning.

Even with the projected decrease in total home sales, 2006 should still be the third-strongest year ever. You have to remember that Fannie Mae is biased towards a robust housing market like NAR is, but Berson makes a good point.

Pessimists will look to the last quarter of 2005 and say that the market is weakening and use the lower numbers that we may see in 2006, in terms of prices and number of sales compared to 2005 as evidence of a declining market. I agree.

Optimists will look at the annual figures of 2005 as a record and say that any comparison to a record year will show a decline and misrepresents the current market. I agree.

I think its a little of both. The record year in 2005 will skew any meaningful comparisons to the current year as excessively negative. However, recent trends, namely the second half of 2005 showed a downshift in the real estate market and that cannot be ignored.

In other words, its been good, it might be good, but not as good as before.

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