Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.
This is due to rising demand for rentals and falling home prices combined with low interest rates.
Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."
The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.
The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.
Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.
The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.
Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.
This is truly great news for the Housing Industry.
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Monday, January 31, 2011
Interest Points this Week
Two things in Sunday's New York Times may prove to be extremely important—and relatively soon.
The first was Gretchen Morgenson's discussion of the report published last Thursday by the Financial Crisis Inquiry Commission. As she said, the report didn't contain any news that hasn't already been parsed carefully in the press in what Morgenson calls the press's "flood-the-zone coverage and analysis of the crisis since it erupted four years ago."
No, it isn't so much the shocking factoids the report uncovers as it is the fact that it's pretty much all there, in print, for all to see. We cannot deny the many failures of our Federal Reserve, our regulators, our politicians or our bankers.
Now, with all of the information plainly in view, you'd think we could be confident that the kind of economic crunch we're only now just beginning to emerge from could be avoidable in the future. But that isn't the message here. It is as if this report declares, "This is how the whole thing happened, and it's how it could happen again."
Distressingly, to say the least—little has been done or is being done to prevent a future economic melt-down.
Why? Because it has never been made profitable to do something truly helpful about this mess. Instead, it is still profitable to continue gambling with investor money and relying on the likelihood that the American people—like, more recently, the Irish—will take on the debt.
A student of the facts about the economic crisis cannot fail to reach these conclusions. Oddly, though, the nation as a whole seems incapable of doing something genuinely helpful about them.
Why do I write of these things in this space? Because they are like ravenous dogs nipping at our backs as we try to flee the recession into recovery. They will continue to reappear, and we must be vigilant.
The second issue reported on in The Times—oddly related to the first—is the question of how much the use of cell phones and Internet sites have made it possible for the uprising to out flank the Egyptian government. Quite simply, the Mubarak government was largely ignorant of how to use the communications technology of the day. Instead of using it to track down the places where protests would begin and the people who began them, and instead of using it to present a counter-story among the Egyptian people, the government was relatively vulnerable to the uses of the technology—even (especially?) when it tried to cut off the Internet and cell phones.
The point is that the new technology can work for both sides. It isn't, as many have argued, a new force for democracy. And that insight reinforces the importance of taking the Egyptian uprising very seriously.
In spite of appointing a vice president a couple of days ago, Mubarak—should he fall, as he most likely will—leaves not even the weakest basis for a new government. And that becomes a very serious matter when we consider that, without surveillance, the Suez Canal could become a very risky channel for oil tankers. It is, you see, the only way oil gets from its producers to Europe.
Energy experts were already talking about the possibility of $4-a-gallon gasoline this coming summer before the current chaos visited Europe, making rising oil costs an even greater likelihood.
Our interest rates could be taken lower or, at the least, held back by all of this (given the investor rush to the safe haven of Treasury securities), and our economic recovery could be greatly hurt. Remarkably soon.
by: Bill Fisher
Friday, January 28, 2011
The Best Time in History to Buy a House
Right now, is the best time in history to buy a house in America.
Today, I'll show you why… based on a few cold, hard facts.
First off, mortgage rates are lower than they've ever been in American history…
Most investors have only seen a couple decades of mortgages rates on a chart. But my friends at Global Financial Data have databases – including real estate data – that literally go back centuries.
I had dinner with the Global Financial Data team over the weekend. And they told me about their "Winans International" real estate indexes, with housing prices back to the 1800s and mortgage rates going back over a century. I had to share it with you…
Take a look at this chart of mortgage interest rates since 1900:
As you can see, current mortgage rates are the lowest in U.S. history.
When were mortgage rates even close to this low in the past? Just after World War II…
And what happened, just after World War II, when mortgage rates were this low? The greatest postwar boom in housing prices – by far.
Take a look. Mortgage rates bottomed in the mid-1950s, and house prices bottomed about the same time. Then the greatest boom in home prices in our lifetimes started.
Today we have record-low mortgage rates. And we have another thing in our favor…
Homes are more affordable than ever.
Based on the 40-year history of the Housing Affordability Index… houses are more affordable than they've ever been. Take a look…
"Affordability" takes three factors into account: home prices, your income, and mortgage rates.
Home prices have crashed. And mortgage rates are at record lows. But incomes (nationwide) haven't fallen nearly as much…
So homes are now more affordable than ever.
"Most people" out there will only tell you the bad news about housing… That's the way it goes in a bear market. People drive looking in the rearview mirror.
Meanwhile, we have some darn compelling facts out there…
Home prices have fallen by a third… and mortgage rates are the lowest in history. Therefore, U.S. homes are more affordable than they've ever been.
