Will U.S. Growth Slow in 2013?

Popular Economics Weekly

The naysayers are already at it. First Quarter GDP growth was 2.5 percent, slightly below forecasts. So many pundits are now saying it is a repeat of last year and the year before. An initial growth spurt started off those years, also, before a slowdown due to the U.S. Treasury debt downgrade by S&P and last year’s debt ceiling debate.

Now they say it’s sequester spending cuts and return of the payroll tax increase to its prior level that will suppress demand. Really? Real estate is beginning to recover, and job formation is still increasing. What does all that mean?

Graph: Calculated Risk

Friday’s unemployment report should tell us something about the future. Though just 88,000 payroll jobs were added in February when seasonally adjusted, the actual jobs increase was 729,000 before the seasonal adjustment. I therefore believe the seasonal adjustments were a bit draconian, as March is not usually a good hiring month, so the seasonal adjustment may be reduced—especially with the bad weather. Ergo, the February jobs numbers could be adjusted upward.

Home sales aren’t doing badly either. The NAR’s Pending Home Sale Index , a forward-looking indicator based on contract signings, rose 1.5 percent to 105.7 in March from a downwardly revised 104.1 in February, and is 7.0 percent above March 2012 when it was 98.8. Pending sales have been above year-ago levels for the past 23 months. (The data reflect contracts but not closings.)

Lawrence Yun , NAR chief economist, said the market appears to be leveling off. "Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply. Little movement is expected in near-term sales closings, but they should edge up modestly as the year progresses," he said. "Job additions and rising household wealth will continue to support housing demand."

Graph: Econoday

Household wealth, personal income, and spending also continue to increase, while inflation is declining. The Fed looks at Personal Consumption Expenditures (PCE), where overall prices have risen just 1 percent, annually. This is almost in deflation territory, which means the Fed will continue its QE3 purchases of Treasury bonds and mortgages. This is good for consumer spending, but signals less demand for consumer goods. Overall consumption spending is up 3.5 percent annually in March, a good number, vs. personal incomes that have been hovering around 2.5 percent.

The bottom line is that the loss of government payrolls and spending is bound to dent what otherwise would be a 3 percent GDP growth year. But it does look like real estate can take up some of the slack from those cut backs, as banks work off their backload of delinquent properties, the so-called “shadow inventory” of home held off the market.

Then we need to see state finances returning to health, but that is also dependent on a real estate recovery. Remember, much of the unemployment is happening in the states, where teachers, police and fire workers have been laid off en masse. So if real estate has a good year, the U.S. economy will continue to grow and maybe fool the naysayers.

Harlan Green © 2013

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The Iceland Experiment—A Lesson in Austerinomics

Popular Economics Weekly

Today’s parliamentary elections in Iceland will pose a difficult choice for Icelanders. Polls show conservatives have the lead—a so-called Center-Right coalition that was in power when Iceland’s own housing bubble burst and its kronar currency lost most of its value compared to the euro.

The resulting austerity measures required for an IMF rescue included capital controls still in place that has kept much of the money from Dutch and English investors in Iceland’s banks. But the devaluation of the kronar has also made its products much more competitive and resulted in 7 quarters of 2.5 percent plus GDP growth since Iceland’s emergence from its own Great Recession.

Graph: TradingEconomics

This is partly because in June 2010, the nation’s Supreme Court gave debtors a break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

Iceland’s recovery is based on the growth in exports, tourism and domestic consumption. Exports and tourism grew because its devalued kronar made its products and services cheaper, while domestic consumption grew because incomes weren’t diminished. In fact, its current problem is some 4 percent inflation, which is actually healthy, because it means Icelanders incomes are growing rather than shrinking as in euro zone countries.

We know now from both Iceland and Cyprus banking crises that Iceland’s choice not to join the euro zone was a wise one. Simply put, Icelanders haven’t lost their purchasing power, whereas Cypriots will be condemned to serial devaluations of their incomes that will result in serious suffering for years to come. The same can be said for Ireland, Portugal, and even Spain and Italy, because they remain in the euro zone.

Why? Because being in the euro zone means the only way they can restore competitiveness is to reduce the production cost of their products, which means cutting their wages and salaries, since they cannot devalue the euro.

