Interest Rate Roundup

Wednesday, December 23, 2009

New home sales tank 11.3% in November

The new home sales figures for November were released this morning. They weren't pretty -- but I'll explain why I'm not all that concerned in a moment. First, the data ...

* Sales tanked 11.3% to a seasonally adjusted annual rate of 355,000 in November from 390,000 in October. That was well below the average forecast of 438,000 units. Sales fell in three out of four regions -- by 3.3% in the Northeast, 9.2% in the West and 21.1% in the South. They rose 21.4% in the Midwest.

* There were just 235,000 new homes on the market last month. That was down from 240,000 a month prior and the lowest since April 1971. On a months supply at current sales pace basis, inventory rose to 7.9 from 7.2.

* The median price of a new home dropped 1.9% to $217,400 from $221,600 a year earlier.

The new home sales figures didn't bring any similes to Wall Street's face this holiday season. November sales fell much more than expected, hitting the lowest level in seven months. Still, I'm not all that surprised. Some giveback was to be expected given the feared expiration of the tax credit and the pull-forward of some demand. Now that the credit has been extended and expanded, and the economy has improved a bit more, I suspect sales going forward will find support.

Another positive: The supply of new homes for sale continues to fall. We now have fewer new homes on the market than at any time in more than 38 years. There's still plenty of competition from "used" homes, especially distressed property. But even that overhang is gradually coming down. Plus, housing affordability is running at the highest in many years thanks to the price declines we've seen. That should ensure the gradual, anemic recovery in housing will continue into 2010.

Tuesday, December 22, 2009

Existing home sales surge 7.4% in November

The latest existing home sales figures hit the tape today. Here's what they showed:

* Existing home sales jumped 7.4% to a seasonally adjusted annual rate of 6.54 million in November. That was up from 6.09 million a month earlier and well above forecasts for a reading of 6.25 million.

* Regionally, sales were strong across the board. They rose 4.8% in the South, 6.6% in the Northeast, 8.4% in the Midwest, and 10.6% in the West. By property type, single family sales surged 8.5%, while condo and coop sales were flat on the month.

* The raw number of homes for sale slipped to 3.518 million from 3.565 million in October. That was down 15.5% from a year earlier. The months supply at current sales pace indicator of inventory dropped to 6.5 from 7. That's the lowest since December 2006. Median prices were roughly unchanged -- $172,600 in November vs. $172,200 in October. That was a decline of 4.3% from a year earlier.

Santa delivered more good news for the housing market today. November home sales easily topped estimates, with strength evident in all regions of the country. Moreover, the inventory of homes for sale continues to dwindle. That shows that distressed properties are being snapped up by investors and single-family buyers, an encouraging sign.

In the big picture, I've been saying for a long time that falling home prices would eventually "fix" the housing crisis. We needed to see prices fall to make ownership competitive with renting again, and to restore the normal relationship of house prices to income. That has now happened, and you're seeing buyers come out of the woodwork as a result. The home buyer tax credit and the Fed's meddling in the mortgage market are also helping the process along.

In short, my call in the spring that the housing market was bottoming out appears right on target. We have since seen sales rise, inventories decline, and construction activity stabilize. Look for pricing to follow later in 2010.

Wednesday, December 16, 2009

Fed keeps rates stable, reiterates pledge to end some programs, and upgrades its economic outlook

The Federal Open Market Committee just concluded its policy meeting. As expected, interest rates were left unchanged in a range of 0% to 0.25%. The Fed reiterated that several special support programs for commercial paper, primary dealers, and other constituencies will end on February 1, 2010. The Fed will continue to buy mortgage backed securities and agency debt through at least Q1 2010, however. And it kept its pledge to keep rates "exceptionally low" for an "extended period" of time, despite generally upgrading its view of the economy's performance. The full FOMC statement can be found here.

Housing starts jump 8.9% in November

Housing starts and permits data for November were released this morning. Here's a recap of the numbers:

* Overall housing starts rose 8.9% to a seasonally adjusted annual rate of 574,000 in November from 527,000 in October. That was exactly in line with the forecast of economists. Permitting activity gained 6% to 584,000 from 551,000. That was a bit better than the 570,000 figure economists were expecting.

* By property type, single family starts gained 2.1% while multifamily starts soared 67.3%. How's that for volatility? Permitting activity was up 5.3% in the single-family market and 8.8% in the multifamily.

* The regional breakdown was positive across the board. Starts rose 1.9% in the West, 3% in the Midwest, 12.3% in the South, and 16.4% in the Northeast. Permits were up in three out of four regions -- by 2.7% in the West, 4.7% in the Northeast, and 10.7% in the South. They slipped 1.9% in the Midwest.

Another month, another sign of a bottom in construction activity. That's my read on the latest stats. We got positive news across the board, with starts and permitting activity increasing in both the single-family and multifamily markets. Strength was geographically broad-based as well, with healthy growth in the South region, the largest U.S. market for home building.

At the same time, you'd be hard-pressed to describe the improvement as dramatic. Unlike the "V"-shaped recoveries we've seen after previous housing busts, this one is much more anemic. Why? Even though builders are running with very lean inventories, they don't need to ramp production up aggressively. For one thing, demand remains relatively weak despite very low mortgage rates. For another, so much foreclosed and distressed inventory is hitting the market that it makes it tough for builders to compete. Tighter financing conditions are an important headwind, too. Even those builders who want to build more homes, townhomes, and apartment complexes are having a difficult time getting the money to do so.

Bottom line: The "three steps forward, two steps back" recovery in housing remains on track. But it remains a weak one.

