While investors are drinking the Obama Administration's Kool-Aid and popping champagne corks over the slew of optimistic earnings reports and guidance, the economy continues to quietly deteriorate. This morning we were treated to another disappointment: durable goods. Add to that the ongoing weakness in real estate and sub-par retail sales and it's hard to understand the unbridled optimism that has suddenly gripped the markets.
Not that economic statistics are a good barometer of future market prices. Like earnings, they are backward looking and generally have ZERO predictive value. Markets typically turn well before the economy and corporate earnings. So, what's my beef?
The main problem with these economic data is that they are occurring in the middle of a so called "recovery" and one that began more than a year ago. At this stage, we should be seeing growth in employment, sales, economic output and an increase in taking on credit. None of those are happening.
Durable Goods came in well below expectations. The always wrong consensus had them rising about a percent. They declined by a percent.
Housing starts peaked in the 2005-2006 period at above 2 million units. From there, they dropped to about 500,000 at the bottom of the financial meltdown of 2008-2009. Since then, they have merely bounced around the lows. No material recovery in more than a year. We have not experienced the current low levels in decades.
June real retail sales rose at a 3.7% year-to-year pace, down from May’s revised 4.8% and from the first quarter's growth rate of 6.6%.
According to ShadowStats, adjusted for inflation, retail sales in May and June fell at an annualized pace of 7.6%. Compared to the peak in 2008, retail sales are still down 10%. If that pattern continues into the current quarter, a contraction in real third-quarter 2010 GDP would be a good bet.
What makes the economic sluggishness so worrisome is that it comes after the orgy-like expenditures and bailouts from the Obama Administration and near-zero interest rates. The Federal Reserve is pretty much out of bullets. The Obama Administration is out of bullets. Can you imagine how difficult economic conditions might become now that all the stimulative measures have already filtered through?
On Friday, the first estimate of Gross Domestic Product will be reported. Consensus estimates are for a 3.5% advance. That number would seem way too optimistic and sets up the market for a major surprise.
Don't get me wrong. Rising corporate earnings are great. They prove that corporate America can make the necessary adjustments to cope with the very harsh economic conditions. A victory for capitalism. But, if we are about to enter the "second-dip", tomorrow's earnings will come under renewed pressure. So, using this one data point in the absence of context will prove quite misleading and cause investors to make poor decisions.
Marko's Take
Showing posts with label New Housing Starts. Show all posts
Showing posts with label New Housing Starts. Show all posts
Wednesday, July 28, 2010
Tuesday, May 25, 2010
Mixed Signal In Residential Real Estate
Homeowners have had little to cheer about for the last 3 years. For most Americans, the bulk of their net worth, if they have one, is typically the equity of their home. The financial crisis has pretty much wiped that out.
A solid rise in the value of residential homes is unlikely for the intermediate term. With joblessness unbearably high and credit nearly impossible to obtain, the pool of new buyers is uncomfortably low. The overhang of foreclosures and severe delinquencies suggests the prospect of a meaningful recovery can not be immediate.
Recently released data paints a mixed rather than downright pessimistic portrait. Although economists were expecting a month-over-month increase of 5.5%, the National Association of Realtors (NAR) reported yesterday that sales of previously owned homes rose an unexpected 7.6%. That continued a year-long rise in housing activity and marked the highest number of sales recorded last November.
U.S. home prices rose 2% in the first quarter from prior-year lows, according to the S&P Case-Shiller broad National Index, the first year-to-year increase in several years. However, prices were down 3.2% from the end of last year despite ongoing tax incentives, which terminated at the end of April.
Prices in 10 key metropolitan areas were up 3.1% in March from a year earlier, according to S&P Case-Shiller, while the index for 20 major metropolitan areas rose 2.3%. Compared with February, they fell 0.4% and 0.5%, respectively.
Optimists are looking to the continuation of low mortgage rates which help spur demand. But, low rates can only have so much of an effect. Despite average 30-year rates now below 5%, the Mortgage Bankers Association noted last week that the number of people seeking mortgage purchase applications had dropped more than 27%, reaching a level last seen in May 1997.