You can listen to "most people." Or you can choose to ignore them and stick to these facts.
Based on these facts alone, now may be one of the best times in American history – even the very best time – to buy a house.
By Dr. Steve Sjuggerud
Today, I'll show you why… based on a few cold, hard facts.
First off, mortgage rates are lower than they've ever been in American history…
Most investors have only seen a couple decades of mortgages rates on a chart. But my friends at Global Financial Data have databases – including real estate data – that literally go back centuries.
I had dinner with the Global Financial Data team over the weekend. And they told me about their "Winans International" real estate indexes, with housing prices back to the 1800s and mortgage rates going back over a century. I had to share it with you…
Take a look at this chart of mortgage interest rates since 1900:
As you can see, current mortgage rates are the lowest in U.S. history.
When were mortgage rates even close to this low in the past? Just after World War II…
And what happened, just after World War II, when mortgage rates were this low? The greatest postwar boom in housing prices – by far.
Take a look. Mortgage rates bottomed in the mid-1950s, and house prices bottomed about the same time. Then the greatest boom in home prices in our lifetimes started.
Today we have record-low mortgage rates. And we have another thing in our favor…
Homes are more affordable than ever.
Based on the 40-year history of the Housing Affordability Index… houses are more affordable than they've ever been. Take a look…
"Affordability" takes three factors into account: home prices, your income, and mortgage rates.
Home prices have crashed. And mortgage rates are at record lows. But incomes (nationwide) haven't fallen nearly as much…
So homes are now more affordable than ever.
"Most people" out there will only tell you the bad news about housing… That's the way it goes in a bear market. People drive looking in the rearview mirror.
Meanwhile, we have some darn compelling facts out there…
Home prices have fallen by a third… and mortgage rates are the lowest in history. Therefore, U.S. homes are more affordable than they've ever been.
You can listen to "most people." Or you can choose to ignore them and stick to these facts.
Based on these facts alone, now may be one of the best times in American history – even the very best time – to buy a house.
By Dr. Steve Sjuggerud
Wednesday, January 26, 2011
Market Update
FNMA 30-YR 4.0%
Previous close 99.125
Opened Down 0.32bp @ 98.813
Key Economic Data:
EUR / USD 1.3672 Down 0.0010
USD / JPY 82.1630 Down 0.0870
GBP / USD 1.5861 Up 0.0044
OIL 86.41 Up 0.22
Gold 1,329.90 Down 2.40
Key Economic News:
The Mortgage Bankers Association's index of mortgage applications tumbled 12.9% last week, with significant losses in both the purchase loan index (-8.7%) and the refinancing index (-15.3%). At 172.3 (March 16, 1990 = 100), the purchase loan index is at one of the lowest readings of the post homebuyer rebate period.
10:00: New home sales for Dec...flat or up? Although sales of existing home rose sharply in December, we think little of this carried over into the market for new homes. Other forecasts tilt toward a modest increase, on balance.
Median forecast (of 79): +3.5%, ranging from -6.9% to +8.6%; last +5.5%.
10:00: CBO budget and economic update...The Congressional Budget Office releases its updated baseline estimates for the federal budget over the next ten fiscal years, extending the horizon to fiscal 2021. This report will incorporate the extension of the tax cuts enacted at year-end as well as other provisions of that act. It will not include proposals by either the administration or the GOP house leadership to freeze discretionary spending; instead, the CBO baseline generally assumes growth in line with inflation for these components of the budget pending enactment of such proposals.
14:15: FOMC statement...all agreed? We expect no policy changes and only a few modest upgrades to the assessment of current growth and inflation trends. We suspect that all 11 voting members will approve the statement, though dissents from President Plosser and Fisher cannot be ruled out.
Advice:
With new home sales expected to come in with a modest gain, and as long as we have no surprises from the CBO. I would expect the market to trade around the 99.000 mark.
Float with caution.
My position on MBS stays neutral today.
Tuesday, January 25, 2011
Market Update
FNMA 30-YR 4.0%
Previous close 98.810
Opened Up 0.19bp @ 99.000
Key Economic Data:
EUR / USD 1.3595 Down 0.0043
USD / JPY 82.4505 Down 0.0750
GBP / USD 1.5764 Down 0.0224
OIL 86.63 Down 1.24
Gold 1,327.50 Down 17.00
Key Economic News:
9:00: Case-Shiller home price...another significant decline. We estimate a 0.5% drop in the seasonally adjusted month-on-month measure, vs. a -0.8% expectation for the consensus. July through October featured four consecutive drops, with the last two about a percentage point each.