The lesson is obvious for so-called austerinomics—or the policies of austerity in particular required by Germany and the Nordic countries for heavily indebted countries in the euro zone. Diminish the debt loads by both writing off or otherwise reducing the debt loads as Iceland has done, while stimulating more growth, particularly among consumers. The result is that Iceland’s sovereign debt rating has been restored to investment grade by Moody’s.

A well-known American Economics Professor Brad Delong has said it best:

“I had always thought that policy makers well understood the basic principle of macroeconomic management,” said Professor Delong. “This principle has gone out the window…The working majority in the U.S. Congress is taking its cues from the Saturday Night Live character "Theodoric of York, Medieval Barber". It believes that what the economic patient needs is another good bleeding of rigorous austerity, and that is putting further downward pressure on employment and production.”

The U.S. is still going through its own trial by fire, in other words. Conservatives here also insist on reducing debt by cutting government payrolls while reducing spending and that is eliminating literally millions of jobs from government and private payrolls that will only increase the debt load due to reduced revenues, and so reduce economic growth at a time when more growth than ever is needed.

Harlan Green © 2013

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California Foreclosures Plunging, Sales Rising

The Mortgage Corner

The number of California homeowners entering the foreclosure process plunged to the lowest level in more than seven years last quarter, reports DataQuick. The unusually sharp drop in the number of mortgage default notices filed by lenders stems mainly from rising home values, a strengthening economy and government efforts to reduce foreclosures, says DQ.

No wonder, as the median price paid for a California home last quarter was $297,000, up 22.7 percent from a year ago, according to DataQuick. During first-quarter 2013 lenders recorded 18,567 Notices of Default (NODs) on California houses and condos. That was down 51.4 percent from 38,212 during the prior three months, and down 67.0 percent from 56,258 in first-quarter 2012.

Graph: Econoday

Most of the loans going into default are still from the 2005-2007 period, per DQ. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than three years, indicating that weak underwriting standards peaked then. The most active creditors in the formal foreclosure process last quarter were Wells Fargo (5,546), JP Morgan Chase (3,863) and Bank of America (2,565).

And Calculated Risk’s Bill McBride has become very sanguine about real estate’s role in boosting economic growth. He maintains that new home sales will pick up due to unfilled demand, due to the big jump in household formation—to 1.3 million new households last year and the prediction this level will be maintained over the next decade. He sees the so-called existing-to-new home sales ratio trending back down to its historical average of 6 to 1 from its current heightened ratio, in this very interesting graph. It was the “flood’ of depressed sales from foreclosures that depressed new home sales because of the plunge in housing prices brought on by the foreclosures.

Graph: Econoday

According to the Census Bureau, there were 104 thousand new homes sold in Q1 2013, up about 19.5 percent from the 87 thousand sold in Q1 2012. That is a solid increase in sales, and this was the highest sales for Q1 since 2008, per Calculated Risk.

“Although there has been a large increase in the sales rate, sales are still near the lows for previous recessions” said McBride. “This suggests significant upside over the next few years.  Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years. Also housing is historically the best leading indicator for the economy, and this is one of the reasons I think The future's so bright, I gotta wear shades.”

Harlan Green © 2013

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Deflation and Our Plunging Deficit

Popular Economics Weekly

The federal budget deficit is shrinking rapidly, says Goldman Sachs Chief Economist Jan Hatzius. And that is not such a good thing at the moment, since the private sector isn’t spending enough. It means this very weak recovery will continue, with deflationary tendencies still in the air.  And we do not want even lower inflation right now, as it depresses both incomes and economic growth.

President Obama’s new budget proposal doesn’t really help, since he wants to cut entitlement spending, which takes money out of circulation when more money in circulation is needed.

Deflationary tendencies are showing up in the Producer Price Index for wholesale goods, which has been close to zero since the end of the Great Recession. The annual rate in March just dropped to 1.1 percent from 1.8 percent in February (seasonally adjusted). The core rate held steady at 1.7 percent.

