The Lehmann Letter (SM)
The Commerce Department's recent report that first-quarter GDP grew by a meager 1.8% focused our attention, once again, on the economy's prospects:
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Aggregate demand's growth has been weak. At this stage in the recovery household expenditures on residential construction and durable goods as well as business expenditures on plant and equipment should be surging forward. But they're not.
At the same time, government expenditures are shrinking. The federal government's stimulus plan worked to boost the economy out of the depths of recession. But it's over now and federal expenditures are no longer growing. Meanwhile state and local governments have been faced with shrinking tax revenues and have also reduced their expenditures in response to this shortfall. As a result total government spending has become an anchor holding the economy down rather than a balloon hoisting the economy upward.
There is no dot-com boom à la the 1990s, and there is no real-estate boom à la the 2000s. Household balance sheets are compromised and gasoline prices are high. But most importantly, residential real estate remains in the doldrums. The economy can't and won't achieve prosperity until residential real estate emerges from hibernation. There is no sign that will happen soon.
© 2011 Michael B. Lehmann
Friday, May 27, 2011
Tuesday, May 24, 2011
Home-Sales Disaster
The Lehmann Letter (SM)
This morning's Bureau of the Census release of April's new-home sales data (http://www.census.gov/const/newressales.pdf) began with this paragraph:
“Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.”
It appears that building activity improved in the latest month but is down from a year ago. But that obscures the big picture. The chart shows that new-home sales have fluctuated under 400,000 in most months for the past several years. Residential construction is mired in a deep slump.
New Home Sales
(Click on chart to enlarge.)
Recessions shaded
New-home sales must double before we declare that the slump is over. And that still won’t provide robust conditions.
We have a problem.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
This morning's Bureau of the Census release of April's new-home sales data (http://www.census.gov/const/newressales.pdf) began with this paragraph:
“Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.”
It appears that building activity improved in the latest month but is down from a year ago. But that obscures the big picture. The chart shows that new-home sales have fluctuated under 400,000 in most months for the past several years. Residential construction is mired in a deep slump.
New Home Sales
(Click on chart to enlarge.)
Recessions shaded
New-home sales must double before we declare that the slump is over. And that still won’t provide robust conditions.
We have a problem.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
Monday, May 23, 2011
Foreclosure Overhang: The Distressed Property Glut
The Lehmann Letter (SM)
Take a look at this morning's New York Times article by Eric Dash entitled, "As Lenders Hold Homes in Foreclosure, Sales Are Hurt:"
http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=1&ref=todayspaper
It begins by saying:
“The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.”
And then goes on to observe:
“Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.”
The article reports that banks have not been able to deal with the surge in distressed properties arising from the foreclosure crisis. More homes have piled up in banks' inventory than they have been ready, willing and able to sell. That supply overhang delays a home-price recovery.
It also discourages new-home construction by providing potential buyers with a surfeit of foreclosed properties that competes with newly built homes. Unfortunately the absence of new construction dampens economic expansion.
© 2011 Michael B. Lehmann
Take a look at this morning's New York Times article by Eric Dash entitled, "As Lenders Hold Homes in Foreclosure, Sales Are Hurt:"
http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=1&ref=todayspaper
It begins by saying:
“The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.”
And then goes on to observe:
“Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.”
The article reports that banks have not been able to deal with the surge in distressed properties arising from the foreclosure crisis. More homes have piled up in banks' inventory than they have been ready, willing and able to sell. That supply overhang delays a home-price recovery.
It also discourages new-home construction by providing potential buyers with a surfeit of foreclosed properties that competes with newly built homes. Unfortunately the absence of new construction dampens economic expansion.
© 2011 Michael B. Lehmann
Tuesday, May 17, 2011
Housing Starts Unchanged: Gaining Historical Perspective
The Lehmann Letter (SM)
This morning the Census Bureau included the following in its report on new residential construction
(http://www.census.gov/const/newresconst.pdf):
“Privately-owned housing starts in April were at a seasonally adjusted annual rate of 523,000. This is 10.6 percent (±13.0%)* below the revised March estimate of 585 000 and is 23 9 percent (±7 0%) below the revised April 2010 rate of 687 000.”
Housing Starts
(Click on chart to enlarge.)
Recessions shaded
At first glance that seems to contradict this letter's heading, which announces that housing starts are unchanged. But if you look at the chart, you'll see that housing starts have limped along at about 600,000 for the past two years. The Census Bureau's announcement that housing starts fell by 10.6% from March's level and by 23.9% from the year-ago level creates the impression of a recent and sharp downturn. These numbers are misleading because they refer to a low base and because there has been so much fluctuation around that base. Similarly, a one-month increase of 10% would not signal a recovery.
Truth be told: Residential construction is stuck at a dismally low level and has been fluctuating around that level for some time. Month after month of improvement, leading into years of improvement, are required. Housing starts must double (that's right, double) before this leading sector resumes its positive role.