10:00: Conference Board's consumer confidence index...perking up? We and consensus look for a slight improvement in the December reading of consumer confidence (to 53.5 and 54 respectively), from 52.5 reading in November. Historically the responses on the job market have been fairly well correlated with the unemployment rate, so they will particularly interesting given the notable improvement in the unemployment rate in December.
10:00: FHFA home price index...This conventional mortgage home price index (a narrower focus than the Case-Shiller report) is expected to be flat in December after a surprising 0.7% increase in November.
10:00: Richmond Fed survey...another regional manufacturing survey, this one canvassing both manufacturing and service-sector firms. The consensus forecast (for the manufacturing portion of the report) looks for strength to continue, with a reading of 22 expected vs 25 for the previous report.
17:00: ABC consumer comfort index...still in the doldrums. After setting a two-year high of -40 two weeks ago, this index slipped back to -43 last week, echoing weakness in other measures of confidence such as the mild setback reported for the Reuters/Michigan survey for early January.
21:00: President Obama delivers his State of the Union Address to Congress. The President is expected to focus mostly on economic issues, and a specific emphasis on tax reform-and in particular, corporate tax reform-and the need to balance near term increases in federal investment with medium term spending cuts. If the speech follows the usual pattern, it is likely to focus on concepts than specifics, so few detailed proposals should be expected, particularly in the area like corporate tax reform which is at an early stage of debate and in any case doesn't lend itself to a nationally televised address to Congress. On spending cuts, specifying a target is possible, though here the President may lack incentive to do so, given that the House of Representatives will pass a resolution today intended to bring spending down to 2008, far greater than the President is likely to support. The President does not look likely to make major new proposals on entitlement reform; the recent health reform law is still in the process of being implemented, complicating new proposals in that area, while reports indicate that he will not endorse his fiscal commission's proposal to raise the Social Security retirement age, as some had speculated late last week.
Advice:
With Housing expected to come in weaker, but Consumer confidence expected higher. Today will probably trade in a narrow range.
I would float today.
Homeownership Makes $ense
Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.
This is due to rising demand for rentals and falling home prices combined with low interest rates.
Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."
The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.
The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.
Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.
The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.
Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.
This is truly great news for the Housing Industry.
But I say not so fast. Where are the jobs? Less people are also in a position to buy a home. Not to mention the millions of foreclosures that haven't come onto the market yet. This will most likely keep the inventory high and still drive prices down further, but how much? And if they is the case, we will need to see interest rates remain low if any major impact could be expected. It will be interesting to see what the Fed does and how this will all play out. But those who can afford to buy, you should take advantage of this situation while all the factors are still in your favor.
Monday, January 24, 2011
This week...
The Lumpy Rising Path
Other than providing a lift to stock and bond market values, the past holiday-shortened four-day week gave scant insight into market trends. It appears, perhaps, that the current trend is not to have a trend.
There were the pleasing green shoots, though—hints of improvement in the overall economy and the real estate market itself. The former basked in the pleasure of seeing the Index of Leading Indicators climb by a full percentage point in December—reinforcing the strong 1.1% gain in November. The Conference Board, which compiles these figures, cautioned that the economic growth ahead—based on the current economic activity measured by a so-called "coincidence index"—will likely be uneven (to use their word). Yes…and what else is new?
What's new, in this observer's view, is that the improvement in the Leading Indicators looks quite good for two months in a row and, though the path may continue to be lumpy in the coming months, we can imagine—if not actually plan for—an improving economy six months from now.
And there are a few more relevant details involved. The strongest of the Leading Indicators, unusually, was the number of permits taken out last month to build new real estate structures. Now, the pleasant 16.7% overall jump in the number of permits (5.5% for single-family residences) was the most significant factor in the rising Index of Leading Indicators. Its size may have resulted in part from a rush among builders to get permits before new fees and codes are in place, but it is still a very strong advance. (Its strength was not reflected in the housing starts figures for the same time period—largely, it seems, because poor weather stalled a great many construction starts across the nation.)
The National Association of Realtors reported a 12.3% rise in completed sales of existing homes—and this offered a validation of the earlier Pending Home Sales Index reports from October and November that had suggested completed sales should increase by December. (Even the satisfying 12.3% rise in the number of sales failed to meet year-prior sales levels, though, falling 2.9% behind them.)
Also pleasing was the week's report on the prior week's new claims for unemployment insurance, which fell by 37,000 from two weeks ago to 404,000. While this decline does suggest the unemployment picture may be improving at last—though the jury is still out on this one—we really won't have a truly improving jobs situation until that number declines to about 300,000…just as we won't be able to say our employment picture is truly brightening until the economy is consistently adding about 200,000 jobs a month.
