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Posts Tagged ‘Getting Graphic’

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

August 24, 2006 | 7:03 am | |

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

Source: NYT

Click here to expand

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

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

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

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

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

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

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

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


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[Getting Graphic] Wait (On) A Second (Home)

August 14, 2006 | 12:02 am | |

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

“Second-home buying is very discretionary,” said Edward Leamer, an economist at the University of California, Los Angeles. “There is no force of demographics that is pushing people into buying homes as there is in primary home markets.”

In second-home markets around the country, the number of sales are shrinking even as the properties on the market increase. Appreciation at all levels is weakening, and in a few places recently have begun dropping.

Do you remember when there was coverage on people buying third homes a few years ago? What prompted that? Its all about affordability. In other words, a low monthly payment enabled some to buy that third home, let alone a second home. When affordability declines, the secondary markets tend to be most vulnerable.

Source: NYT


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[Getting Graphic] Cooling Economy Makes FOMC Stop

August 9, 2006 | 6:38 am | |

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

Click here for full graphic [WSJ].

Source:WSJ


Inspired by Greenspanspeak, and transitioning to Bernankespeak, the Wall Street Journal continues a well-executed tradition of graphically interpreting what the Fed really means.

The official press release [FOMC]

There have been some inflationary signs recently with rising energy costs, concerns about supply and core inflation has risen as well (inflation without food and energy). However, the fed indicated that these will work themselves out and did not raise rates. The first time the fed has paused after 17 consecutive 25 basis point increases since June 2004.

Basically, their observation on housing was consistent with June but the overall economy has essentially changed. I’d venture to guess that the economy changed because housing kept doing what its been doing over the past 2 months and was the primary catalyst for the economic change. Its interesting because the fed seems to be saying from their position that housing didn’t deteriorate further since they used the exact same language in the statement (see bold).

August Statement

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

June Statement

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

With the state of the nation’s housing, it is sure looking like rate cuts in 2007.

_June Statement Analysis_
FOMC Makes It 17 at 5.25% And Seems to Get It About Housing [Matrix]

_Why this might mean the end of rate increases for a while_
Why a Pause in Rate Cycle Is Apt to Be the End: Caroline Baum [Bloomberg]


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[Getting Graphic] Living Long Enough To Get A 50 Year Mortgage

August 8, 2006 | 5:58 am | |

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

Source: NYT


Since real estate purchases evolved from “saving for the down payment” to “making the monthly payment”, the rise in mortgage rates over the past 9 months (except for the past 6 weeks) has helped speed new products to market, namely the 50-year mortgage [CNN/Money].

However, what good is a mortgage with such a lengthy term to a lender if the mortgagor isn’t around to make the payments? Of course, this is pretty theoretical since only a small percentage pay off their mortgages. Most refinance periodically or sell to cash out.

The average life expectancy is rising as discussed in the article Living Large and Healthy, but How Long Can It Go On? [NYT].

Seems like the same question we were asking last year about the housing market.

So a 50 year mortgage doesn’t seem quite so out of the ordinary compared to 50 years ago (of course you’d be debt free right now).

Thanks LS!

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[Getting Graphic] Mood Swings And Hard Landings

August 7, 2006 | 6:35 am | |

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

Source:WSJ


In a particularly sobering outlook for the economy and housing, Mark Whitehouse makes some interesting points on the argument for a hard landing in housing [WSJ]. The “aftermath” of a soft landing if you will. In other words, what happens next?

The boom has depended heavily on the upbeat psychology of consumers, builders and lenders. As moods swing, the landing could be very hard indeed.

“We could be underestimating the dark side,” says Mark Zandi, chief U.S. economist at Moody’s Economy.com and among the first to seek to quantify the housing boom’s broader effects. “Euphoria could turn into abject pessimism very quickly.”

The argument for this greater pessimistic view point is the idea that we have no prior track record of similar behavior:

  • Biggest boom on record. – _House prices are still more than twice the level of 1991, when the boom began. Even after the recent decline, June’s rate of home sales is 40% above the 20-year average._
  • Flood of capital – an unprecedented flood of cash into U.S. capital markets fueled the boom. Global demand for U.S. mortgage bonds, competition among big national lenders and the advent of exotic loans have made it easier than ever to borrow money to buy a house — and to turn rising home values into cash.

Which brings to mind the question: How will the consumer react?

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[Getting Graphic] Remodeling Eases As Home Sales Slow

July 26, 2006 | 5:45 am |

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

The slowing of existing home sales is having a dampening effecting on remodeling since the large portion of this occurs at the time of purchase. This is an example of one of the significant ancillary economic effects of a cooling housing market.

Through the second quarter of 2006, homeowner remodeling spending has seen slow growth. According to the Remodeling Activity Indicator (RAI) devised by Harvard’s Joint Center for Housing Studies, homeowners spent an estimated 155 billion dollars on home improvements and repairs over the past four quarters, representing a 2.8% increase compared to the previous four quarters.

Click here for full graphic [Harvard]


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[Getting Graphic] New York Workers Are Flush

July 14, 2006 | 6:17 am | |

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

Click here for full graphic [NYT]

Source: NYT



According to a report by the Federal Reserve Bank of New York called Taking the Pulse of the New York City Economy covered in the article Report Shows Quick Growth in New York Since 9/11 [NYT], New York City’s economy bounced back after Sept. 11 with surprising speed and is much healthier now than its slow-growing job market indicates.

The economy bounced back quickly, much faster than the stock market bubble just prior to 9/11. Although the economy has 100,000 few jobs than it did before 9/11, it would have anyway. Actually, unemployment in NYC is at 5%, which is the lowest level in 18 years. In addition, the average NYC worker makes 63% more than the average US worker, as compared to 20% in 1980.