 

Graph: Econoday

The federal budget deficit is a subject Hatzius has been following for some time....”[I]n the 12 months through March 2013, the deficit totaled $911 billion, or 5.7 percent of GDP,” he said in a research note. “In the first three months of calendar 2013--that is, since the increase in payroll and income tax rates took effect on January 1--we estimate that the deficit has averaged just 4.5 percent of GDP on a seasonally adjusted basis. This is less than half the peak annual deficit of 10.1 percent of GDP in fiscal 2009.”

So it’s not hard to understand what caused the March plunge in retail sales of 0.4 percent, versus the 1 percent increase in February. Some of it was due to bad weather and the payroll tax increases, but most was due to shrinking private and government spending.

Personal incomes are fluctuating wildly due to the payroll tax increases, so my take is, it ain’t the weather as some pundits are saying! Sure personal income rebounded 1.1 percent in February after a drop of 3.7 percent in January and a 2.6 percent jump in December, as we said last week. But it’s not enough to boost demand. Consumer spending just isn’t holding up, the main reason for government to keep spending.

Graph: Econoday

Personal spending jumped 0.7 percent after rising 0.4 percent in January. Strength was in nondurable goods, but that was mostly higher gasoline prices. Consumer outlays are up 3.3 percent annually, but if prices aren’t rising then that’s not enough to boost overall growth.

Government spending has already decreased 4 percent in the past 2 years, the largest amount since demobilization of the Korean War. For then important spending priorities can be met—such as infrastructure, research and development, as well as hiring back some of the 600,000 teachers let go because of state budget shortfalls.

What about the mounting debt? Rutgers Economic Historian James Livingston has an answer. Bring corporate taxes back to the levels during the Eisenhower era, when they were taxed at a 52 percent rate and made up some one-third of tax revenues, instead of the much less progressive payroll tax that burdens most of us. Corporate taxes now make up just 9 percent of revenues, according to Professor Livingston.

So where there’s the will there’s a way, as the saying goes. We know how to climb out of the debt trap. Lessen the burden of taxing personal incomes and increase it for corporations that have record-breaking profits and are hoarding some $4.25 trillion in cash, according to the St. Louis Federal Reserve. It is a case of some good history repeating itself, for a change.

Harlan Green © 2013

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Signs of Jobs Surge in 2013

Popular Economics Weekly

There are signs the jobs picture will be much improved in 2013, even thought the March unemployment report was disappointing.  The U.S. Bureau of Labor Statistics (BLS) reported in the just released Job Openings and Labor Turnover Survey (JOLTS), the number of job openings in February was 3.925 million, up sharply from January’s 3.611 million. This was the highest number of job openings since May 2008. The number of openings rose in health care and social assistance, accommodation and food services, and state and local government. Construction added 19,000 hires and manufacturing 9,000 for the month.

 

Graph: Calculated Risk

So-called ‘Quits’ were unchanged in February, but quits are up 7 percent year-over-year, the highest level since 2008. These are voluntary separations. (see light blue columns at bottom of graph for trend for "Quits") in the Calculated Risk graph. The rise in voluntary separations is another sign of an improving jobs market, as it means employees are increasingly able to find better job opportunities elsewhere.

The March unemployment report was worrying, because just 88,000 nonfarm payroll jobs were created, when seasonally adjusted. But more than 729,000 jobs were actually created before the seasonal adjustment, but because most of the increases were normal for this time of year, the BLS calculated just 88,000 were above normal.

However, January and February’s totals were revised upward by 61,000 and the unemployment rate fell to 7.6 percent, though mostly because some 496,000 stopped looking for work. So March could also be revised upward in coming months, as more state initial unemployment claims are reported.

Graph: Calculated Risk

Another sign of strength is personal income rebounded 1.1 percent in February after a drop of 3.7 percent in January and a 2.6 percent jump in December.    The wages & salaries component gained 0.6 percent after declining 0.6 percent in January.  Strength in February was in wages & salaries, dividend income and in a sharp reduction in the change in contributions for government social insurance (a negative for personal income).  Payroll taxes spiked in January but the rates held steady in February.  This was a fiscal cliff issue as was partially the dividend income.  Too a notable degree dividend income that would have been seen in January was accelerated to December to avoid higher taxes for some income brackets.