Current economic indicators, though, seem to suggest that we will see these goals reached—and, one would suspect, surpassed. Not soon, but the improvements are distant sparks on the horizon (or the smallest of green shoots in our still-weedy economic garden).
Most likely, in the bigger picture, interest rates will in the main continue to dance in place, rising very gradually, unless we run afoul of an unexpectedly bad piece of economic news…a small European nation defaulting, perhaps, or any number of other possibilities. The trend, weak and lumpy though it may be, is upward, in any case. Good time for wise home buyers and homeowners to finish their purchases and refis.
Market Update
FNMA 30-YR 4.0%
Previous close 98.970
Opened Down 0.09bp @ 98.875
Key Economic News:
EUR / USD 1.3596 Down 0.0025
USD / JPY 82.8550 Up 0.2890
GBP / USD 1.5939 Down 0.0061
OIL 88.69 Down 0.42
Gold 1,346.70 Up 5.70
Key Economic News:
No news items
Advice:
With a stronger dollar we might see the market improve today.
I would float today.
Friday, January 21, 2011
Thursday, January 20, 2011
Market Update
FNMA 30-YR 4.0%
Previous close 99.250
Opened Down 0.28bp @ 98.969
Key Economic Data:
EUR / USD 1.3442 Down 0.0031
USD / JPY 82.6450 Up 0.6258
GBP / USD 1.5952 Down 0.0044
OIL 89.28 Down 1.58
Gold 1,348.10 Down 22.10
Key Economic News:
Labor Market improvement intact
Better-than-expected data on claims for unemployment insurance suggest ongoing improvement in the US labor market.
Key Numbers:
Initial claims -37k to 404k in week ended Jan 15 vs. median forecast 420k.
Continuing claims -26k to 3.861 million in week ended Jan 8 vs. median forecast 3.985 million.
Main Points:
1. Initial claims fell sharply in the second week of the new year, suggesting that the surge reported for the preceding week was probably a processing payback for earlier low holiday-week reading. At 411,750, the four-week average nearly matched its low from two weeks ago. This latest figure applies to the reference week for January payroll survey.
2. The latest reading on continuing claims, for the week that ended January 8, was also much better than expected. Whereas previously most large moves have been partially reversed in the following week, in this instance the number of recipients fell further from a level that was revised only slightly higher. Meanwhile, the number of people receiving extended/emergency benefits changed little in the week that ended January 1.
10:00: Philadelphia Fed business index for Jan...steady as she goes? The December index was originally reported at +24.3 but was revised to +20.8 in the annual re calculation of seasonal factors. From this lower, but still robust, level, the median forecast is for no change.
Median forecast (of 54): +20.8, ranging from +12.5 to +25; last +20.8.
10:00: Existing home sales for Dec...another increase? Expectations tilt toward another gain in home sales in the wake of increases of 10.1% and 3.5% for October and November, respectively.
Median forecast (of 72): +4.1%, ranging from -3.9% to +8.3%; last +5.6%.
10:00: Index of leading indicators for Dec...back to the more moderate increases. After a big pop driven by the ISM's supplier index, the index of leading indicators should post a smaller, but still solid increase this month. The biggest positive this month comes from the yield curve (+0.33bp), with smaller contributions from claims (+14), stock prices (+13), the Michigan expectations index (+8), and housing permits (+5). Supplier deliveries and the real money stock are the only notable negatives, each worth just under 10bp.
Median forecast (of 57): +0.6%, ranging from +0.4% to +1.2%; last +1.1%.
16:30: Federal Reserve balance sheet...The balance sheet continues to increase in size, albeit at an uneven pace from week to week. It was $2.47trn in the week ending Wednesday, Jan 5. We expect it to reach $2.9trn by about mid-2011 on the assumption that the FOMC sticks with its plan to increase its holdings of longer-term assets by $600bn from November 2010 through mid-2011.
Advice:
With unemployment better than expected, and if the other news items come out as expected. I can see the market selling today.
I would lock today.
Saturday, January 15, 2011
Week in Review - Highlights for the Week Ending January 14, 2011
MONDAY, January 10th
Chain store sales grew 3.1% in December from December one year ago, a bit weaker than expected. December sales lagged expectations somewhat as severe weather moved in late during the month but they followed a very strong November. Taken together this was the best holiday shopping season since 2006.
TUESDAY, January 11th
The small business optimism index, as reported by the NFIB fell to 92.6 in January from a reading of 93.2 in December. The level of the index suggests that small businesses remain cautious amid continued uncertainty in economic conditions. In short, small businesses are still not hiring. But, details in the data do show that businesses are expecting hiring and sales to improve in coming months.