This is a good illustration of historical perspective's importance and the distortion created by short-run focus.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
This morning the Census Bureau included the following in its report on new residential construction
(http://www.census.gov/const/newresconst.pdf):
“Privately-owned housing starts in April were at a seasonally adjusted annual rate of 523,000. This is 10.6 percent (±13.0%)* below the revised March estimate of 585 000 and is 23 9 percent (±7 0%) below the revised April 2010 rate of 687 000.”
Housing Starts
(Click on chart to enlarge.)
Recessions shaded
At first glance that seems to contradict this letter's heading, which announces that housing starts are unchanged. But if you look at the chart, you'll see that housing starts have limped along at about 600,000 for the past two years. The Census Bureau's announcement that housing starts fell by 10.6% from March's level and by 23.9% from the year-ago level creates the impression of a recent and sharp downturn. These numbers are misleading because they refer to a low base and because there has been so much fluctuation around that base. Similarly, a one-month increase of 10% would not signal a recovery.
Truth be told: Residential construction is stuck at a dismally low level and has been fluctuating around that level for some time. Month after month of improvement, leading into years of improvement, are required. Housing starts must double (that's right, double) before this leading sector resumes its positive role.
This is a good illustration of historical perspective's importance and the distortion created by short-run focus.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
Thursday, May 12, 2011
Foreclosures Down: Is the Glass Half-Full or Half-Empty?
The Lehmann Letter (SM)
Two articles on the real-estate crisis appeared on CNN's website this morning:
“Foreclosures Down for Seventh Straight Month"
http://money.cnn.com/2011/05/12/real_estate/foreclosures_fell_again/index.htm?iid=HP_River
and “Obama: Homeowners Need More Help"
http://money.cnn.com/2011/05/12/news/economy/obama_housing/index.htm?iid=HP_LN
The first article reported a drop in foreclosure filings and bank repossessions of foreclosed properties. That looks good, BUT……..
The article makes clear that banks have NOT slowed foreclosures because fewer homeowners are in trouble. Rather, banks have slowed foreclosures because they are double-checking their paperwork and because many markets already have a glut of foreclosed homes. The banks know that too many foreclosed homes mean a lower price for the property that they wish to sell. Consequently banks have slowed foreclosures in order to help markets absorb distressed properties. That way the banks receive a better price for the homes on which they have foreclosed and will foreclose.
Unfortunately that does not guarantee a reduction in future foreclosures. One-quarter of American mortgages are underwater. Many homeowners cannot or will not pay their mortgages. Their payments are in arrears even if the banks have not begun foreclosure proceedings. That means a longer stretch out of distressed homes going on the market in the years to come. It does not mean an overall reduction in distressed properties. True: The slowdown in foreclosures may help home prices, but it may not. The slowdown may only serve to lengthen the period of distress.
As for the President’s observation that homeowners need help…….. Who can argue? But the President has no new, viable plan. Indeed, House Republicans have just finished voting to discontinue the President's old plan. And the banks will not voluntarily agree to write down loan amounts, which is the only meaningful relief that would assist distressed homeowners. The President's moral suasion will fall on deaf ears.
"Foreclosures Down" looks like the glass is half-full. But in truth it serves to highlight the fact that the glass is half empty.
© 2011 Michael B. Lehmann
Two articles on the real-estate crisis appeared on CNN's website this morning:
“Foreclosures Down for Seventh Straight Month"
http://money.cnn.com/2011/05/12/real_estate/foreclosures_fell_again/index.htm?iid=HP_River
and “Obama: Homeowners Need More Help"
http://money.cnn.com/2011/05/12/news/economy/obama_housing/index.htm?iid=HP_LN
The first article reported a drop in foreclosure filings and bank repossessions of foreclosed properties. That looks good, BUT……..
The article makes clear that banks have NOT slowed foreclosures because fewer homeowners are in trouble. Rather, banks have slowed foreclosures because they are double-checking their paperwork and because many markets already have a glut of foreclosed homes. The banks know that too many foreclosed homes mean a lower price for the property that they wish to sell. Consequently banks have slowed foreclosures in order to help markets absorb distressed properties. That way the banks receive a better price for the homes on which they have foreclosed and will foreclose.
Unfortunately that does not guarantee a reduction in future foreclosures. One-quarter of American mortgages are underwater. Many homeowners cannot or will not pay their mortgages. Their payments are in arrears even if the banks have not begun foreclosure proceedings. That means a longer stretch out of distressed homes going on the market in the years to come. It does not mean an overall reduction in distressed properties. True: The slowdown in foreclosures may help home prices, but it may not. The slowdown may only serve to lengthen the period of distress.
