Thursday, September 13, 2012

2012: The Year of the Housing Recovery, Updated

1. "The number of improving housing markets across the country rose to 99 in September, according to the National Association of Home Builders/First American Improving Markets Index (IMI), released this week. This is up from 80 metros that were listed as improving in August and includes representatives from 33 states as well as the District of Columbia. The IMI identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months."

Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. said, “This solid growth is an encouraging sign that housing continues on a slow but steady recovery path that is gradually advancing from one local market to the next.”

“More metros across the country are experiencing a sustained uptick in house prices, employment and new building activity as rising consumer confidence in local market conditions pushes more people to consider a new-home purchase,” observed NAHB Chief Economist David Crowe.

“Combined with recent positive reports on builder confidence, housing starts and new-home sales, the September IMI adds to the growing consensus that housing is finally moving in the right direction, which in turn is spurring more potential buyers to get off the fence,” added Kurt Pfotenhauer, vice chairman at First American Title Insurance Company.

2. "Des Moines area home sales spiked 27% in August over a year earlier and climbed nearly 11% over July, a report from the Des Moines Association of Realtors today shows. The average sale price pushed 3.3% higher to $172,839 in August over a year earlier. Pending sales climbed 13.1% to 897 in August over a year ago.  In August, homes were on the market an average of 98 days, 14 days fewer than 112 days in August 2011. Homes were on the market five days fewer than in July."

3. The S&P Homebuilders ETF (XHB) tracks the "S&P Homebuilders Select Industry Index" and includes holdings of Pulte Homes, Standard Pacific, Toll Brothers, MDC Holdings, USG and other homebuilders, construction companies, and companies that supply products to homebuilders or home buyers. The XHB closed Wednesday at 24.87, the highest level since August 2007 more than five years ago.  Over the last year the XHB is up by 74%, or more than three times the 23.3% increase in the S&P 500 Index.  

Update 1

4.  "CoreLogic today released a new analysis showing that 10.8 million, or 22.3%, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2012. This is down from 11.4 million properties, or 23.7%, at the end of the first quarter of 2012. Approximately 600,000 borrowers reached a state of positive equity at the end of the second quarter of 2012, adding to the more than 700,000 borrowers that moved into positive equity in the first quarter of this year."

"Most borrowers in negative equity are continuing to pay their mortgages. The share of borrowers that were underwater and current on their payments was 84.9% at the end of the second quarter in 2012. This is up from 84.8% at the end of the first quarter in 2012."

“The level of negative equity continues to improve with more than 1.3 million households regaining a positive equity position since the beginning of the year,” said Mark Fleming, chief economist for CoreLogic. “Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity.”

“Nearly 2 million more borrowers in negative equity would be above water if house prices nationally increased by 5 percent,” said Anand Nallathambi, president and CEO of CoreLogic. “We currently expect home prices to continue to trend up in August. Were this trend to be sustained, we could see significant reductions in the number of borrowers in negative equity by next year.”

Update 2:

5. DQNews updated its National Home Sales Snapshot today and reports that national homes sales for the most recent 30 days of home sales increased 11.3% compared to the comparable period last year, and the median sales price increased by 7.5%.  DQNews' home sales snapshot is based on 98 of the Top 100 U.S. metro areas, and covers about two-thirds of the nation's home sales. 

54 Comments:

At 9/12/2012 4:19 PM, Blogger juandos said...

"The number of improving housing markets across the country rose to 99 in September, according to the National Association of Home Builders/First American Improving Markets Index"...

This brings a question to mind Mark, does this data also include gentrification of urban neighborhoods or is not broken down that finely?

Looking at this IMI data there are no major urban areas to speak of other than D.C. & Miami...

 
At 9/12/2012 4:27 PM, Blogger morganovich said...

shiller had some more cautious comments today.

An interview with Professor Robert Shiller on NPR: The Housing Market: Have We Finally Hit Bottom? A brief excerpt:

Neil Conan, Host, NPR: And in the spring you were on the fence as those first reports came in giving three months of generally positive data. Do you think we're coming off the bottom?

Robert Shiller, economist, Yale University: Well, we definitely have positive data. The question is how strong is it, and will this fizzle - this rally fizzle or not? And I don't know the answer to that. But I point out that this is the fourth time we've had a rally since the crisis ended. It's coming in the summertime, right? Well, that's the normal time of strength in the market.