WEDNESDAY, January 12th
The MBA mortgage applications index increased 2.2% to 482.7% for the week ending January 7. The purchase index fell 3.7% during the week as the refinance index climbed 4.9%. Refinance activity is down 56.1% since early October as contract mortgage rates began to increase. Quantitative easing should help lower rates and revive refinance opportunities in the near term. Home buying is well below it tax credit fueled April level and is only modestly above its lowest levels of the past 15 years. Purchase activity will recover rapidly once prices bottom out and distressed properties have been worked through the market.
The Fed's round up of economic conditions in the twelve Federal Reserve Banking Districts, known as the beige book showed that economic activity improved in most areas of the country in late November and December. There was a pick-up in activity in most sectors with both commercial and residential real estate remaining the most obvious exceptions. The forecast has brightened though with most districts expecting hiring to increase in 2011 and with that, improvement in housing will follow.
THURSDAY, January 13th
The producer price index surged 1.1% in December compared to expectations for a 0.8% rise. Increases in food and energy prices, up 0.8% and 3.7% on the month respectively, pushed wholesale inflation higher. Excluding food and energy prices, the core PPI rose 0.2% and is now just 1.4% higher on the year. Prices at earlier stages of production remain quite high but because of slack in demand have not yet been passed through to finished goods.
The international trade deficit on goods and services narrowed slightly to $38.3 billion less than an expected shortfall of $40.7 billion. Nevertheless, the trade deficit is averaging around $41 billion over the past twelve months compared to an average trade gap of around $31 billion in 2009. The widening of the trade deficit is usually associated with a recovering domestic economy and stronger demand for imports.
Jobless claims jumped to 445k for the week ending January 8 from a level of 410k in the previous week. The outsized gain put claims at their highest level since October. Weather and holiday effects usually result in high volatility this time of year. The four-week average of 416,500 is more indicative of current trend in unemployment claims.
FRIDAY, January 14th
Retail sales rose 0.6% in December less than an expected 0.8% gain. With this month's gain, retails sales have just passed their pre-recession November 2007 peak. However, nearly one-third of the increase in spending was due to higher gasoline sales and higher gas prices. Consumers continue to shop despite sluggish labor and housing markets and tight credit. Real consumption added 1.67 points to Q3 GDP and will add even more in the fourth quarter.
The consumer price index rose 0.5% in December led by soaring energy prices. Even with this gain, consumer prices are just 1.4% above their year ago level. Excluding food and energy prices the core CPI rose 0.1% on the month and is up 0.6% on the year. Soft final demand and financial deleveraging are disinflationary so core consumer inflation should remain subdued over the next several quarters.
Chain store sales grew 3.1% in December from December one year ago, a bit weaker than expected. December sales lagged expectations somewhat as severe weather moved in late during the month but they followed a very strong November. Taken together this was the best holiday shopping season since 2006.
TUESDAY, January 11th
The small business optimism index, as reported by the NFIB fell to 92.6 in January from a reading of 93.2 in December. The level of the index suggests that small businesses remain cautious amid continued uncertainty in economic conditions. In short, small businesses are still not hiring. But, details in the data do show that businesses are expecting hiring and sales to improve in coming months.
WEDNESDAY, January 12th
The MBA mortgage applications index increased 2.2% to 482.7% for the week ending January 7. The purchase index fell 3.7% during the week as the refinance index climbed 4.9%. Refinance activity is down 56.1% since early October as contract mortgage rates began to increase. Quantitative easing should help lower rates and revive refinance opportunities in the near term. Home buying is well below it tax credit fueled April level and is only modestly above its lowest levels of the past 15 years. Purchase activity will recover rapidly once prices bottom out and distressed properties have been worked through the market.
The Fed's round up of economic conditions in the twelve Federal Reserve Banking Districts, known as the beige book showed that economic activity improved in most areas of the country in late November and December. There was a pick-up in activity in most sectors with both commercial and residential real estate remaining the most obvious exceptions. The forecast has brightened though with most districts expecting hiring to increase in 2011 and with that, improvement in housing will follow.
THURSDAY, January 13th
The producer price index surged 1.1% in December compared to expectations for a 0.8% rise. Increases in food and energy prices, up 0.8% and 3.7% on the month respectively, pushed wholesale inflation higher. Excluding food and energy prices, the core PPI rose 0.2% and is now just 1.4% higher on the year. Prices at earlier stages of production remain quite high but because of slack in demand have not yet been passed through to finished goods.