Graph: Econoday

Despite the increase in payroll taxes, consumer spending is holding up—and it is not just due to higher gasoline prices. Personal spending jumped 0.7 percent after rising 0.4 percent in January.  Strength was in nondurable goods, reflecting higher gasoline prices.  Still, real spending was up 0.3 percent, matching the January pace.  Consumer outlays are relatively strong and point to a healthy Q1 GDP number.

There are many other signs of a growing U.S. economy in both the manufacturing and service sectors. But the most heartening signs are in real estate where new-home construction is growing strongly and housing prices surging. Construction outlays rebounded 1.2 percent in February after dropping 2.1 percent in January. Private residential construction jumped 2.2 percent after slipping 0.1 percent the month before.

New one-family component was particularly strong, gaining 4.3 percent, following a 3.6 percent boost in January. The new multifamily component fell back 2.2 percent but followed a robust 6.1 percent jump the prior month. Public construction gained 0.9 percent, following a 0.2 percent rise in January. On a year-ago basis, overall construction was up 7.9 percent in February compared to 6.1 percent in January.

And this is boosting construction employment, which is now up some 161,000 since last fall, as well as the so-called ‘wealth effect’ on household spending. As households feel wealthier, they tend to spend more. We therefore see a much improved employment picture for 2013. There are still doubters, as the sequester spending cuts have only begun to take effect. But the U.S. is now the engine of growth with Europe suffering from its austerity woes, and Asia in slower growth mode. Thursday’s upcoming retail sales report, which makes up some half of all consumer spending, should confirm or deny whether consumers are feeling wealthier.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Saving Fannie and Freddie Mac

The Mortgage Corner

Fannie Mae (FNMA), or Federal National Mortgage Association, reported a record profit for 2012, a good reason to save the mortgage giant from dissolution, as the banking industry in particular has lobbied for. The government-sponsored enterprise had net income of $17.2 billion for 2012, outpacing profits at S&P 500 companies such as Wal-Mart Stores Inc. (WMT), General Electric Co. and Berkshire Hathaway Inc. (BRK/A).

Fannie Mae’s net income for 2012 compared with a loss of $16.9 billion in 2011, the company said in a statement. Profits totaled $7.6 billion for the three months ended Dec. 31 after accounting for a $4.2 billion dividend payment to the Treasury Department for the government’s stake. So it can begin to payoff the $188 billion borrowed from the U.S. Treasury to keep the mortgage industry—and so housing—afloat.

There is another reason to save Fannie Mae and Freddie Mac from complete dissolution. Their underwriting standards are the highest and have resulted in the lowest default rates of all mortgages. Fannie Mae reported that the Single-Family Serious Delinquency rate declined in February to 3.13 percent from 3.18 percent in January. The serious delinquency rate is down from 3.82 percent in February 2012, and this is the lowest level since February 2009. Its serious delinquency rate peaked in February 2010 at 5.59 percent.

Graph: Calculated Risk

Fannie Mae serious delinquencies averaged below 1 percent until 2008, the beginning of the housing bubble bust. Whereas the average delinquency rate for all Private Label Mortgages today is 6.8 percent, as many of them are the so-called liar loans that didn’t require either income for asset verification.

Earlier Freddie Mac (FHLMC), or Federal Home Loan Mortgage Corporation, the other GSE under government conservatorship, reported that the Single-Family serious delinquency rate declined in February to 3.15 percent from 3.20 percent in January. Freddie's rate is down from 3.57 percent in February 2012, and this is the lowest level since July 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20 percent.

Banks have been lobbying for years to either downsize or abolish the government-owned GSEs, as we said. But that would be throwing out the baby with the bathwater. For it was subprime lending that created the housing bubble with it minimal or nonexistent qualifying criteria, such as the ‘stated income’, or ‘no income’ verification requirements of so-called Option ARMs that allowed minimal payments for the first 4 years, before payments rose enough to begin to pay down principal balance.

Their argument has been that Fannie and Freddie are taking business away from private banking. They have claimed that the “implicit” government guarantee against default of the GSEs has given them a profit edge. But without Fannie and Freddie, there would be no viable housing market. We know this because of what banks did in the 1980s, when Fed Chairman Paul Volcker raised interest rates into double digits.