So if you look at the data, it doesn't jump out at you that we've reached the turning point. Now, we may have, but I think that seasonality seems to be getting stronger, and that's another contender.

CONAN: So how long do you think you would want to wait before you saw enough numbers to make a decision?

SHILLER: Well, I used to forecast home prices, and I thought a year - once you have a year - this is what I used to think, and whether it's still true, but ... But once you have a year of solid price increases, you are probably off to the races for some years. So yeah, but we're not into it that long yet.

CONAN: And there's other factors, because of all those foreclosures, because of all those mortgages underwater, a lot of people fear that there's a big backlog of housing stock that you're going to have to work through before you can start going again.

SHILLER: Right, there's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell.

Robert Shiller makes a few key points:
• There is a seasonal pattern for house prices, and the seasonality has been much stronger in recent years. The reason is foreclosures and short sales happen all year, but there is a seasonal pattern for conventional sales. So distressed sales push down prices more than normal in the winter. Some of the recent increase in house prices was due to seasonal factors, and - as I noted last month - we should expect the NSA indexes to show month-over-month declines later this year. But the key will be to watch the year-over-year change.

• I've argued before that we will not really know if house prices have bottomed until at least a year after it happens (I think prices bottomed early this year). Robert Shiller makes the same argument: "once you have a year of solid price increases, you are probably off to the races for some years". I don't think prices will be "off to the races" because ...

• As Shiller notes, there are probably quite a few people waiting for a better market and somewhat higher prices: "there's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell". That is one reason why prices will probably not be "off to the races". Also there are still quite a few distressed sales in the pipeline - and that will keep prices from rising quickly.

 
At 9/12/2012 5:25 PM, Blogger juandos said...

Apparently no housing recovery here yet...

Take the Extorted Tax Dollars Wasted Tour

 
At 9/12/2012 6:45 PM, Blogger Henry H said...

juandos-

I am from Texas. Houston, Dallas, Austin, and San Antonio are larger than Washington and Miami. If you want to look at other southwestern cities, we can add Phoenix to the list.

http://en.wikipedia.org/wiki/Cities_and_metropolitan_areas_of_the_United_States

 
At 9/13/2012 8:08 AM, Blogger Jon Murphy said...

The news about declining negative equity is really good to hear. I think it really demonstrates the situation in housing (and the US economy as a whole): there is still a long way to go, but we have made marked strides towards our goal.

 
At 9/13/2012 9:42 AM, Blogger Moe said...

Morganovich

Good discussion.

No mention of rates though.

What happens to home prices once rates start to rise? I imagine a short term stampede as buyers rush to take advantage of rates before they increase. After that, no more free lunch. Seems the Fed support could turn from a tail wind to a major headwind.

 
At 9/13/2012 11:27 AM, Blogger morganovich said...

moe-

that's a more complex question that it might seem.

between freddy, fannie, and the FHA, you account for somehting like 90% of the mortgage market right now.

what they wind up doing in response to rates would seem to be the primary issue (except at the high end in the space that was no conforming anyway).

those entities are so politicized, that i'm not sure just what they will do in response to a rate hike. this additional layer of "what is the federal government going to do" is hanging all over virtually every market in the US and is adding a weird inversion to things.

bad economic data is seen as good for equities and real estate as it means more QE.

this is a very dangerous trend and risks turning the economy into a lab monkey smacking the feeder bar over and over for more crack and refusing actual food.

if we get an aggressive, open ended qe3 that risks a return to the bad old days of burns and martin running a discretionary fed and the terrible stagflation that resulted.

 
At 9/13/2012 11:32 AM, Blogger Mark J. Perry said...

From the report on August sales in Des Moines:

"Fifty-three percent of homebuyers used conventional financing in August, while 19 percent used an FHA loan. Cash purchases made up 22 percent of the transactions, the group said."

Perhaps those conventional mortgages are purchased by Fannie and Freddie, or it could be the case that there is regional variation in the market share for Fannie/Freddie/FHA.

 
At 9/13/2012 11:36 AM, Blogger Methinks said...

....aaaaand the Fed just announced that it'll step up MBS purchases.

%@$*%!

 
At 9/13/2012 11:37 AM, Blogger Methinks said...

QEinfinity.

Good news is good, bad news is even better. What's real? Who knows.

 
At 9/13/2012 12:01 PM, Blogger morganovich said...

mark-

it's that the mortgages are then purchased by the GSE's.

this is why the rates on "conforming" loans are so much lower then those on larger ones. if you take out a $429 mortgage, freddy and fannie will scoop it up before the ink is dry and the rate difference is something like 70-100bp.