Tuesday, December 15, 2009

NAHB index falls in December

The National Association of Home Builders released its latest builder sentiment index this afternoon. A look at the numbers follows:

* The overall index registered 16 in December. That was down from November's reading of 17 and below the 18 that economists were expecting.

* Among the sub-indices, the one measuring present single family sales slipped to 16 from 17. The prospective buyer traffic sub-index held steady at 13, while the sub-index measuring expectations about future sales fell to 26 from 28.

* Regionally speaking, we had a mixed bag again. The Northeast index rose to 23 from 20, while the West index climbed to 19 from 18. The Midwest index dropped to 12 from 14, while the South index held at 17.

It looks like the housing industry got a lump of coal in its stocking this year. The NAHB's index of builder sentiment slipped to its lowest level since June, with both current sales and expectations about future sales declining. Buyer traffic held steady. But it's still only a few points above the all-time low set in late 2008.

These figures underscore the gradual, tentative nature of the housing recovery. Elevated unemployment, tighter credit standards, and shaky buyer confidence are offsetting near-record affordability and low mortgage rates. The result is somewhat of a "push" -- with the housing market neither plunging to new lows nor experiencing a "V"-shaped recovery typical of what we've seen in past housing cycles.

Thursday, December 10, 2009

30-year auction bombs; 2/30 spread hits record high

Readers, you should be aware that the 30-year Treasury Bond auction today stunk up the joint. $13 billion in 30s were auctioned off at yield of 4.52%, 4 basis points worse than pre-auction talk.

Despite the recent rise in yields, demand was relatively punk, too — with indirect bidding falling to 40.2% from 44% in the prior month’s auction. The bid-to-cover ratio was up slightly to 2.45 (meaning there were $2.45 in bids for every $1 in bonds being offered). But that’s still low given the recent cheapening of the bond. Rick Santelli on CNBC gives this auction an “F+” I agree.

The key message from the bond market: Investors will buy short-term Treasuries six ways ’til Sunday. But amid record and rising debt issuance, Fed monetization of U.S. debt, and rising inflation fears, buyers just are NOT all that willing to lend Uncle Sam money at these yields for the long term. Indeed, the yield difference between 2-year and 30-year Treasuries blew out on the news to 372 basis points. That is the highest in the history of the Bloomberg data I have, which goes back to December 1980.

Friday, December 04, 2009

November jobs report a big UPSIDE surprise

It's been a long time since we've had encouraging news on the jobs front. But boy did we get it this morning. The details:

* Employment fell by a paltry 11,000 in the month of November. That was much better than the expectation for a drop of 125,000. October's -190k reading was also revised up to only -111k, while September's -219k reading was bumped up to -139k.

* The unemployment rate actually FELL to 10% from 10.2%. That was better than the 10.2% forecast. The household employment survey, which is different from the business survey that gives you the headline jobs figure, actually showed a net GAIN of 227,000 jobs. We haven't seen a positive reading since April 2009 (+120,000) and a reading this strong since April 2008 (+234,000).

* Average hourly earnings were the weak link in the chain. They gained just 0.1%. That was down from 0.3% a month earlier and below forecasts for a reading of 0.2%. However, average weekly hours picked up to 33.2 from 33. That's the best reading we've seen since February.

* By industry, we saw a decent pop in service jobs (+58,000). The temporary help category has now shown three straight gains, including a sizable boost of 86,000 jobs. Education and health care has produced "Steady Eddie" gains (+40,000 in November). The weakness was in categories like construction (-27,000), manufacturing (-41,000), and retail trade (-15,000).

Wednesday, December 02, 2009

Beige Book shows broad economic stability. Nothing more. Nothing less.

The latest Beige Book report on the state of the economy was just released by the Fed. The summary suggests we're seeing more stability and/or gradual improvement in the economy:

"Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Eight Districts indicated some pickup in activity or improvement in conditions, while the remaining four--Philadelphia, Cleveland, Richmond, and Atlanta--reported that conditions were little changed and/or mixed."

On housing, the report confirms my prediction months ago that the market was slowly but surely finding its footing. But the outlook for commercial real estate remains pretty awful. A brief excerpt:

"Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity. Commercial real estate markets and construction activity were depicted as very weak and, in many cases, deteriorating."

Other nuggets of information: Retail sales have a better tenor. The job market still stinks, but is not getting worse. Lean inventories will likely need to be rebuilt. Lending conditions remain tight, while demand for new credit is anemic.

All in all, it's a "blah" report -- not so hot, not so cold.

Tuesday, December 01, 2009

Pending home sales rise again in October

The National Association of Realtors just released data on pending home sales for October. A recap:

* Pending home sales rose 3.7%. That was much better than the 1% decline that economists were expecting.

* On a year-over-year basis, the pending sales index soared 31.8% to 114.1 from 86.6. That is the biggest annual increase on record and it leaves the index at a 43-month high.

* Regionally, sales climbed in three out of four regions. Sales rose 5.4% in the South, 11.6% in the Midwest and 19.9% in the Northeast. They fell 11.2% in the West.

The housing market continues to show signs of recovery. Pending sales easily topped estimates, with the index hitting its highest level since the waning days of the bubble in 2006. Also encouraging was the broad-based regional strength and the fact that sales held up despite the tax credit uncertainty pervading the market in October.

Moreover, there are reasons to expect the improvement to persist. Mortgage rates are falling again. Housing affordability is rising. And government support for the market looks like it'll continue until the proverbial cows come home. We can argue about the morality or wastefulness of those efforts until we're blue in the face. But the results are clear: They're helping to accelerate the recovery.

By the way, that recovery would have happened anyway because of falling home prices. Price declines are restoring affordability to a market that had gone mad. Or in simple terms: Falling home prices were never the problem here. They were always part of the solution.

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