Friday, February 26, 2010
Consumers, They Spoil All Our Brilliant Plans
I went back and looked at pendings for December again. It was marginally above the 2009 pace, so this is a surprise.
What leaps out and grabs you by the throat in the existing home sales report is that the SA annualized number for January was below the 2009 number. Sales improved substantially through 2009, and were somewhat boosted by the tax credit. January's drop is before any signficant disturbances in the mortgage market (substantial tightening, rates) and before the expiration of the tax credit. Except in the west, which eked out a month-over-month fall but a gain over 2009's pace, sales in every region were below the 2009 pace:
NationalNeedless to say, this raises questions about the carrying wave through the economy. The peak months in 2009 were Oct/Nov (nationally, 5,980,000 and 6,490,000), but that was partially the effect of buyers rushing for the tax credit and of course that generated a fall in sales afterwards. So a comparison to the overall 2009 pace is probably more valid, but if we miss it for another month a lot of eyebrows are going to be rising. Note particularly the south; weather may have been a factor for the east and midwest, but this is peak time for many active southern markets, and weather wasn't a factor there.
2009 pace: 5,156,000
January 10: 5,050,000
2009 pace: 868,000
January 10: 820,000
2009 pace: 1,163,000
January 10: 1,080,000
2009 pace: 1,914,000
January 10: 1,870,000
2009 pace: 1,211,000
January 10: 1,280,000
Chicago PMI was good, although the pace of the improvement tailed off considerably. Production dropped a bit, but inventories tightened somewhat. There is a bifurcating pattern showing both increased improvement and increased drops, so Chicago PMI was extremely consistent with the idea that the inventory cycle is reaching a natural end. Prices paid were trending upwards.
The picture presented by the data of the last week is still some carrying impetus forward, but a waning of the inventory effect, and considerable weakness in consumer spending and weakness in reasonable expectations for consumer spending.
The newer generations of mortgages are still too loose and will generate a lot of losses, so I am expecting effective tightening in mortgages this year. That would affect sales adversely, so it is worrisome to be starting at this level. On the other hand, these numbers do make a lot of sense when one looks at consumer surveys; people who are pretty negative about the current economy and who are somewhat pessimistic about the future are not likely to buy a house. We may just have reached the phase where those who are more secure have mostly purchased. I always expected turnover to be good in large portions of the west, because the average homeownership rate there is far lower than the national rate.
PS: The takeaway from the GDP update was that PCE gains were revised down to 1.7% on Q4. See CR - when he talks about the two leading categories being revised down, he is referring to what I call the carrying wave.
You mean it was unexpected?
I wonder if total home sales can be correlated with job creation? People moving around to take new jobs...
Prior to this, total Fannie bailouts from the Fed were $59.9 and total losses over the last 9 quarters were over $129 billion. The good news is the share price 99 cents.
Isn't it strange they waited until 5PM on a Friday to announce all this?
It was unexpected to me! I thought it would be down, but not this far down. At this point I think we are seeing a confidence-related downturn.
Chicago-area has a lot of links to farming, autos, farm equipment, stuff like that. It's basic stuff. You would expect that to show any increase in base economy.
Just to put this in perspective, TOTAL fiscal year corporate tax receipts reported from the Treasury Daily Statement for the last fiscal year (through Sept 30th, 2009) were 224.7 billion. Granted, it was a poor year, but the fact remains that we are subsidizing this with real money. I don't think corporations can stand a 17% tax increase to pay for bad government loans, do you?
That leaves you and me....
Of course Congress also slipped in the tax loss carryback in the last unemployment extension. And then there was the Citibank deal.
We are shoveling money out the door like there's no tomorrow. If we keep it up, one day there won't be.
My neighbor who purchased back in 2008 and got a deal at 385K (they were 550k) now discovers that his house is maybe worth tops at 325K and probably would sell around 295K per the local realtor that works this area, he was shocked and rocked! Basically everyone that purchased here since 2007 is upside down. Noticed a story in the local paper that a elementary school in Santa Rosa was to be shut due to budget cuts and LOWER enrollment looks like the boomtowns of Sonoma county have peaked.
I think the same is true for many parts of the country, though. I expect home values to be declining for years across more than 50% of the country. Home values really relate to income through ability to pay, and now we are hit by declining incomes plus higher local taxes and fees, which cut into borrowers' ability to pay mortgages.
Once higher mortgage rates come back, there will be an additional national effect.