"Not only does the government guarantee low-down payment loans, and provide the well-known mortgage-interest deduction for federal taxation, the mortgage government-sponsored enterprises (Fannie Mae, Freddie Mac, Federal Housing Administration) have captured more than 90 percent of the residential mortgage market. Fannie and Freddie guarantee multifamily loans, while the Federal Housing Administration guarantees reverse mortgages for seniors."

at the moment F+F own or guarantee somehting like 50% of all outstanding mortgages in the us.

all cash deals have definitely been more common of late. you can get great deals that way because so many sellers have had deals break over inability to get a loan.

i bought my current main home for cash in nov 2010 and got about a 30% discount for doing it as the property had just fallen out of contract over financing and the seller was desperate.

but cash sales are 25-33% of the market. it's really driven by mortgages and 90% of those are currently ending up in the hands of federal agencies.

right now, "conventional financing" overwhelmingly means getting a good deal on a loan that your originator plans to have flipped (for a profit) to freddy and fannie in a matter of days.

 
At 9/13/2012 1:43 PM, Blogger VangelV said...

1. "The number of improving housing markets across the country rose to 99 in September, according to the National Association of Home Builders/First American Improving Markets Index (IMI), released this week. This is up from 80 metros that were listed as improving in August and includes representatives from 33 states as well as the District of Columbia. The IMI identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months."

Reality check; if housing were doing so well why would the Fed announce that it is buying mortgage paper to stimulate housing?

 
At 9/13/2012 1:55 PM, Blogger Jon Murphy said...

Reality check; if housing were doing so well why would the Fed announce that it is buying mortgage paper to stimulate housing?

Reality check; when was the last time the fact acted rationally?

 
At 9/13/2012 1:56 PM, Blogger juandos said...

"I am from Texas. Houston, Dallas, Austin, and San Antonio are larger than Washington and Miami"...

Well henry h I'm from Laredo and go through San Antonio quite often...

I was interested in 'gentrification' and from what very little I've seen there must only be a relatively just a small bit of that sort of activity in San Antonio and Austin...

What's happening in Big D and Houston I have no idea, do you?

 
At 9/13/2012 1:56 PM, Blogger Jon Murphy said...

But in all seriousness, the Fed said why they are doing this: although housing is improving, it is not improving as fast as they'd like.

 
At 9/13/2012 1:58 PM, Blogger juandos said...

"No mention of rates though.

What happens to home prices once rates start to rise?
"...

Interesting question moe especially since Bernanke has announced that he's going print more Monopoly money...

 
At 9/13/2012 2:00 PM, Blogger Methinks said...

The Fed does not lack excuses for doing this, JM. Of that there is no doubt - as it jabs its finger at some paper data mining its way to a justification for QEforever.

Did you miss the part where the Fed said that it'll keep housing on life support and the real interest rate negative long after the economy recovers?

 
At 9/13/2012 2:01 PM, Blogger Methinks said...

central planners can't stop. Especially not before an election.

 
At 9/13/2012 2:12 PM, Blogger Jon Murphy said...

The Fed does not lack excuses for doing this, JM.

No they do not. They're employing the same twisted (forgive the pun) logic I've seen spurted elsewhere: this recovery isn't as fast as we want it, so therefore it is no recovery at all. Damn the torpedoes, full speed ahead!

 
At 9/13/2012 2:14 PM, Blogger Moe said...

I feel he urge to post this again:

Ben Bernanke as a child

 
At 9/13/2012 2:22 PM, Blogger Jon Murphy said...

Haha I don't think I've seen that before, Moe. Thanks!

 
At 9/13/2012 2:28 PM, Blogger Methinks said...

As a child? I could have sworn that was from today's post-FOMC sugar high press conference!

 
At 9/13/2012 2:37 PM, Blogger VangelV said...


Reality check; when was the last time the fact acted rationally?


I assume that you mean the Fed rather than 'fact'. But that is not my point. My point is that the Fed's data is showing a weak housing market. What you are getting from Mark is not the full picture because he is ignoring all of the headwinds that any analyst, and the Fed's economists can see coming down the road. The Fed knows that after the election the economy is going to contract so it is doing all that it can to reflate the old bubble in housing in an attempt to kick the can down the road and allow some deleveraging to take place in the consumer sector without destroying sales totally. If it can get prices to go up the debt loads will come down without homeowners having to live below their means.

