24 August 2009

Economics Update

The Big Picture looks at the sales numbers
Seeing as how I did not post on Friday, there was a tornado watch, and my kids were freaking, I'll start with the big story from last week, which was that existing home sales rose to a 2 year high.

Of course, the 1st thing that comes to mind is that the National Association of Realtors (NAR) are supplying this data, and it's suspect.

The 2nd thing that comes to mind is that a remarkably large portion of these sales are distressed.

The Big Picture runs the numbers more fully (chart pr0n is from this link, click to see full size), and while mentioning these two points, notes some other interesting bits of information:
  • "If not for a surprise and suspect 16k increase in Northeast condo sales, Existing Home Sales would have been lower month-over-month and only up 12k units from July 2008, which was the worst year on record for housing."
  • Non-seasonally adjusted data actually shows a decrease, and given the high proportion of foreclosures and short sales, seasonal adjustment is actually not going to be accurate right now; the market is just too fracked right now.
  • Prices are still falling.
  • Sales less foreclosure activity (bottom pic) is way down.
Furthermore, we are also seeing the effect of the housing cash for clunkers tax credit, which allows a 10% tax credit (max $8K) on purchases for "New" (not owned a house in 3 years) buyers, but the home has to close before November 30, which really means having the sale done in the next 8 weeks or so, so it's another blip, unless, as CR notes, the NAR and NAHB manage to successfully bribe lobby for an extension.

Note that the tax credit can be used for a down-payment, which further distorts the market.

He have a housing market that is really still heading down, albeit more slowly, despite massive federal subsidies.

If there were really a return to health in the housing market, then Taylor Bean, the 12th largest mortgage company in the US, would not be filing for bankruptcy.

As to housing news for the rest of us, the rate at which mortgage holders who have fallen behind catch up on their payments, the so-called "cure rate", for holders of prime mortgages, has fallen to 6.6%, down from 45% in the years 2000-2006, and very close to the rate for Alt-A (4.3%) and sub-prime (5.3%).

Meanwhile, treasuries have risen again, driving yields down, though it is unclear how much is risk aversion increasing, and how much is the Federal Reserve buying more of the securities.

It does mean that investors believe that the Fed won't be raising rates for a while yet, though the Bank of Israel just raised its benchmark rate, which indicates optimism on their part.

My guess is that they are wrong, simply because they are the 1st central bank to do so, and my money is on any first mover jumping the gun.

Then again, they could be right. The Chicago Fed July National Activity Index rose sharply in July, increasing to -0.74 in July from -1.82.

Even though the numbers still show contraction, the delta is impressive.

Meanwhile, in energy, crude oil is at a 10-month high on "green shoots" in the economy, and retail gasoline prices have remained basically unchanged, despite falls at the wholesale level.

The dollar was up slightly, largely in a holding pattern as traders wait for new consumer spending and housing data.


Post a Comment