The international trade deficit on goods and services narrowed slightly to $38.3 billion less than an expected shortfall of $40.7 billion. Nevertheless, the trade deficit is averaging around $41 billion over the past twelve months compared to an average trade gap of around $31 billion in 2009. The widening of the trade deficit is usually associated with a recovering domestic economy and stronger demand for imports.
Jobless claims jumped to 445k for the week ending January 8 from a level of 410k in the previous week. The outsized gain put claims at their highest level since October. Weather and holiday effects usually result in high volatility this time of year. The four-week average of 416,500 is more indicative of current trend in unemployment claims.
FRIDAY, January 14th
Retail sales rose 0.6% in December less than an expected 0.8% gain. With this month's gain, retails sales have just passed their pre-recession November 2007 peak. However, nearly one-third of the increase in spending was due to higher gasoline sales and higher gas prices. Consumers continue to shop despite sluggish labor and housing markets and tight credit. Real consumption added 1.67 points to Q3 GDP and will add even more in the fourth quarter.
The consumer price index rose 0.5% in December led by soaring energy prices. Even with this gain, consumer prices are just 1.4% above their year ago level. Excluding food and energy prices the core CPI rose 0.1% on the month and is up 0.6% on the year. Soft final demand and financial deleveraging are disinflationary so core consumer inflation should remain subdued over the next several quarters.
Monday, January 10, 2011
Fed Open Market Purchase Update
The Fed purchased 7.79 billion of 7-10 year bonds, but there were $19 billion offered by dealers. Still some dumping going on. Hopefully tomorrow is better.
It is preferable that we close above 99.60 and CRITICAL that we close above 99.50. The auction should cause as to go down and test that level.
It is preferable that we close above 99.60 and CRITICAL that we close above 99.50. The auction should cause as to go down and test that level.
The Sound of Teeth Gnashing
Disappointing week. There was reason to hope that the employment report would be brighter than it turned out to be. Weekly data on new claims for unemployment insurance had been improving, after all, suggesting that job seekers were finding more work than in the recent past. But the December report on the overall jobs picture was a two-punch attack on our optimism.
First, the unemployment rate fell from 9.8% to 9.4%. Superficially, that sounds rather good, and there’s a slim reed of a chance that it’s a little better than our first analyses say it is. We can fairly assume that the unemployment rate fell largely because the number of people actively seeking jobs declined. As you know, the unemployment rate is an attempted measurement of the workers seeking employment but not finding it. It excludes those who are technically not part of the work force because they have, for the moment at least, simply thrown in the towel and stopped looking for a job.
The unemployment rate is computed from an extensive telephone survey of private homes, in which someone asks whether there are people in the household looking for work who haven’t found work and whether there are people in the household who have work. The survey that discovers how many people were actually hired in the prior month, on the other hand, involves calls to businesses. This survey found that 103,000 people had been given a job (that is, there were 103,000 nonfarm payrolls created) in December.
These are, you can see, very different methods of measurement, one polling the public, the other polling businesses, and though they are remarkably accurate, all things considered, they would surely be subject to revision if we bothered to check on them carefully. So they give us thumbnails sketches of the employment situation.
As with any statistical analyses, everything depends on the interpreter of the numbers. We can get very excited about the fact that 1.1 million jobs were added in 2010, for example. But then we noticed that a total of 8.4 million jobs were lost over the course of the recession, and it becomes obvious that we’re not even running in place.
Regarding the December data, Sara Murphy of The Wall Street Journal says, “Much faster employment and enduring job gains—on the order of 200,000 a month—are needed for lasting improvement.” We didn’t come near that figure in the past year.
Still, the “green shoots”—bits of data that have been suggesting a strengthening of our economy—have led many of us to expect better jobs figures and, indeed, better figures for real estate sales.
Consider: The National Association of Realtors? keeps track of how many new real estate purchase contracts are signed in a given money. In October, the number of new contracts climbed by over 10%—the largest monthly increase since these numbers have been collected. In November, the number of new contracts, as against those initiated in October, rose by an additional 3.5%, which I have been inclined to see as a confirmation of the October jump.
This created the hope that mortgage applications would rise at the end of December. More financing, after all, is generally needed to complete the larger number of transactions contracted for in October and November. Applications were up 3.5% in the second-to-last week of December, but the purchase money index was actually down in the week ending December 31 by 0.8%.