 
At 9/13/2012 2:41 PM, Blogger morganovich said...

"Reality check; if housing were doing so well why would the Fed announce that it is buying mortgage paper to stimulate housing?"

because bernanke knows he's going to get fired if romney wins?

and i guess it depends on from whom he is buying the mbs's. might this simply be the fed moving debt from the GSE's to their own balance sheet?

bernanke is a one trick pony. he thinks you can print prosperity and has totally abrogated notions of rules based money supply (a la taylor) choosing instead to take us back to the monetary days of disco with an egregiousness that not even martin, burns, or miller ever dreamed of.

 
At 9/13/2012 2:47 PM, Blogger VangelV said...

because bernanke knows he's going to get fired if romney wins?

But if the housing market were doing fine there are other things that Bernanke could have done that would help the weaker parts of the economy.

and i guess it depends on from whom he is buying the mbs's. might this simply be the fed moving debt from the GSE's to their own balance sheet?

It might. But that would allow the GSEs to buy more mortgages without going to Congress for another bailout. The trouble is that the Fed's own balance sheet is weak and the Fed, like most central banks could be in big trouble.

bernanke is a one trick pony. he thinks you can print prosperity and has totally abrogated notions of rules based money supply (a la taylor) choosing instead to take us back to the monetary days of disco with an egregiousness that not even martin, burns, or miller ever dreamed of.

Yes, he is a one trick pony. But if the housing market were really as strong as Mark says he would be looking for something else to 'fix.' It isn't. Which is why he is trying to reflate the bubble before the USD takes a hit.

 
At 9/13/2012 2:51 PM, Blogger VangelV said...

Before I forget,

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/09/Death%20Of%20Foreclosures%20.jpg

 
At 9/13/2012 2:54 PM, Blogger bart said...

OT but I think an upside "surprise" in CPI-U is very likely.

 
At 9/13/2012 2:56 PM, Blogger Jon Murphy said...

I assume that you mean the Fed rather than 'fact'.

Yes, sorry about that.

You are correct that the economy will contract after the election (all signs pointing a mild recession starting in in mid-to-late 2013). However, housing will not be the cause, nor will be dramatically affected by the contraction. Housing has certainly improved since the end of the 2008-2009 recession, but it has not improved enough to be a major driver in the coming contraction (ironically, this is one of the reasons the coming recession will be mild). Annual Housing Starts will likely flatten out (maybe decline some), but a dramatic collapse like 2008 is quite unlikely (essentially, all construction activity would have to grid to a halt for such an incident to happen).

No, this will not be a housing-led recession like 2008 was. This will more likely be a consumer-led one. The consumer has been one of the two major forces driving this current recovery. With a number of taxes going into effect starting Jan 1 2013, as well as rising food costs (residual from the drought), consumer Disposable Personal Income will likely be squeezed. Barring some dramatic price drop elsewhere (like natural gas falling below $2 (unlikely) or gasoline falling (unlikelier), the consumer will be squeezed and retail sales will start to falter. Businesses, already feeling pressure from new regulatory burdens, will start to scale back, and we will see the beginnings of the recession. I expect it will become more pronounced in 2014 as people pay their 2013 taxes and the majority of the Affordable Care Act goes into effect.

Of course, the X factor here will be Europe. Depending on which way they go during 2013, the recession could be less or more severe.

Regardless, the 2014 recession will not be nearly as bad as 2008: consumers and businesses alike are in better fiscal positions, there isn't a major bubble that can burst here, and the uncertainty that can surround an election will be gone (either with an Obama victory or Romney one, we will know who is in charge, unlike 2008).

Do not expect housing to play a major role during 2013-2014. The recession will be short lived, mild, and manageable. Expect a recovery starting sometime in late 2014/early 2015 (timing still unclear at this point).

 
At 9/13/2012 3:06 PM, Blogger Methinks said...

bernanke is a one trick pony.

For a pony with only one trick up its hoof you'd think Bananaking would have a better one than this.

 
At 9/13/2012 3:34 PM, Blogger morganovich said...

"But if the housing market were doing fine there are other things that Bernanke could have done that would help the weaker parts of the economy."

i'm not sure it's about weakest as opposed to most visible and broadly noticeable. if you start from the assumption that the goal is political as opposed to economic, you get a very different set of optimum choices.

it may be that what he wants to fix is the election.