Unfortunately, new sellers have been coming out of the woodwork. NAR reported that the number of previously-owned homes placed on the market has risen quickly to more than 4 million units and that this inventory continues to far outpace the number sold.
Things may get worse. According to a recent analysis performed by Zillow, U.S. homeowners are so confident in the value of their homes that many of them plan to put up for-sale signs in their front yards. Zillow reported that 7% of homeowners they polled were "very likely" to try to sell their homes in the next 12 months if the housing market seemed to be improving.
If 7% of homeowners entered the resale market, that would equal about 5.3 million homes, more than the number of existing homes that sold all of last year.
On the positive side, new home starts, which are a key indicator of where real estate is headed and of builder confidence, increased by 10.2% to hit their highest total since August of 2008.
On a regional basis, starts were even more impressive in some areas. The Northeast saw a huge jump of 24% for the month. The Midwestern states were up 17% and the South by 7%.
So, while the residential market still has some major issues to deal with, it appears to have reached some sort of stabilization in the near term. However, given the end of the "first-time buyers" tax credit, the residential sector will still be challenged for the forseeable future.
Marko's Take
For those with a political bent, please visit us on You Tube. We have video blogs posted on such topics as Social Security, Income Taxes, the Federal Reserve and Peak Oil. We will have more video blogs in the upcoming weeks. To access these blogs, click here http://www.youtube.com/markostaketv.
A solid rise in the value of residential homes is unlikely for the intermediate term. With joblessness unbearably high and credit nearly impossible to obtain, the pool of new buyers is uncomfortably low. The overhang of foreclosures and severe delinquencies suggests the prospect of a meaningful recovery can not be immediate.
Recently released data paints a mixed rather than downright pessimistic portrait. Although economists were expecting a month-over-month increase of 5.5%, the National Association of Realtors (NAR) reported yesterday that sales of previously owned homes rose an unexpected 7.6%. That continued a year-long rise in housing activity and marked the highest number of sales recorded last November.
U.S. home prices rose 2% in the first quarter from prior-year lows, according to the S&P Case-Shiller broad National Index, the first year-to-year increase in several years. However, prices were down 3.2% from the end of last year despite ongoing tax incentives, which terminated at the end of April.
Prices in 10 key metropolitan areas were up 3.1% in March from a year earlier, according to S&P Case-Shiller, while the index for 20 major metropolitan areas rose 2.3%. Compared with February, they fell 0.4% and 0.5%, respectively.
Optimists are looking to the continuation of low mortgage rates which help spur demand. But, low rates can only have so much of an effect. Despite average 30-year rates now below 5%, the Mortgage Bankers Association noted last week that the number of people seeking mortgage purchase applications had dropped more than 27%, reaching a level last seen in May 1997.
Unfortunately, new sellers have been coming out of the woodwork. NAR reported that the number of previously-owned homes placed on the market has risen quickly to more than 4 million units and that this inventory continues to far outpace the number sold.
Things may get worse. According to a recent analysis performed by Zillow, U.S. homeowners are so confident in the value of their homes that many of them plan to put up for-sale signs in their front yards. Zillow reported that 7% of homeowners they polled were "very likely" to try to sell their homes in the next 12 months if the housing market seemed to be improving.
If 7% of homeowners entered the resale market, that would equal about 5.3 million homes, more than the number of existing homes that sold all of last year.
On the positive side, new home starts, which are a key indicator of where real estate is headed and of builder confidence, increased by 10.2% to hit their highest total since August of 2008.
On a regional basis, starts were even more impressive in some areas. The Northeast saw a huge jump of 24% for the month. The Midwestern states were up 17% and the South by 7%.
So, while the residential market still has some major issues to deal with, it appears to have reached some sort of stabilization in the near term. However, given the end of the "first-time buyers" tax credit, the residential sector will still be challenged for the forseeable future.
Marko's Take
For those with a political bent, please visit us on You Tube. We have video blogs posted on such topics as Social Security, Income Taxes, the Federal Reserve and Peak Oil. We will have more video blogs in the upcoming weeks. To access these blogs, click here http://www.youtube.com/markostaketv.
Subscribe to:
Posts (Atom)