While many economists and analysts assume job growth has all been at the highend, much of the gains had come in the middle of the job spectrum, especially among the self-employed and small businesses.

This sort of correlates with the fact that the housing boom in New York impacted all price demographics in New York.


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[Getting Graphic] Affording Everything But The House

July 14, 2006 | 5:57 am |

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

This monthly economic summary by Norther Trust called Oh Magic Eight Ball, Is Economic Growth Slowing Significantly? [pdf] ponders a number of housing issues in a series of charts. I have provided two of the most relevant here from the report.

National housing affordability is at its lowest level since 1989 (down=lower affordability, gray=recession).

The spread between national sales and inventory levels is widening.


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[Getting Graphic] FOMC Makes It 17 at 5.25% And Seems to Get It About Housing

June 30, 2006 | 6:40 am | |

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

Click here for full graphic [WSJ]

The official press release [FOMC]

Source:WSJ


Inspired by Greenspanspeak, and transitioning to Bernankespeak, the Wall Street Journal continues a well-executed tradition of graphically interpreting what the Fed really means.

Inflation is a concern but they don’t seem as intent on raising rates indefinitely. August is looking pretty definite as far as rate increases go.

The federal funds rate has been raised 17 consecutive times since June 2004 by 25 basis points and is at its highest level in 5 years [WaPo].

As a relief to many, the FOMC specifically recognized that housing does play a significant role:

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

I still contend that the full thrust of the cooling of the housing market is not fully borne out in the stats and we are headed for more economic weakness in 2007. The use of the dreaded “R” word will accelerate. Merrill Lynch economists say there is now a 40% chance of a recession in 2007 [Calculated Risk].

That could mean rate cuts next year but thats only good news to housing if job creation doesn’t deteriorate too much.


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[Getting Graphic] Feeling Bad About The Boom

June 29, 2006 | 6:34 am |

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

Click here for both full graphics [WaPo]

Washington Post-ABC News Consumer Comfort Index Survey (last 12 months)

Source:WaPo


Washington Post-ABC News Consumer Comfort Index Survey (1986-2005)

Source:WaPo


The housing boom could be defined as the period from 1997 to 2005 with a break in 2001 when we saw a recession and 9/11. In the past 5 years, I have always wondered, although the housing sector was setting records, why it seemed that consumers remained anxious even though they were doing ok financially? Of course, I could have been alone in this regard.

The Washington Post-ABC News Consumer Comfort Index Survey seems to bear this out. The participants are asked 3 questions in this rolling average survey. They rate the:

  • condition of the national economy,
  • state of their personal finances, and
  • whether now is a good time to buy things.

Self-perception of the state of their personal finances was usually positive but the other factors were negative. You can also view the methodology and the data.

The annual results of the survey shown have been negative as shown in the chart above and this has carried through to 2006.

The survey doesn’t answer the question, but it does show how cranky all of us have been.

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[Getting Graphic] Fed Increases: Pinch Me When It Starts To Hurt

June 29, 2006 | 6:06 am | |

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

Click here for full graphic [WaPo]

Source:WaPo


If the Federal Reserve raises the federal funds rate today for the 17th consecutive FOMC session, then this will be the longest period of tightening in 50 years.

In Neil Henderson’s Tighter, Tighter: When Will Fed Increases Start to Pinch? [WaPo], he asks the question: So why isn’t the economy choking by now?

The answer? Money is still pretty cheap.

The Fed directly controls the interest rate banks charge one another for overnight loans, a benchmark known as the federal funds rate. That rate indirectly influences borrowing costs throughout the economy. The central bank uses its influence over rates to try to keep the economy growing at a sustainable pace without igniting inflation. Tighter credit dampens spending, making it harder for businesses to raise prices. Easier money does the opposite.

In contrast to the campaign of the past 25 months, the Fed has previously acted much more aggressively, pushing interest rates much higher and much faster to battle hotter inflation — and causing much more economic pain in the process.

Homeowners have not felt real pain yet. According to the Mortgage Banker Association, foreclosures and delinquencies actually fell year over year in the first quarter. However, the stats are expected to erode as higher energy costs and adjustable rate mortgage rate resets start to inflict more pain.

I think we are at the point of parity, and today’s expected increase along with an increasing probability of one in August could be seen in the history books as the beginning of a period of overshooting.


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Plateau: Making The Case For Rate Cuts In 2007

June 28, 2006 | 6:57 am |
Source:NYT

In an interesting article by Paul J. Lim: What the Fed Is Up to, and Why You Shouldn’t Fret [NYT] he makes the case that the likely Fed interest rate increase tomorrow and possible increase in August will have little impact on long term investors.

Recession is a concern for 2007 and many economists are already predicting that the Fed is overshooting and will have to cut rates soon to avoid slipping into a recession. This may be good for housing if there is not irreparable damage caused by the next 1-2 rate cuts. Housing markets have been cooling for much of this year.

I have been speculating about rate cuts in 2007 since this past February.

However, the economy is doing well now with corporate profits up. With higher energy costs, and signs of inflation, the Fed’s hand is forced to raise rates now.

Some investors may be paying close attention to the Fed because they think that once it pauses, the stock market will have an all-clear sign to resume its bull run. That was certainly the case in 1995, when the Dow Jones industrial average rallied more than 40 percent in the 12 months after the last Fed rate increase that year.

Sam Stovall, chief investment strategist at Standard & Poor’s, recently studied what he called the “plateau period,” or the time between a Fed rate increase and the first in a new series of interest rate cuts.

He concludes, with some caveats, that the average time between the last rate hike and the next rate cut is about 5.5 months. If August is our last rate hike, it looks like the 1st quarter of 2007, could be the point were the Fed is forced to cut rates if the economy stalls.


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