 
At 9/13/2012 3:42 PM, Blogger Jon Murphy said...

i'm not sure it's about weakest as opposed to most visible and broadly noticeable.

I don't know, Morgan. I think a strong argument can be made that the housing market is the weakest sector of the economy. While it is growing, annual Housing Starts remain 66.5% below the pre-recession peak.

 
At 9/13/2012 3:45 PM, Blogger Jon Murphy said...

For comparison, employment (something else people like to say is weak) is only 3.1% below the pre-recession peak.

 
At 9/13/2012 3:48 PM, Blogger Methinks said...

JM, it's that low because so many people have given up looking for work. Sure, it's better than it was, but the latest drop resulted from people throwing in the towel.

Just wait until until Bananking's inflation and his boyfriend's tax hikes hit next year. Oh what fun we'll have!

 
At 9/13/2012 4:04 PM, Blogger Jon Murphy said...

That's the thing, Methinks. Employment is actually stronger than most people realize. I mean, we are adding, on average, 164k jobs per month (non-seasonally adjusted). During the previous expansion, it was about 90k per month. Has it returned to pre-recession levels yet? No. But I really do not think jobs are the weak spot in this economy right now.

 
At 9/13/2012 4:13 PM, Blogger Methinks said...

Certainly not. The Fed and the government are the weak spot in the economy right now. If we could cut out those two cancerous tumours.....

 
At 9/13/2012 7:46 PM, Blogger Henry H said...

Juandos,

I'm from Houston. The gentrificion that started in 4th over has taken over most of the properties. They have changed from shack houses into rows of 3-story townhomes.

http://i293.photobucket.com/albums/mm53/wayne2k33/april09-3050.jpg?t=1241711512

The poor hispanic East End is being redeveloped as "EaDo" for East Downtown.

http://www.eadohouston.com/

The new Houston Dynamo's soccer stadium opened earlier this year.
It's bringing lots of commercial and residential development. The growth is amazing. I expect gentrification to accelerate now that the stadium is open. There should be more bars and restaurants to profit from fans hanging around the area.

Here is the stadium if you want to come down for a visit.

http://bbvacompassstadium.com/

 
At 9/13/2012 7:49 PM, Blogger Henry H said...

Juandos,

If you want to find out more about the developments popping up in EaDo.

You can head over to here.

http://www.eadohouston.com/

 
At 9/13/2012 8:03 PM, Blogger bart said...

Jon Murphy said...

For comparison, employment (something else people like to say is weak) is only 3.1% below the pre-recession peak.



U3, U6 and U7b, 2006 to current

 
At 9/13/2012 8:07 PM, Blogger bart said...

Jon Murphy said...

But I really do not think jobs are the weak spot in this economy right now.



Median family income hs been a major weakspot for quite a while

 
At 9/13/2012 8:46 PM, Blogger Jon Murphy said...


Median family income hs been a major weakspot for quite a while


This I find interesting. Normally, with this trend, you'd think the consumption gap would widen, but it has shrunk.

 
At 9/13/2012 9:27 PM, Blogger VangelV said...

Housing has certainly improved since the end of the 2008-2009 recession, but it has not improved enough to be a major driver in the coming contraction (ironically, this is one of the reasons the coming recession will be mild). Annual Housing Starts will likely flatten out (maybe decline some), but a dramatic collapse like 2008 is quite unlikely (essentially, all construction activity would have to grid to a halt for such an incident to happen).

Housing was the last bubble. Even when it goes down in real terms it won't be the primary driver of the contraction. That is likely to be the municipal and treasury bond market. And possibly the currency.

There are way too many headwinds and not enough intelligence among voters who are blind to the dangers of the false American exceptionalism bravado. From where I stand the dangers of doing something stupid like attacking Iran or putting more troops in harm's way in the Middle East is increasing. I found Putin's message to Western leaders to be quite interesting. He accused them of being Trotskyists who were pushing permanent revolution in North Africa and the Middle East without understanding the type of chaos and unintended consequences that may bring. I am actually thinking of selling my Kurdish investments because a few months from now there may be war with Turkey even though they should be up another 100-200% if nothing terrible happens.