As for the President’s observation that homeowners need help…….. Who can argue? But the President has no new, viable plan. Indeed, House Republicans have just finished voting to discontinue the President's old plan. And the banks will not voluntarily agree to write down loan amounts, which is the only meaningful relief that would assist distressed homeowners. The President's moral suasion will fall on deaf ears.
"Foreclosures Down" looks like the glass is half-full. But in truth it serves to highlight the fact that the glass is half empty.
© 2011 Michael B. Lehmann
Monday, May 9, 2011
Double Dip: Home Prices Sink Again
The Lehmann Letter (SM)
Take a look at this front-page article in today's Wall Street Journal:
http://online.wsj.com/article/SB10001424052748704810504576309532810406782.html?mod=WSJ_hp_LEFTTopStories
It's entitled "Home Market Takes a Tumble." The chart accompanying the article illustrates a five-year drop in home prices. The rate of decline fell recently, but lately began to accelerate again. The article indicates that experts expect home prices will continue falling until 2012. The reason? Expiration of the homebuyers tax credit has dampened demand while foreclosures have boosted supply. Demand down + Supply up = Prices down.
These developments can't be good for homebuilding, and that's why this letter has doubts about the economic expansion's strength. It's not just that homebuilding is hobbled. These developments illustrate the weakness in households' balance sheets. Consumers believe they must conserve cash and limit debt. It's difficult for them to buy homes and autos under these circumstances. And it's hard to imagine a strong expansion while homebuilding and auto production remain depressed.
In addition, it's also hard to imagine a surge in inflation as home prices decline. That has not happened before.
© 2011 Michael B. Lehmann
Take a look at this front-page article in today's Wall Street Journal:
http://online.wsj.com/article/SB10001424052748704810504576309532810406782.html?mod=WSJ_hp_LEFTTopStories
It's entitled "Home Market Takes a Tumble." The chart accompanying the article illustrates a five-year drop in home prices. The rate of decline fell recently, but lately began to accelerate again. The article indicates that experts expect home prices will continue falling until 2012. The reason? Expiration of the homebuyers tax credit has dampened demand while foreclosures have boosted supply. Demand down + Supply up = Prices down.
These developments can't be good for homebuilding, and that's why this letter has doubts about the economic expansion's strength. It's not just that homebuilding is hobbled. These developments illustrate the weakness in households' balance sheets. Consumers believe they must conserve cash and limit debt. It's difficult for them to buy homes and autos under these circumstances. And it's hard to imagine a strong expansion while homebuilding and auto production remain depressed.
In addition, it's also hard to imagine a surge in inflation as home prices decline. That has not happened before.
© 2011 Michael B. Lehmann
Friday, May 6, 2011
Great Jobs Report
The Lehmann Letter (SM)
The stock market rallied strongly this morning following a great jobs report from the Bureau of Labor Statistics:
http://stats.bls.gov/news.release/empsit.nr0.htm
Employment grew by over 200,000 in February, March and April. That's good news.
Job growth
(Click on chart to enlarge.)
Recessions shaded
The chart makes clear that job growth has to be that strong, month after month and year after year, to achieve and maintain full employment. Let's hope the good news continues.
The stock market had trouble earlier this week because of weakness in the commodity markets. Prices for oil, gold and silver fell. Indexes for a broad range of primary products tumbled. That sent a signal that commodity speculators questioned the strength of the economic expansion. They thought stagnating demand would inevitably limit price inflation. Stock-market investors prefer mild inflation but not weak demand. They dumped stocks in response.
Commodity prices stabilized today because the strong employment report signaled robust demand and contradicted earlier fears that the economy is stalling. That's why oil and stocks are up.
But the jury remains out. Demand has recovered sufficiently to boost employment. It must keep growing for both jobs and the stock market to keep gaining.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
The stock market rallied strongly this morning following a great jobs report from the Bureau of Labor Statistics:
http://stats.bls.gov/news.release/empsit.nr0.htm
Employment grew by over 200,000 in February, March and April. That's good news.
Job growth
(Click on chart to enlarge.)
Recessions shaded
The chart makes clear that job growth has to be that strong, month after month and year after year, to achieve and maintain full employment. Let's hope the good news continues.
The stock market had trouble earlier this week because of weakness in the commodity markets. Prices for oil, gold and silver fell. Indexes for a broad range of primary products tumbled. That sent a signal that commodity speculators questioned the strength of the economic expansion. They thought stagnating demand would inevitably limit price inflation. Stock-market investors prefer mild inflation but not weak demand. They dumped stocks in response.
Commodity prices stabilized today because the strong employment report signaled robust demand and contradicted earlier fears that the economy is stalling. That's why oil and stocks are up.
But the jury remains out. Demand has recovered sufficiently to boost employment. It must keep growing for both jobs and the stock market to keep gaining.
(The chart was taken from http://www.beyourowneconomist.com. [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)
© 2011 Michael B. Lehmann
Subscribe to:
Posts (Atom)