Paper Economy
This graph shows the seasonally adjusted national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005. (SoldAtTheTop)
Home sales up slightly in September
Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for September showing that pending home sales improved slightly with the seasonally adjusted national index climbing 0.3% since August while increasing 14.5% above the level seen in September 2011.
Meanwhile, the NARs chief economist Lawrence Yun suggests that while recent pending sales activity has been bouncing around the old familiar "narrow range", 2013 should bring a continuation to the overall uptrend:
"Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range, ... This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013."
This graph shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006. (SoldAtTheTop)
The effect of QE3 on mortgages
The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.
The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.
The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) went increased 6 basis points to 3.52% since last week while the purchase application volume declined 8% and the refinance application volume declined 13% over the same period.
Clearly, the Federal Reserve's QE3 announcement and implementation has had a notable effect on mortgage rates in recent weeks continuing to lift refinance application activity and possibly helping to establish a base of sorts to purchase applications.
The question is though, if the Fed is stimulating this activity by forcing artificially low rates, what would these trends look like if prevailing rates were based on a more fundamental market function?
This graph shows new single family home sales since 2004. Last month, sales rose 27.1 percent above the level seen a year ago. (SoldAtTheTop)
New home sales climb 5.7 percent in September
Today, the U.S. Census Department released its monthly New Residential Home Sales Report for September showing a notable monthly improvement with sales climbing 5.7% since August and rising 27.1% above the level seen in September 2011 though remaining at an historically low level of 389K SAAR units.
RELATED: 10 best cities to buy short sale homes
It's important to recognize that the inventory of new homes appears to now be bouncing around a very low 145K units, near the lowest level seen in in at least 47 years while the median number of months for sale has improved to 6.5.
The monthly supply declined to 4.5 months while the median selling price increased 11.71% and the average selling price increased 14.49% from the year ago level.
This graph tracks the Federal Reserve Bank of St. Louis' weekly stress index since 1999. (SoldAtTheTop)
Financial stress remains high in October
The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.
As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants.
Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.
The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).
The latest results of the STLFSI indicate that the level of financial stress remains elevated with October's results at -.20, a level roughly equivalent to the immediate recovery period following the tech-wreck.
This chart shows national existing single family home sales since 2005. (SoldAtTheTop)
Home sales fall 1.7 percent in September
Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for September showing a decline in sales with total home sales falling 1.7% since August but still rising 11% above the level seen in September 2011.
Single family home sales also declined dropping 1.9% from August but still rising 10.8% above the level seen in September 2011 while the median selling price declined slightly on the month but increased 11.4% above the level seen a year earlier.
Inventory of single family homes declined 4.2% from August dropping 18.1% below the level seen in September 2011 which, along with the sales pace, resulted in a fairly balanced monthly supply of 5.8 months.
This graph tracks total continued unemployment claims since 2010. (SoldAtTheTop)
Jobless claims jump by 46,000
Today’s jobless claims report indicated a notable increase in initial jobless claims and a decline in continued unemployment claims as seasonally adjusted initial claims trended just below the closely watched 400K level.
Seasonally adjusted “initial” unemployment claims jumped by a notable 46,000 to 388,000 claims from a revised 342,000 claims for the prior week while seasonally adjusted “continued” claims dropped to 3.252 million resulting in an “insured” unemployment rate of 2.5%.
Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.
Currently there are some 2.13 million people receiving federal “extended” unemployment benefits.
Taken together with the latest 2.78 million people that are currently counted as receiving traditional continued unemployment benefits, there are 4.91 million people on state and federal unemployment rolls.
This graph tracks single family housing construction permits since 2001. Last month, single family housing construction permits jumped 27.3 percent above last year's level. (SoldAtTheTop)
Construction up in September
Today’s New Residential Construction Report showed notable gains in September with single family permits increasing significantly from August while starts also increased over the same period.
Single family housing permits, the most leading of indicators, jumped 6.7% from August to 545K single family units (SAAR), and increased 27.3% above the level seen in September 2011 but still remained an astonishing 69.7% below the peak in September 2005.
Single family housing starts increased 11% from August to 603K units (SAAR), and climbed 42.9% above the level seen in September 2011 but still remained 66.9% below the peak set in early 2006.
This graph tracks the Housing Market Index over the past decade. While all indicators have made truly spectacular improvements this year, it's important to note that conditions still remain fairly distressed by historic standards, according to SoldAtTheTop. (SoldAtTheTop)
Home builder ratings rise in October
Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing continued improvement in October with the composite HMI index rising to 41 while the "buyer traffic" index climbed to 35, a level not seen since April 2006.
While all indicators have made truly spectacular improvements this year, it's important to note that conditions still remain fairly distressed by historic standards.
Although, looking at the data, it is fairly clear that the last few months of results indicate a major change in builder sentiment likely coming as a result of improvements in confidence given the notable rise in buyer traffic, reduced inventory and a more balanced monthly supply.
This graph shows industrial production since 2006, according to the Federal Reserve. (SoldAtTheTop)
Industrial production up in September
Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing an improvement in September with total industrial production increasing 0.41% since August and rising 2.81% above the level seen in September 2011.
Capacity utilization also increased rising 0.27% from August and climbing 1.37% above the level seen in September of 2011 to stand at 78.26%
It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.
This chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000. (SoldAtTheTop)
Retail sales rise in September
Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 1.1% from August and an increase of 5.4% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.
Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales also increased 1.1% from August climbing 3.31% above the level seen in September 2011 while, adjusting for inflation, “real” discretionary retail sales increased 1.86% over the same period.
On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.
The chart above shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.
As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.
The “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.
Previous
Become part of the Monitor community