No, this will not be a housing-led recession like 2008 was. This will more likely be a consumer-led one. The consumer has been one of the two major forces driving this current recovery. With a number of taxes going into effect starting Jan 1 2013, as well as rising food costs (residual from the drought), consumer Disposable Personal Income will likely be squeezed. Barring some dramatic price drop elsewhere (like natural gas falling below $2 (unlikely) or gasoline falling (unlikelier), the consumer will be squeezed and retail sales will start to falter. Businesses, already feeling pressure from new regulatory burdens, will start to scale back, and we will see the beginnings of the recession. I expect it will become more pronounced in 2014 as people pay their 2013 taxes and the majority of the Affordable Care Act goes into effect.

Profits have already started to come down as earnings from abroad have fallen sharply. Romney just said that he would not repeal Obamacare and is flip-flopping like a fish out of water. A few more stupid statements, the idiots in the base stay home and Obama wins another term, and the corrupt cowards in the GOP will get what they deserve. That is unlikely to be good for the economy.

Of course a Romney victory could mean another war and massive attacks on American assets abroad. That would finish the GOP once and for all.

Of course, the X factor here will be Europe. Depending on which way they go during 2013, the recession could be less or more severe.

In many ways the EU is in better shape than the US but there is no easy way for it to survive because the market is all about perceptions. Centralization does not work and the idiots in Brussels seem to be just as foolish as those in Washington.

 
At 9/13/2012 9:29 PM, Blogger VangelV said...

Regardless, the 2014 recession will not be nearly as bad as 2008: consumers and businesses alike are in better fiscal positions, there isn't a major bubble that can burst here, and the uncertainty that can surround an election will be gone (either with an Obama victory or Romney one, we will know who is in charge, unlike 2008).

The problem is that the fiat currencies and bond markets are on the edge. A loss of confidence brings a total disaster as the paper moves towards its intrinsic value.

Do not expect housing to play a major role during 2013-2014. The recession will be short lived, mild, and manageable. Expect a recovery starting sometime in late 2014/early 2015 (timing still unclear at this point).

Perhaps we get a recovery. But before a sustainable recovery can begin you need a liquidation of malinvestments. That means a real contraction in the real economy.

 
At 9/13/2012 9:31 PM, Blogger VangelV said...

That's the thing, Methinks. Employment is actually stronger than most people realize. I mean, we are adding, on average, 164k jobs per month (non-seasonally adjusted). During the previous expansion, it was about 90k per month. Has it returned to pre-recession levels yet? No. But I really do not think jobs are the weak spot in this economy right now.


There were fewer jobs created than went on disability and gave up looking for jobs so let us hold off on the party. The participation rate is at the 1980 recession lows. If that is a recovery what does a recession look like again?

 
At 9/13/2012 9:40 PM, Blogger bart said...

Jon Murphy said...


(bart: Median family income hs been a major weakspot for quite a while)

This I find interesting. Normally, with this trend, you'd think the consumption gap would widen, but it has shrunk.


Yes... assuming that all the stats are being reported correctly.

 
At 9/14/2012 9:00 AM, Blogger bart said...

bart said...

OT but I think an upside "surprise" in CPI-U is very likely.


CPI-U SA annualized growth, +7.2%

 
At 9/14/2012 9:27 AM, Blogger Jon Murphy said...

CPI-U SA annualized growth, +7.2%

Hey bart, where is this number? I am seeing less than 2% growth.

 
At 9/14/2012 9:33 AM, Blogger Jon Murphy said...

That is likely to be the municipal and treasury bond market.

The bond market is a bubble to be sure, but it will not burst in 2013/2014. Especially not with the Fed purchasing bonds open-endedly. No, that bubble will not go until we start to see sustained rise in interest rates.

As far as munis go, that is an interesting story. The yields are higher than treasuries, but (with some notable exceptions), they are not that much more dangerous. Obviously, one wouldn't want to invest in a bond fund, but if one were to buy individual muni bonds (obviously avoiding danger areas like CA, IL, and Harrisburg), you might be able to make a nice, tax-free return.

 
At 9/14/2012 9:49 AM, Blogger bart said...

Jon Murphy said...

Hey bart, where is this number? I am seeing less than 2% growth.


It's annualized, calculated based on the change from last month to this month, and then multiplied by 12. It's the highest reading for years.
I view it as indicating higher inflation ahead, much like ISM prices paid jumps are showing.


CPI-U NSA is 1.7% YoY, core is 1.9%. CPPI is ~4.8%.

OER and rent YoY are way low at 2% and 2.1%, respectively.

Energy is ridiculously low at -.6% YoY, while oil and gasoline are substantially up since last year. Electricity per kwh is also up since last year.