Banks then withdrew almost completely from mortgage lending, so the GSEs stepped in by creating a secondary market that packaged and sold mortgages to investors—either to Wall Street, or Main Street pension funds. That enabled the real estate industry to recover from the 1981 and 1983 Reagan recessions.

So the banking industry has been very fickle when it comes to mortgage lending. In fact, the subprime fiasco resulted from overleveraged banks taking advantage of soaring housing prices at the same time that financial markets were deregulating. Banks created the so-called shadow banking system outside of any regulatory oversight, which is responsible for much of the shadow housing inventory still on their books—an estimated 5 million homes either delinquent or with negative equity in their homes in danger of foreclosure.

There is in fact good reason for banks to lend again with interest rates still at record lows and housing prices beginning to rise again. A mortgage banking industry has grown around the secondary market, and as long as banks will adhere to the same gold standard underwriting as Fannie and Freddie, there is no reason they shouldn’t be generating record profits, as well.

Harlan Green © 2013

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David Stockman’s Crony Capitalism

Popular Economics Weekly

Paul Krugman is being too gentle with David Stockman, whose recent New York Times ‘rant’ glorifies the gold standard and denigrates government for standing in the way of putting “free markets and genuine wealth creation back into capitalism”.

“…like so many in his camp, Mr. Stockman misunderstands the meaning of rising debt,” writes Krugman. “Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.”

In fact, Stockman would return us to an earlier era of crony capitalism, before any form of financial regulation, such as by the Federal Reserve. The result then as now is huge income and wealth inequalities that have been the main cause of the Great Depression and major recessions—the last five just since 1980 during administrations that advocated deregulation and a similar opposition to financial regulation.

And then as now, there is an answer to the Oligarchies that ruled Big Business, as corporate monopolies have again concentrated their power today. President Obama gave a speech in Osawatomie, Kansas on December 6, 2011 about that earlier era. Osawatomie was the small town where Teddy Roosevelt gave his now famous “New Nationalism” speech in 1910 that called upon the three branches of the federal government to put the public welfare before the interests of money and property, because we were at a similar historical juncture. Corporate interests again control 2 branches of government—Congress and the Supreme Court—as they had in the early 1900s.

“At the turn of the last century, when a nation of farmers was transitioning to become the world's industrial giant, we had to decide,” said Obama. “Would we settle for a country where most of the new railroads and factories were being controlled by a few giant monopolies that kept prices high and wages low?... Because there were people who thought massive inequality and exploitation of people was just the price you pay for progress.”

Greater equality of opportunity is what economists such as Nobel Laureate Joseph Stiglitz are calling for today, in renewing the cry that we are all in this together. “There are four major reasons inequality is squelching our recovery,” says Stiglitz. “The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996.”

Yet greater economic opportunity is more than a moral issue of what is fair, or even the core American value of everyone’s right to the pursuit of happiness. It can be inevitable if modern technology is allowed to fulfill its promise for all, rather than have it benefits be monopolized by the few.

For in an era where technology is replacing workers making the necessities of life at an ever accelerating rate, more Americans will have more leisure time to pursue their own interests. And more importantly, the ever increasing productivity of those technologies can lift all boats—that is, provide more necessities, as well as amenities to improve lives—rather than go only to the profit makers.

In giving his Kansas plea for a new nationalism of the common good, President Obama was going back to a time when Robber Barons ruled, having made enormous wealth from the founding of the railroads, banks, oil and steel industries in the 19^th century.

It was the beginning of the Industrial Revolution, when most of America was rural and Oligarchs ruled government and business. Sound familiar? That has happened once again with the enormous fortunes created via deregulation and the digital revolution. And once again the majority of American households are suffering from the excesses of this modern revolution that has outdistanced the safeguards that were established to protect householders from those excesses.

“The American people are right in demanding that new Nationalism without which we cannot hope to deal with new problems,” said Roosevelt. “The new Nationalism puts the National need before sectional or personal advantage. It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock. This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative.”