These figures are nearly impossible to interpret meaningfully. We’ll just have to hang in there and wait for something like a trend to emerge. Meantime, note that mortgage rates have flattened a bit, with the HSH composite rate (including 30-year jumbos) up 7 basis points, and at 4.77%. (It’s worth remembering that rates were a good deal higher at the beginning of 2010, by the way. We still have very attractive financing to work with.)
by: Bill Fisher
First, the unemployment rate fell from 9.8% to 9.4%. Superficially, that sounds rather good, and there’s a slim reed of a chance that it’s a little better than our first analyses say it is. We can fairly assume that the unemployment rate fell largely because the number of people actively seeking jobs declined. As you know, the unemployment rate is an attempted measurement of the workers seeking employment but not finding it. It excludes those who are technically not part of the work force because they have, for the moment at least, simply thrown in the towel and stopped looking for a job.
The unemployment rate is computed from an extensive telephone survey of private homes, in which someone asks whether there are people in the household looking for work who haven’t found work and whether there are people in the household who have work. The survey that discovers how many people were actually hired in the prior month, on the other hand, involves calls to businesses. This survey found that 103,000 people had been given a job (that is, there were 103,000 nonfarm payrolls created) in December.
These are, you can see, very different methods of measurement, one polling the public, the other polling businesses, and though they are remarkably accurate, all things considered, they would surely be subject to revision if we bothered to check on them carefully. So they give us thumbnails sketches of the employment situation.
As with any statistical analyses, everything depends on the interpreter of the numbers. We can get very excited about the fact that 1.1 million jobs were added in 2010, for example. But then we noticed that a total of 8.4 million jobs were lost over the course of the recession, and it becomes obvious that we’re not even running in place.
Regarding the December data, Sara Murphy of The Wall Street Journal says, “Much faster employment and enduring job gains—on the order of 200,000 a month—are needed for lasting improvement.” We didn’t come near that figure in the past year.
Still, the “green shoots”—bits of data that have been suggesting a strengthening of our economy—have led many of us to expect better jobs figures and, indeed, better figures for real estate sales.
Consider: The National Association of Realtors? keeps track of how many new real estate purchase contracts are signed in a given money. In October, the number of new contracts climbed by over 10%—the largest monthly increase since these numbers have been collected. In November, the number of new contracts, as against those initiated in October, rose by an additional 3.5%, which I have been inclined to see as a confirmation of the October jump.
This created the hope that mortgage applications would rise at the end of December. More financing, after all, is generally needed to complete the larger number of transactions contracted for in October and November. Applications were up 3.5% in the second-to-last week of December, but the purchase money index was actually down in the week ending December 31 by 0.8%.
These figures are nearly impossible to interpret meaningfully. We’ll just have to hang in there and wait for something like a trend to emerge. Meantime, note that mortgage rates have flattened a bit, with the HSH composite rate (including 30-year jumbos) up 7 basis points, and at 4.77%. (It’s worth remembering that rates were a good deal higher at the beginning of 2010, by the way. We still have very attractive financing to work with.)
by: Bill Fisher
Market Update
FNMA 30-YR 4.0%
Previous close 99.530
Opened Up 0.16bp @ 99.688
Key Economic Data:
EUR / USD 1.2928 Up 0.0021
USD / JPY 83.0050 Down 0.1418
GBP / USD 1.5548 Up 0.0000
OIL 88.81 Up 0.78
Gold 1,371.00 Up 2.10
Key Economic News:
No news items
Advice:
Will we break the 100.00 mark today?
Float with caution.
Friday, January 7, 2011
Week in Review
The economy is doing better. Everybody knows that. But, same-old, same-old, is the improvement the long-awaited self-sustaining recovery?
The actual, hard data, and the bond market say "Uh-uh." The 10-year T-note is on track today for the lowest closing yield since mid-December, trying to break 3.32%, and low-fee mortgages are sliding near 4.75%.
December payrolls were forecast to gain 150,000-290,000 jobs, and reality clunked in at 103,000. Of that, 36,000 were in health care, the only sector of the economy to gain jobs every month of the Great Recession, a sector that we cannot possibly afford; and another 47,000 in "leisure and hospitality," more than half of that in the subcategory "food and drink." Under these circumstances, booze is a reasonable plan.
The Fed released the minutes of its December meeting. After five pages of "modest improvement" recitation, the minutes say "The staff's outlook for real economic activity over the medium term was little changed." Next paragraph: "The underlying rate of consumer price inflation... was lower than the staff expected." Deflation is still the worry. (If you read these things, focus on the staff's commentary, not the "participants'" -- low-horsepower regional-Fed presidents.)
A true economic turn always triggers upward retrospective revisions of payrolls; we learn in the rear-view that we were doing better than we thought. However, today's report found only an additional 72,000 jobs in Oct-Nov combined. Further, the center of economic improvement in fall was manufacturing, but the December making-things payroll gain was a measly 10,000 jobs. That says that demand can be fulfilled by existing capacity, and/or businesses doubt the depth of future demand.
That absence of employment pull-through is still odd, especially as the twin ISM survey indices continued to run upward in December: manufacturing to 57.0 and services to 57.1 (that the best in four years). Note that these surveys measure better/worse, not level of activity. Hence a theory alternate to self-sustaining recovery: the red-hot economies in Northern Europe and China have lifted demand a little everywhere, but their overheating is temporary.
The European heat is more temporary than China's. A euro hugely too strong for Club Med is equally undervalued for hyper-productive Germany (supercharging its exports), and that instability grew today. Many in Europe hope that the European Central Bank will buy Club Med bonds and hold things together open-ended; today its Chairman, Trichet, said the ECB "Cannot substitute for government responsibility... We should be inflexible in applying sanctions if rules are breached." If Germany intends to inflict Wagnerian twilight and indentured servitude on Club Med, the euro has had it, and so it traded today: the euro is under $1.30 for the first time since last summer's crisis, and Club Med 10-year bond yields jumped to new highs: Spain 5.47%, Italy 4.82%, Portugal 7.14%, Ireland over 9%, and Greece pushing 13%. Priced for euro-departure. One way to bet on a new Deutschemark, which would soar on euro breakup: buy the German 10-year, demand now pushing its yield down to 2.90%. Euro distress is helpful to Treasurys and mortgages, objects of flight to quality.
The actual, hard data, and the bond market say "Uh-uh." The 10-year T-note is on track today for the lowest closing yield since mid-December, trying to break 3.32%, and low-fee mortgages are sliding near 4.75%.
December payrolls were forecast to gain 150,000-290,000 jobs, and reality clunked in at 103,000. Of that, 36,000 were in health care, the only sector of the economy to gain jobs every month of the Great Recession, a sector that we cannot possibly afford; and another 47,000 in "leisure and hospitality," more than half of that in the subcategory "food and drink." Under these circumstances, booze is a reasonable plan.
The Fed released the minutes of its December meeting. After five pages of "modest improvement" recitation, the minutes say "The staff's outlook for real economic activity over the medium term was little changed." Next paragraph: "The underlying rate of consumer price inflation... was lower than the staff expected." Deflation is still the worry. (If you read these things, focus on the staff's commentary, not the "participants'" -- low-horsepower regional-Fed presidents.)
A true economic turn always triggers upward retrospective revisions of payrolls; we learn in the rear-view that we were doing better than we thought. However, today's report found only an additional 72,000 jobs in Oct-Nov combined. Further, the center of economic improvement in fall was manufacturing, but the December making-things payroll gain was a measly 10,000 jobs. That says that demand can be fulfilled by existing capacity, and/or businesses doubt the depth of future demand.
That absence of employment pull-through is still odd, especially as the twin ISM survey indices continued to run upward in December: manufacturing to 57.0 and services to 57.1 (that the best in four years). Note that these surveys measure better/worse, not level of activity. Hence a theory alternate to self-sustaining recovery: the red-hot economies in Northern Europe and China have lifted demand a little everywhere, but their overheating is temporary.
The European heat is more temporary than China's. A euro hugely too strong for Club Med is equally undervalued for hyper-productive Germany (supercharging its exports), and that instability grew today. Many in Europe hope that the European Central Bank will buy Club Med bonds and hold things together open-ended; today its Chairman, Trichet, said the ECB "Cannot substitute for government responsibility... We should be inflexible in applying sanctions if rules are breached." If Germany intends to inflict Wagnerian twilight and indentured servitude on Club Med, the euro has had it, and so it traded today: the euro is under $1.30 for the first time since last summer's crisis, and Club Med 10-year bond yields jumped to new highs: Spain 5.47%, Italy 4.82%, Portugal 7.14%, Ireland over 9%, and Greece pushing 13%. Priced for euro-departure. One way to bet on a new Deutschemark, which would soar on euro breakup: buy the German 10-year, demand now pushing its yield down to 2.90%. Euro distress is helpful to Treasurys and mortgages, objects of flight to quality.
I continue to believe that political stars have aligned behind a deficit Big Fix, both parties now afraid of their constituents. The most recent developments: a speech to Congress by Perfesser Bernanke today, describing the structural deficit in a voice the sound of a door closing on a stone tomb. Second, never underestimate signals on the front page of the New York Times.
You pick the real story: "One of psychology's most respected journals" has published a paper describing strong evidence for extra-sensory perception. Or, second: Andrew Cuomo, certified Leftie and new Governor of New York: "We need radical reform. And we need it now. New York has no future as the tax capital of the nation."
Both stories ran on A-1.
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