Water/sewer/trash, 6.2%.
Medical, 4.2%.
Food, 3%.
Educational books, 7.6%
Vehicle insurance, 3.8%
Health insurance, 14.8%

All numbers except CPPI are direct from the BLS.

 
At 9/14/2012 10:02 AM, Blogger Jon Murphy said...

This comment has been removed by the author.

 
At 9/14/2012 10:04 AM, Blogger Jon Murphy said...

It's annualized, calculated based on the change from last month to this month, and then multiplied by 12.

That...um...that is not how you calculate an annual rate of change.

You'd need to take the annual number (a 12MMA/T) and compare it to the same time last year like this:

(Current 12MM/12MM from same time last year)*100-100.

When you do this with the CPIU, you get 2.6% (which still doesn't mean anything. The CPIU is a Seasonally-Adjusted Annual Rate, so you'd want to look at the same month one year ago for the actual inflation rate, which is 1.7%).

 
At 9/14/2012 10:09 AM, Blogger bart said...

Jon Murphy said...

That...um...that is not how you calculate an annual rate of change.


As I said, it was an annualized change rate. There's more than one valid way to calculate change rates.






These were my points too.

CPI-U NSA is 1.7% YoY, core is 1.9%. CPPI is ~4.8%.

OER and rent YoY are way low at 2% and 2.1%, respectively.

Energy is ridiculously low at -.6% YoY, while oil and gasoline are substantially up since last year. Electricity per kwh is also up since last year.

Water/sewer/trash, 6.2%.
Medical, 4.2%.
Food, 3%.
Educational books, 7.6%
Vehicle insurance, 3.8%
Health insurance, 14.8%

All numbers except CPPI are direct from the BLS.


 
At 9/14/2012 10:47 AM, Blogger Pulverized Concepts said...

The real estate news from the capital of sin: http://www.lvrj.com/business/builders-scramble-to-locate-home-lots-in-las-vegas-169744356.html

 
At 9/14/2012 11:09 AM, Blogger bart said...

By the way Jon, here's how the Fed calculates growth rates:


Note that because FRED uses levels and rounded data as published by the source, calculations of percentage changes and/or growth rates in some series may not be identical to those in the original releases.
The following formulas are used:

Change
x(t) - x(t-1)

Change from Year Ago
x(t) - x(t-n_obs_per_yr)

Percent Change
((x(t)/x(t-1)) - 1) * 100

Percent Change from Year Ago
((x(t)/x(t-n_obs_per_yr)) - 1) * 100

Compounded Annual Rate of Change
(((x(t)/x(t-1)) ** (n_obs_per_yr)) - 1) * 100

Continuously Compounded Rate of Change
(ln(x(t)) - ln(x(t-1))) * 100

Continuously Compounded Annual Rate of Change
((ln(x(t)) - ln(x(t-1))) * 100) * n_obs_per_yr

Natural Log
ln(x(t))

Notes:

'x(t)' is the value of series x at time period t.

'n_obs_per_yr' is the number of observations per year. The number of observations per year differs by frequency:

Daily, 260 (no values on weekends)
Annual, 1
Monthly, 12
Quarterly, 4
Bi-Weekly, 26
Weekly,52

'ln' represents the natural logarithm.

'**' represents to the power of.




http://research.stlouisfed.org/fred2/help-faq

 
At 9/14/2012 11:11 AM, Blogger VangelV said...

The bond market is a bubble to be sure, but it will not burst in 2013/2014. Especially not with the Fed purchasing bonds open-endedly. No, that bubble will not go until we start to see sustained rise in interest rates.

You are not describing a real market. What you are describing is Fed manipulation that cannot continue if the USD takes a beating. The only difference between what happened in Zimbabwe and what is happening in the US is the starting position of the USD as a reserve currency. The more that the Fed prints the closer that the US looks like Greece, Spain, or Zimbabwe.

As far as munis go, that is an interesting story. The yields are higher than treasuries, but (with some notable exceptions), they are not that much more dangerous. Obviously, one wouldn't want to invest in a bond fund, but if one were to buy individual muni bonds (obviously avoiding danger areas like CA, IL, and Harrisburg), you might be able to make a nice, tax-free return.

LOL...Bonds that are issued by bankrupt cities and counties are not very safe, particularly when the courts have made clear that it is OK for lenders to get screwed during bankruptcies. The rates paid are less than the true inflation rate and cannot compensate holders for the risk that they have taken.

 

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