Actually, much of the Great Recession and slow recovery is due to widespread ignorance of economic fundamentals that depend on the public’s welfare. For no economy can prosper if educational and environmental standards are ignored, which enable social mobility and good health. It is also an ignorance of what is in our national interest. Raising educational and environmental standards, restoring our aging infrastructure, and creating a truly universal health care system make us more competitive globally.

Don’t take my word for it. Lord John Maynard Keynes saw the consequences of increasing abundance in his 1930 essay, Economic Possibilities for our Grandchildren: “Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”

And we are beginning to see that abundance, as well as the means to share it more fully, if the Stockman’s of the world would stop glorifying self-interested behavior. Professor Robert Shiller discusses how this can happen in his recent book, “The New Financial Order, Risk in the 21^st Century”, in which he lays out what our new information technologies will be able to do, just as the Industrial Revolution ultimately benefited most Americans.

“Right now we are witnessing an explosion of new information systems, payments systems, electronic markets, online personal financial planners, and other technologically induced economic innovations, and consequently much in our economy will be changed within just a few years. Almost all of our economy will be transformed within just a few decades. This new technology can do cheaply what once was expensive by systematizing our approach to risk management and by generating vast new repositories of information that make it possible for us to disperse risk and contain hazard.”

It will do all this by leveling the playing field in order to create a greater transparency of markets, as financial information in particular will be available to all. Therefore much of the risk in one’s profession, or housing value, or even health, will be able to be insured against unexpected events, such as recessions, or loss of career, or debilitating illnesses because of the new information technologies.

That is the real revolution happening today. Who will benefit from such modern information technologies--the few or the many? Because it will become more difficult for those who profit from such ignorance to accumulate excessive power. Stockman is wrong in believing we should turn back the clock. Or, as Teddy Roosevelt knew, we will continue to repeat past history.

Harlan Green © 2013

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Higher Home Prices Driving Construction

The Mortgage Corner

CoreLogic just reported home prices nationwide, including distressed sales, increased 10.2 percent on a year-over-year basis in February 2013 over February 2012. And it is boosting construction, as for sale inventories are barely increasing in the new selling season. This price change represents the biggest year-over-year increase since March 2006 and the 12th consecutive monthly increase in home prices nationally.

Graph: Calculated Risk

“The rebound in prices is heavily driven by western states. Eight of the top ten highest appreciating large markets are in California, with Phoenix and Las Vegas rounding out the list,” said Dr. Mark Fleming, chief economist for CoreLogic.

And the Department of Commerce U.S. Census Bureau announced that construction spending during February 2013 rose 1.2 percent above the revised January estimate of $874.8 billion, and is 7.9 percent above the February 2012 estimate of $820.7 billion.

Graph: Calculated Risk

This is huge, and will boost employment and Gross Domestic Product growth. Though private residential spending is 55 percent below the peak in early 2006 at the height of the housing bubble, it is up 36 percent from the post-bubble low. Non-residential spending is 25 percent below the peak in January 2008, and up about 37 percent from the recent low, said Calculated Risk.

Meanwhile housing inventories have increased 6.5 percent through April 1 (red line in graph), reports Department of Numbers, a housing tracking service, though not enough to prevent housing prices from soaring. For 2011 and 2012, inventory only increased about 5 percent at the peak and then declined for the remainder of the year.

Graph: Calculated Risk

Let us hope this continues as the so-called shadow inventory of homes in default continue to shrink, thus increasing the housing supply available for sale. According to Lender Processing Services (LPS), the inventory of homes in default decreased in February compared to January and declined about 6.5 percent year-over-year. Also the percent of loans in the foreclosure process declined further in February and were down significantly over the last year.

LPS also reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80 percent from 7.03 percent in January. Note: the normal rate for delinquencies is around 4.5 to 5 percent, as we’ve said in past columns.

Construction employment is coming back, in other words. The construction industry employed some 7.5 million workers in 2006, whereas it is now 5.8 million, according to the Associated General Contractors of America. So we know it will contribute significantly to the 3 million shortfall in payroll jobs still to be made up this year and next to bring us back to normal employment levels as housing and the real estate market in general continue to recover.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen