Friday, April 21, 2017

Low Inflation Boosts Housing Sales

Financial FAQs

Existing-home sales are now accelerating to new expansion highs, says the NAR. Sales rose a very sharp 4.4 percent to a higher-than-expected annualized rate of 5.710 million. This is the best rate since February 2007. Both components show strength with single-family sales up 4.3 percent to a 5.080 million rate and condo sales up 5.0 percent to a 630,000 rate. And year-on-year sales are moving higher, up 5.9 percent divided between 6.1 percent for single-family homes and 5.0 percent for condos.

Graph: Econoday
Lawrence Yun, NAR chief economist, says existing sales roared back in March and were led by hefty gains in the Northeast and Midwest. "The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month," he said.
"Although finding available properties to buy continues to be a strenuous task for many buyers, there was enough of a monthly increase in listings in March for sales to muster a strong gain. Sales will go up as long as inventory does."
Why the great interest rates? It’s mainly because there is still very little inflation, and the bond market that determines mortgage rates likes low inflation. A March contraction of the CPI led to sizable slowing in year-on-year rates. The total rate is 2.4 percent, down 3 tenths from February and sliding back to the Fed's 2 percent target. The core rate, which excludes food & energy, is down 2 tenths and is right at the target line. Energy comparisons are very easy right now given low prices this time last year. This makes the decline in the core a special concern.

Graph: Econoday

The median existing-home price for all housing types in March was $236,400, up 6.8 percent from March 2016 ($221,400). March's price increase marks the 61st consecutive month of year-over-year gains.

And total housing inventory at the end of March increased 5.8 percent to 1.83 million existing homes available for sale, but is still 6.6 percent lower than a year ago (1.96 million) and has fallen year-over-year for 22 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (unchanged from February), signaling a very high demand that is outstripping new-home construction, stuck at 1.22 million annual units.

The conforming 30-year fixed rate mortgage is now 3.50 percent and the so-called Hi-Balance conforming 30-year fixed rate is 3.75 percent these days for a 1 percent origination fee. This is what has kept the demand for housing on a tear, in spite of low inventories and tepid economic growth, as I said yesterday.

Harlan Green © 2017

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Thursday, April 20, 2017

Record Low Interest Rates Boost Housing

The Mortgage Corner

The conforming 30-year fixed rate mortgage is now 3.50 percent and the so-called Hi-Balance conforming 30-year fixed rate is 3.75 percent for a 1 percent origination fee in California. And this is what has kept the demand for housing on a tear, in spite of tepid economic growth, with GDP growth still stuck at 2 percent per the Philly Fed Index seen below.

Why? It’s mainly because there is still very little inflation, and the bond market that determines mortgage rates likes low inflation. The low inflation rate may be because there’s still doubt on what growth-inducing legislation may ever get through a weak President and Congress stuck in ideological warfare. So we could see builders’ record profits continue for the rest of this year, and maybe more affordable housing.

Both new-home construction and builder optimism are at post-recession highs, but with normal seasonal fluctuations (such as mid-March Northeast blizzard), says the National Association of Home Builders (NAHB).

Following an elevated February reading, nationwide housing starts fell 6.8 percent in March to a seasonally adjusted annual rate of 1.22 million units, according to the U.S. HUD and the Commerce Department. Still, new housing production in the first quarter of this year is running 8.1 percent above the pace in 2016, reports the NAHB.

This is why builder confidence in the market for newly-built single-family homes remained solid in April, falling three points to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after an unusually high March reading, said the NAHB.
”The fact that current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” said NAHB Chief Economist Robert Dietz. “However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices." 
The building industry is doing its share to boost growth as it continues to add jobs, with monthly employment data for February showing that home builder and remodeler employment increased by 18,900. Over the last 12 months, home builders and remodelers have added 136,000 jobs on a net basis and residential construction employment now stands at 2.707 million.

And where is US manufacturing activity these days? It’s still increasing in most states. The Philadelphia Federal Reserve has released the coincident indexes for the 50 states for February 2017. Over the past three months, the indexes increased in 47 states (green states), decreased in two, and remained stable in one (Michigan), for a three-month diffusion index of 90. In the past month, the indexes increased in 44 states, decreased in four, and remained stable in two, for a one-month diffusion index of 80.
“Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now,” says Calculated Risk’s Bill McBride.
So, economic growth continues into the eighth year of this business cycle. And housing is usually a leading indicator of future growth, but that will depend on what looks like lower interest rates, future (lower) inflation trends, actions of the Federal Reserve, and Congress, of course.

Harlan Green © 2017

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Tuesday, April 18, 2017

Should Trump Economics Fail?

Popular Economics Weekly

It doesn’t look good for two Trump and Republican campaign promises currently working their way through Congress: i.e., to repeal and replace Obamacare, and reform the tax code. They should really be working on what is possible; a $1 Trillion infrastructure spending bill. So the euphoria and expectations generated by the Trump victory might dissipate, and that is what’s needed to generate future growth at the end of an already long business cycle.

Why? There is massive opposition from both Republicans and Democrats to both an Obamacare replacement vehicle and tax reform proposals to date. Whereas the one campaign promise that could succeed is the upgrade and replacement of our aging public infrastructure. Both Republicans and Democrats want it for their home states and districts.

For instance, out of the 614,387 bridges in the US, more than 200,000 are more than 50 years old. The Associated Society of Civil Engineers 2016 report estimates it would cost some $123 billion just to fix the bridges in the US, and many of the one million drinking water pipes have been in use for almost 100 years. The aging system makes water breaks more prevalent, which means there are about two trillion gallons of treated water lost each year.

In fact, most of our highways and bridges were built more than 70 years ago, which is why the ASCE says public infrastructure is now behind more the $4.5 trillion in maintenance alone, such as highways, harbors, wastewater facilities and bridges.

Graph: CBO

Even more important to our security and economic well-being, is the majority of the transmission and distribution lines were built in the mid-20th century and have a life expectancy of about 50 years, meaning that they are already outdated. So between 2016 to 2025, there's an investment gap of about $177 billion for infrastructure that supports electricity, like power plants and power lines, reports the ASCE. 

There is another Republican obsession, however that may block even that possibility. It’s Trump’s preoccupation with the Wall, or pseudo Wall, and deportation of millions of undocumented workers—the majority of which have lived in the U.S. for more than 10 years. They have raised families, paid taxes, and held jobs that white and other ethnic groups are either incapable of doing (such as farm work), or refuse the low wages and benefits on this bottom rung of the labor ladder.

Any increase in their deportation could cause severe damage to growth, and maybe even end the 8 years of this growth cycle. The Center for American Progress, a liberal policy institute in Washington, is even more blunt. It estimates that a policy of mass deportation would "immediately reduce the nation's GDP by 1.4% and ultimately by 2.6%." This is when current GDP growth is just 2 percent.

None other than Fed Chairman Janet Yellen also voiced her concern in a recent speech. "Labor-force growth has been slowing in the United States," Yellen said. "It's one of several reasons, along with slow productivity growth, for the fact that our economy has been growing at a slow pace. Immigration has been an important source of labor-force growth. So slowing the pace of immigration probably would slow the growth rate of the economy."

Her comments are striking because Yellen is usually careful not to discuss topics outside her monetary policy and regulation mandate, lest her remarks be construed as political.

And, "Because capital will adjust downward to a reduction in labor — for example, farmers will scrap or sell excess equipment per remaining worker — the long-run effects are larger and amount to two-thirds of the decline experienced during the Great Recession," the CAP report says. "Removing 7 million unauthorized workers would reduce national employment by an amount like that experienced during the Great Recession."

Over 10 years, US output will have fallen $4.7 trillion short of what it might otherwise have been, CAP says. For comparison, US gross domestic product, the nation's total spending on goods and services, stood at $18.6 trillion at the end of 2016.

Those are very large numbers, which means Republicans and Democrats will have to learn to work together on what is practical and attainable to avoid the next recession.

Harlan Green © 2017

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Friday, April 14, 2017

Is Happiness That Important to Americans?

Popular Economics Weekly

What a strange question to ask Americans! We are the wealthiest country in the world, right? But a recent survey claims to show that wealth accumulation is not the first priority for most of the world. In fact, the 2017 United Nation’s World Happiness Report compiled by Gallup says that Americans’ pre-occupation with wealth gets in the way of being happy.

This conclusion results from a survey of 155 countries, and shows USA is now ranked 19th in being happy, due to our national preoccupation with what money buys now, rather than in the future.

Norway is ranked number one; no surprise with its oil wealth. But, “by choosing to produce its oil slowly,” says the survey, “and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies. To do this successfully requires high levels of mutual trust, shared purpose, generosity and good governance, all factors that help to keep Norway and other top countries where they are in the happiness rankings.

The USA, however, hasn’t shielded itself from boom and bust cycles. The Great Recession is just the latest in a string of recessions since 1980—two under R Reagan, one during Bush I, and two under son GW Bush. And that has led to the greatest income equality since 1929 that was the beginning of the Great Depression, and also the cause of just-ended Great Recession.

We have not been good at investing in our future, and that has led to a very low savings rate and very little put aside for retirement. This is in part because our social safety net is profoundly inadequate. We have no universal healthcare, for starters, and Republicans are threatening to repeal Obamacare, and maybe even Medicare.

This is while we have a huge public debt because Congress has refused to raise enough taxes to pay for all the spending that has supported the ongoing wars as well as tax loopholes afforded corporations, and high net-worth individuals.

Why has such record income inequality led to recessions? As Marriner Eccles, FDR’s renown Federal Reserve Chairman once said about the Great Depression: “…a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."

Credit had again run out for most Americans in 2007 due to a failed financial system and busted housing bubble. And it is just that uncertainty that is in the way of happiness. For how can anyone be happy, unless they can count on a predictable future?
“The USA is a story of reduced happiness,” said the Gallup study. “In 2007 the USA ranked 3rd among the OECD countries; in 2016 it became 19th. The reasons are declining social support and increased corruption and it is these same factors that explain why the Nordic countries do so much better.”
And the lack of such social support has resulted in poorer health outcomes for all Americans—such as declining longevities, significantly higher disease rates, and higher infant mortality. The study lists the main factors that support happiness: caring, freedom, generosity, honesty, health, income and good governance.”
In sum, the United States offers a vivid portrait of a country that is looking for happiness “in all the wrong places,” says the study. “The country is mired in a roiling social crisis that is getting worse. Yet the dominant political discourse is all about raising the rate of economic growth. And the prescriptions for faster growth—mainly deregulation and tax cuts—are likely to exacerbate, not reduce social tensions. Almost surely, further tax cuts will increase inequality, social tensions, and the social and economic divide between those with a college degree and those without.”
America has become a less caring and generous country because of its single-minded pursuit of wealth, in other words. How to re-develop those traits that Americans have historically been noted for?

Creating a quality educational system available to all, would be a start. The share of Americans receiving a college Bachelor’s Degree or better is stuck at 36 percent when a more technically savvy workforce is needed more than ever. And the educational divide between Haves and Have-nots has been increasing, which increases the political polarization.
“Clinton won 17 of the top 18 states, while Trump won 29 of the bottom 32 states,” said Gallup. And, “The deep social and economic divisions according to educational attainment seem to be similar to the dynamics of the Brexit vote and other anti-migrant parties in Europe, which find their base among voters with lower educational attainment.”
Why is greater equality, and the concept of a safety net for all Americans taking so long to achieve when it has already been achieved in all other advanced countries and economies?
One hint: Why haven’t we elected a female president when every other major western economy has? And women, because they are used to nurturing and caring for children, are much better at planning for the future

Harlan Green © 2017

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Monday, April 10, 2017

Why the Weak March Employment Report?

The Mortgage Corner

The good news is that the unemployment rate fell to 4.5 percent, and number of unemployed persons (i.e., available for work) declined by 326,000 to 7.2 million. Both measures were improved number over the year. But just 98,000 payroll jobs were created in March, lower than gains of 219,000 in February and 216,000 in January, reports the Bureau of Labor Statistics this morning.

The predictions were for much stronger payroll creation in March, as the ADP (a payroll service) private payrolls estimate on Wednesday was 263,000 payroll jobs, and the Labor Department’s estimate’s usually follow closely. The consensus before ADP's result was calling for a 170,000 rise in March private payrolls which would follow gains of 227,000 and 221,000 in the two prior months. Details in the ADP report include a strong 49,000 gain for construction and a 30,000 increase for manufacturing.

This was predicted by a very strong ISM manufacturing index of manufacturing activity earlier in the week, with its employment index at 58.9—which means 58.9 percent of respondents to the survey increased hiring for a 4.7 point gain, the best rate since June 2011. Yet there might be a sign of a weather effect in deliveries as delivery times did slow by a moderate 1.1 points to 55.9, says Econoday.

So, it could be the weather as the Northeast experienced a Category 3 blizzard in March after two very warm months. But it could also be the US is approaching full employment, which means fewer workers are available to work. In any event, this is the lowest unemployment rate since the height of the last expansion in April 2007, though there is still very little wage growth. Average hourly earnings rose only 0.2 percent in the month for a year-on-year rate that is down 1 tenth in the month and further away from the 3 percent line, which historically has meant full employment.

There was softness in the labor markets as well, with retail trade down 30,000 in March following February's 31,000 decline. Trade & transportation payrolls decreased 27,000 following a 16,000 decline. But both manufacturing and mining show gains, at 11,000 each and with construction, despite the weather, still rising 6,000.

The government hiring freeze put in place in late January didn't hurt March payrolls for government payrolls which rose 9,000. But the huge drop in retail jobs could mean online buying is cutting into storefront businesses. And sure enough, Macy’s is closing at least 100 stores and Sears and Roebuck could soon declare bankruptcy with its now $1billion in annual negative cashflow.

So, it looks like March was but a temporary blip in rising employment, and come April we will see a real spring awakening of economic activity. One caveat is abnormally low interest rates and a declining yield curve that usually presages some kind of economic slowdown.

Long term rates are falling at the moment, with the 10-year Treasury yield falling back to 2.30 percent, whereas the Fed just raised their short term, overnight fed funds rate to the 0.75 to 1.0 percent range. Hence there is a smaller difference between short and long term rates. This will squeeze bank profits and the availability of credit at a time when we still have an economy growing at just 2 percent.

And, that's why we need more actions by government and business to boost job creation and economic growth.

Harlan Green © 2017

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Tuesday, April 4, 2017

Consumers Too Optimistic?....Then Watch Out Below!

Popular Economics Weekly

Consumer confidence has risen to what might be unsustainable levels—the highest in 16 years. That was in 2000, which was at the end of a 10-year economic recovery, the longest recovery since WWII. The Conference Board’s index is now at its strongest level since those dotcom boom days of December 2000 before that market crashed and the 9/11 attack occurred, says Econoday.

Stronger savings and rising wages are the main reason for the 9.5 point surge in the consumer confidence index to 125.6. Much of the optimism is after Donald Trump’s campaign promises, which, if enacted could mean higher growth, though such growth depends more on factors outside of such campaign promises as higher import taxes and any change in tax policies. It actually depends much more on a faster growing workforce, and higher labor productivity—goals that will be difficult to achieve in today’s polarized political climate.

Studies have shown that to even reach a 3 percent annual GDP growth, 2.8 million workers must be added to the US workforce every year, and just 600,000 native born workers currently reach working age because of a shrinking US birth rate. That and a very poor average productivity rate of 1.2 percent from 2010-2014 have constrained growth.

Consequently, the Trump administration’s draconian attempts to cut back on immigration that would bring in new workers will only damage growth. The Trump administration is currently proposing as much as a 50 percent reduction in immigration.

Boosting job creation can be a two-edged sword, in that two-thirds of the jobs are in the service sector. Manufacturing has been making a comeback of late, but that has more to do with a recovery in the rest of the world, and lower dollar exchange rates, rather than the imposition of tariffs that are subject to retaliation.

Mexico, for instance, has threatened to either ban or raise taxes on the importation of US corn, a staple in Mexico that has driven many Mexican corn-growers out of business.

Econoday reports in the latest ISM Manufacturing Survey that “the new orders index is still, outside of February, the second strongest reading since December 2013. And new export orders are very strong, up 4.0 points to 59.0 for the best showing since November 2013. Backlog orders are understandably piling up, 1/2 point higher to a 57.5 rate of monthly growth that was last matched in March 2014 and last exceeded in April 2011.”

So confidence is a good thing, if it encourages businesses and the economy to grow and create more jobs. But businesses act on hard facts, such as increased demand for their goods and services, rather than hope.

Harlan Green © 2017

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Monday, April 3, 2017

A Greater Lawlessness—On Tyranny

Have we elected a tyrant as President? It’s hard to believe the clownish behavior and blatant lies of President Donald Trump could make him a tyrant, but author and history Professor Timothy Snyder says he has all the makings of a tyrant in On Tyranny, a pamphlet-size book making the rounds of talk shows.

It has 20 valuable lessons on how to avoid tyrannical governments, such as is happening now in Washington with one political party possibly controlling all 3 branches of government, if Supreme Court nominee Neil Gorsuch is confirmed—and why this is leading to the greatest lawlessness in our history with the Trump administrations and a Republican Party that is not only quiescent to his blatant lawbreaking, but in some ways has aided and abetted it.

“As they know,” Snyder begins in his Prologue, “Aristotle warned that inequality brought instability, while Plato believed that demagogues exploited free speech to install themselves as tyrants.”
 We now have the greatest income inequality since 1929, and it led to the Great Recession and political polarization we have today. President Donald Trump would not have been possible, if incomes hadn’t declined so drastically for those dissatisfied white voters from the rust-belt.

And then there was the Russian meddling in our media with thousands of bots sending out fake social media news, Tweets, and Wikileaks exploiting the hacked Democrat’s emails, not to speak of Breitbart propaganda campaign of inflaming the alt-right, all white nationalists.

Professor Snyder listed 3 of the most important lessons on HBO’s Bill Maher show.

#1) “Don’t obey in advance—Most of the power of authoritarianism is freely given. In times like these, individuals think ahead about what a more repressive government will want, and then offer themselves without being asked.”

How could that happen? How could West Virginians in the heart of what was formerly coal country vote more than 2 to 1 for Donald Trump over Hillary Clinton in a historically Democratic state?

And this is leading to the of Trump voters' acquiescence in the rollback of environmental laws that will allow more and dirtier coal mining, as well as coal-powered plants, when more than 250 coal plants have already closed, with cheaper natural gas replacing coal.

It is mainly out of ignorance of what was in their best interests. Coal now occupies but a minor position in W Virginia’s economy with natural gas and renewable energies having replaced it since 1980, according to Nobel Economist Paul Krugman.

#2) “Defend Institutions—It is institutions that help us to preserve decency. So choose an institution you care about—a court, a newspaper, a law, a labor union—and take its side.”

Sound familiar? What has Donald Trump been attacking—the courts, the media (“enemies of the people”), laws that prevent conflicts of interest, and labor union laws that protect worker safety. I might add scientific facts, as he has said he believes global warming a “hoax”. So in effect Trump is attacking all of the institutions that preserve decency and a functioning democracy.
“Institutions do not protect themselves. They fall one after the other unless each is defended from the beginning,” said Snyder.

#3) “Above all believe in truth,” as without truth there is no trust, and without trust there are no effective laws, which leads to tyranny. And candidate, now President Donald Trump, has made a point of blatant lying, meaning he wants his followers to believe whatever he says rather than objective facts such as global warming, or size of the audience that attended his inauguration.

This can only be because his followers have acquiesced in advance, either out of ignorance of the actual facts, or because they will follow him regardless of the consequences to themselves and the nation.

We can only preserve democracy and defeat tyranny in all its forms—including fascism, racism, discrimination, propaganda, oligarchies, if we learn from history. “History does not repeat, but it does instruct,” says Professor Snyder in On Tyranny, a must read for anyone wanting to understand the rise of President Trump.

Harlan Green © 2017

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Friday, March 31, 2017

Job Claims Down, GDP Revised Up, And 2017?

Financial FAQs

Initial weekly jobless claims for unemployment benefits, the best predictor of employment trends, continues downward, but with some upward blips of late that are probably due to still severe weather in the northeast (snow) and south (tornadoes). And the revised fourth quarter GDP growth estimate was up slightly, with signs that 2017 could be better.
Wrightson-ICAP says, “The number of unemployment insurance beneficiaries has fallen sharply in recent weeks, from an average of 2.064 million in January and February to 1.990 million in the week of March 11.  The combination of that slide and the dramatic improvement in the job-availability numbers in the Conference Board’s record consumer confidence report earlier this week suggests that the national unemployment rate might slip a notch from February’s 4.7 percent level.”

So we could finally be approaching full employment, last seen in early 2000 before the Great Recession bust, even though there are still some 7 million adult workers either working part time, or looking for work? Q4 GDP growth rose to 2.1 percent, but down from a 3.5 percent increase in Q3.
“The increase in real GDP in the fourth quarter reflected positive contributions from PCE, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased,” said the BEA report.
This is while corporate profits surged 22.3 percent year-over-year in Q4, another sign that growth should pick up this year. Why? Well, corporations will hopefully want to expand production, which means more jobs and capex investments. But that hasn’t happened yet, as business investment isn’t increasing at present, and hasn’t for more than 1 year.

Graph: Econoday

Capital expenditure among the 1,000 largest companies took a step back last year, declining $74 million from 2015, on average. The decline built on the $11 million average decline in 2015 after four years of spending growth ending in 2014. Much of it is due to the decline in oil and gas production, as there is already a glut of fossil fuel supplies which has kept oil prices at the $50/barrel level or lower for several years now.

What does all this mean for 2017 growth? At risk of sounding too repetitive, I maintain Congress and the Trump administration must be on the same page if they want to get anything done. Trying to push the repeal of Obamacare up front didn’t work. And tax reform may have the same problem if the tax breaks only go to the wealthiest, as would have happened with the repeal of Obamacare.

Nor will cutting back on environmental regulations, gas mileage requirements, scientific research and development spur growth, since most job growth and innovation these days is in the green industries. We know trickle-down economics has never worked. What is needed is more direct job creation with such as an infrastructure bill.

But is that possible with all the senseless bickering of Republicans because their cherished dream of repealing Obamacare didn’t happen?

Harlan Green © 2017

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Wednesday, March 29, 2017

A Greater Lawlessness—Part II, The Trump Presidency

Popular Economics Weekly

Rachel Maddow on last night’s MSNBC show provided evidence that the Trump White House has been lying from day-one of the Trump Presidency. The White House had denied it asked that tanks and other armaments be included in the inauguration parade, when Freedom of Information Pentagon documents surfaced recently that showed Trump officials had requested that military weapons be included in the parade.

This is but more evidence that the Trump campaign is determined to cover up and/or deny culpability for any of their misdeeds, whether real or imagined.

Rachel then concluded that the Trump White House could not be counted on to provide truthful information on any subject to the media, whom Trump had declared were “enemies of the people”, after all. So it is up to the public media to look for the facts elsewhere.

And now we know the Trump campaign, and possibly Trump himself, had done much more than that in its misinformation campaign during the run up to the November election, which in some ways puts Russia’s kompromat campaign of slander and fake news against Hillary Clinton to shame.

More-and-more evidence is surfacing that it was the compromising of FBI Director Comey that led to Hillary’s downfall. The so-called conspiracy was one of the misdeeds being investigated by South Manhattan Attorney General Preete Bahara when he was suddenly fired. It was about the collusion of Trump campaign officials with the NYPD, and Manhattan FBI officials that had possession of Anthony Weiner’s laptop in their investigation of his internet sexting escapades with women.

A January Huffington Post article documented what was a “domestic conspiracy” to elect Donald Trump. It in effect said information presently public and available confirms that Erik Prince, Rudy Giuliani, and Donald Trump conspired to intimidate FBI Director James Comey into interfering in, and thus directly affecting, the 2016 presidential election. This conspiracy was made possible with the assistance of officers in the New York Police Department and agents within the New York field office of the Federal Bureau of Investigation.

The report went on to say, “As reported by the New York Times, FBI Director James Comey released his now-infamous October 27th letter in substantial part because he had determined that “word of the new emails [found on Anthony Weiner’s computer]...was sure to leak out.” Comey worried that if the leak occurred at a time when the nature and evidentiary value of the “new” emails was unknown, he “risked being accused of misleading Congress and the public ahead of an election.”

By October 27th, the FBI had had access to Weiner’s computer—which it originally received from NYPD—since October 3rd, during which interval the Bureau had both the time and IT know-how to determine that the “new” emails in its possession were in fact duplicate emails from accounts already revealed to the Bureau by Clinton, her aide Huma Abedin, and the State Department.

However, when Comey was briefed on the case by agents from the New York field office on October 26th, he discovered that not only had this IT work not been done, but in fact no warrant to seize the full emails had been sought, no permission to read the emails had been requested from cooperating witnesses Weiner and Abedin, and indeed nothing but a summary of the emails’ “meta-data” (non-content header information) had been prepared by his agents.”

And when they discovered there were emails from Hillary to her aid Huma Abedin and Weiner’s wife that were also included on the laptop, they immediately began pushing Comey to reveal the links that might possibly be material evidence in his probe of Hillary’s use of a private email server.

And both polling, poll analysis, and internet meta-data (see below) confirm that the Comey Letter was sufficient to hand Trump the 77,143 combined votes in Wisconsin, Michigan, and Pennsylvania that won him the election. We know from the statements made by Giuliani, and from numerous statements made by Trump on the campaign trail, that both men believed the Clinton email server case could be leveraged to ensure Clinton’s defeat in November. It turns out they were correct.

I first began writing about the greater lawlessness among Republicans wanting to maintain power in the face of a declining party membership in 2002, when it became obvious that the GW Bush administration was cooking the CIA findings on Iraq’s weapons of mass destruction to justify their invasion and coopting of Iraq’s oil fields. The underlying reason was once again greed, led by Vice President Cheney’s oil company friends who thought they would be able to control Iraq’s vast oil reserves.

Then they turned the Iraqi economy into a conservative dream, a tariff-less free enterprise entity that allowed cheaper US imports to put many Iraqi companies out of business, and was a major reason for the Sunni-led uprising and civil war that ensued.

We now know that on January 12th, the DOJ announced that the Inspector General would be investigating the sequence of events comprising the Prince-Giuliani-Trump conspiracy. Inspector General Horowitz noted that within his brief was investigation of the series of leaks that occurred between the NYPD, the FBI, and outside entities—including, we can surmise based on context, the Trump campaign.

Harlan Green © 2017

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Tuesday, March 28, 2017

Consumer Confidence Highest In 16 Years

Financial FAQs

The Conference Board’s Consumer Confidence Index soared to its highest level in 16 years. Its Consumer Confidence Index®, which had already increased in February, improved again in March. The Index now stands at 125.6 (1985=100), up from 116.1 in February. The Present Situation Index rose from 134.4 to 143.1 and the Expectations Index increased from 103.9 last month to 113.8.

“Consumer confidence increased sharply in March to its highest level since December 2000 (Index, 128.6),” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current business and labor market conditions improved considerably. Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects. Thus, consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”
But the survey was completed before Republicans pulled the Obamacare repeal bill. And if Congress can’t agree on passage of tax reform legislation, which will be just as controversial, then such optimism could turn into pessimism that has haunted past deadlocked Congresses.

And interest rates are falling, even with the Federal Reserve predicting it might continue to boost short term rates. For instance, the 10-year Treasury yield has dropped to 2.35 percent, unheard of except when economic growth has slowed to a crawl, or a recession is looming.

This is what happens when the so-called Treasury yield curve flattens. Then there is less room for banking profits, since short term rates the Fed controls are basically banks’ cost of doing business, and longer term rates are what they earn when they lend money.

Consumers were significantly more optimistic about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months increased from 23.9 percent to 27.1 percent, while those expecting business conditions to worsen declined from 10.5 percent to 8.4 percent.

Consumers’ outlook for the labor market was also more upbeat. The proportion expecting more jobs in the months ahead increased from 20.9 percent to 24.8 percent, while those anticipating fewer jobs declined from 13.6 percent to 12.2 percent. The percentage of consumers expecting their incomes to increase improved from 19.2 percent to 21.5 percent, while the proportion expecting a decrease declined from 8.1 percent to 7.0 percent.

But these heightened expectations can only be fulfilled with a Trump team that knows what it is doing, which President Trump will eventually realize requires skilled and knowledgeable people to run the various government agencies, rather than the ideologues he has been appointing to date that are intent on “de-constructing” government, to use the words of Breitbart’s Steve Bannon, now his chief White House strategist.

Harlan Green © 2017

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Monday, March 27, 2017

New Home Sales Surge, Existing Sales Not So Much

The Mortgage Corner

New-home sales shot 6.1 percent higher in February to a 592,000-annualized rate and is near the 600,000 top estimate of economists. Sales appeared to have gotten a boost from builder concessions as the median price fell a monthly 3.9 percent to $296,200 for a year-on-year rate that's suddenly in the negative column at minus 4.9 percent.

And existing home sales were down 3.7 percent in February to a 5.480 million annualized rate, below January’s 5.55 million rate. Details are mostly weak including a 3.0 percent decline for single-family sales to a 4.890 million rate and a sharp 9.2 percent drop for condos to a 590,000 rate. But that could be the end-of-winter blahs, as year-on-year, single-family sales are up 5.8 percent with condos up just 1.7 percent.

Graph: Econoday

Strength in new-home sales was centered in the Midwest where the sales rate surged 21,000 to 89,000 and easily surpassing 11,000 gains for the both the West, at 157,000, and the South at 313,000. Sales in the Northeast fell sharply in last week's existing home sales report and are down 9,000 to a very low 33,000 annualized rate in today's new-home report.  But that could also be due to the month’s severe storms, including at least one Nor’easter that brought up to 2 feet of snow to some parts of New England.

What is happening with some conforming prices from FHFA financed homes not rising at all in February? In a note by Econoday, the Federal Housing Finance Authority’s house price index came in unchanged in January with year-on-year appreciation falling a steep 5 tenths to 5.7 percent. This is the weakest month-to-month result in more than 4 years and the weakest year-on-year rate since August 2015, and at a time when supply is pointing to very strong conditions, at only 3.8 months for resales which is down 6 weeks from this time last year.

And days on the market are very tight, at 45 vs 59 days a year ago. A highlight of the coming week will be Case-Shiller's report which tracks resale prices and which, in another housing puzzle, now appears to be violently converging with FHFA.

Another indicator of housing sales, the Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month's index reading is 0.4 percent above last January, it is the lowest since then.

It was insufficient supply levels that led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said. "Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it's not uncommon to see a home come off the market within a month."

All this means that rather than a housing bubble, we are still in a housing shortage with affordable housing the main victim. And any improvement in supply largely depends on mortgage rates remaining low, despite further Federal Reserve rate hikes and a Trump administration spending spree. So I predict we have no more than a one year window for such low rates to remain.

Harlan Green © 2017

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Sunday, March 26, 2017

A Greater Lawlessness—Self Interest vs. The Common Interest

Popular Economics Weekly

Are we at the beginning of an era of Greater Lawlessness, or nearing the end with the greatest law breaking we may have seen in our lifetime? And are we at the beginning or end of the greatest wealth accumulation by the wealthiest, of another Gilded Age that last happened in 1900, at the beginning of the Industrial Age?

In a potentially bombshell report, CNN reported Wednesday night that the FBI has information that suggests members of President Donald Trump’s team may have colluded with Russian operatives to coordinate the release of damaging information in an effort to torpedo Hillary Clinton’s presidential campaign.

FBI Director James Comey had already testified in televised House hearings that the Trump campaign team was under criminal investigation for collusion with Russian intelligence operatives in trying to undermine the legitimacy of US elections and democracy in general.

Such interference by Russian and even Wikileaks has led to the election of possibly the most corrupt President in US history, with his refusal to divest himself of his assets that are creating countless conflicts of interest, as well as blatantly ignoring the emoluments clause of the US Constitution that prohibits presidents from being compensated by foreign governments.

How did the US, leader of the free and democratic world since WWII, become so weak and vulnerable that Russian hackers could help to elect Donald Trump, an openly pro-Putin ally who wants to implement the Kremlin’s own foreign policies and subvert those of the democratic western world?

We have had major lawbreaking by Presidents before with Nixon’s Watergate, which was a break into Democratic National Committee headquarters to steal their election plans. Sound familiar?

Then there was President Reagan and the Iran-Contra Affair in the 1980s, which entailed the secret shipping of some $8 million in weapons to Khomeini’s Iranian government to aid them in their Iraq war, and more than 250 criminal convictions of Reagan era office holders for law breaking.

This was in part because President Reagan considered government the problem, and therefore its laws and regulations to be subverted or ignored when inconvenient to his goals.

What were those goals? It’s in fact a long story, but one that can be summarized easily. Such a greater lawlessness of elected representatives and presidents in particular, began with the concerted push to transfer greater wealth to the already wealthy begun in the 1970s and catalogued best in Jacob Hacker & Paul Pierson’s Winner-Take-All Politics. It was the beginning of massive tax cuts, and gutting of labor protection laws, the backbone of middle class prosperity, which weakened labor’s ability to both organize and bargain collectively, and resulted in the massive globalization of the labor force.

These policies were implemented under the rationale that self-interest trumped the common interest championed by governments, and therefore those laws that supported public interest should be subordinate to private interests. Its ideologues and supporters advocated an economic program called trickle-down economics that maintained the owners of capital knew best how to run a country and create the greatest prosperity for all with only the most minimal government regulations and protections, in order to maintain US leadership as a world power.

This led to the abuses of the housing bubble and wholesale loss of middle class wealth from overleveraged Wall Street, a shadow banking system, and failure of financial institutions such as Lehman Brothers that bankrupted millions of ordinary workers.

It led to the Great Recession, which did as much damage to the US economy as the much longer Great Depression, but without the leadership of an FDR and Francis Perkins, his Labor Secretary, who created most of the modern social safety net, including social security and the Fair Labor Standards Act, the first minimum wage and overtime laws for American workers.

It has also led to the greatest income inequality since the beginning of the Great Depression in 1929, which in turn led to the polarized electorate we have today. There is very little left of the middle class created after WWII that grew due to New Deal legislation that protected unions and collective bargaining, funded early education and government research that gave US the technological edge.

Under the aegis of a revolt against globalization, we have instead elected those who believe healthcare should be restricted only to those that can afford it, a government so diminished that it no longer is able to protect the environment, educate all in public schools and tuition-free public universities, or protect the public from Wall Street excesses, (which means another recession is inevitable).

All this could only have happened with the greater lawlessness we have today that a president and White House make no attempt to hide. President Trump seems to believe in the Mafia code, a code that trusts only his family and closest associates, where the only honor is the honor among thieves, some of whom are turning out to be Russian oligarchs whose stolen wealth he is more than happy to launder in his various real estate holdings.

CNN, basing its report on unnamed U.S. officials, said the evidence is largely circumstantial and is not yet conclusive, though the investigation is ongoing and is now focusing on the possibility of that collusion. The FBI’s information is based on “human intelligence, travel, business and phone records and accounts of in-person meetings,” CNN said.

Rep. Adam Schiff (D-Calif.) went a step further Wednesday, telling MSNBC “there is more than circumstantial evidence now” of collusion with Vladimir Putin’s Russia.

So is this the beginning, or the end of an era of rampant lawlessness that began almost 50 years ago, and that few of the lawbreakers have paid for, from Presidents to Wall Street financiers?

Maybe the various investigations will help is to understand what has happened to the no longer United States of America?

Harlan Green © 2017

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Thursday, March 23, 2017

Housing Sales Continue To Increase

The Mortgage Corner

New home sales shot 6.1 percent higher in February to a 592,000 annualized rate that easily beats the Econoday consensus for 565,000 and is near the top estimate of 600,000. Sales seemed to have a boost from builder concessions as the median price fell a monthly 3.9 percent to $296,200 and down 4.9 percent year-on-year.

Strength is centered in the Midwest where the sales rate surged 21,000 to 89,000 and easily surpassing 11,000 gains for the both the West, at 157,000, and the South at 313,000. Sales in the Northeast fell sharply in yesterday's existing home sales report and are down 9,000 to a very low 33,000 annualized rate in today's report.
"February's increase in new home sales is consistent with builders' growing confidence in the housing market," said Granger MacDonald, chairman of the National Association of Home Builders (NAHB). "Builders are encouraged by heightened consumer activity and by the expectation that regulatory costs will decline in the year ahead."
And mortgage rates have continued to fall of late in the face of pessimism that Trump’s campaign promises, including tax cuts and infrastructure investments, might not be enacted anytime soon. The 30-year fixed conforming rate has dropped to 3.75 percent for 1 origination point.

In fact, House Speaker Paul Ryan has admitted the infrastucture makeover may not come up for a vote until 2018, and any tax reductions seem to be dependent on repeal of Obamacare, which now has even more opposition as Repubs keep eliminating more benefits to please their Libertarian Freedom Caucus members.

This is while existing home sales were down 3.7 percent in February to a 5.480 million annualized rate, also below the Econoday consensus for 5.555 million. Details are mostly weak including a 3.0 percent decline for single-family sales to a 4.890 million rate and a sharp 9.2 percent drop for condos to a 590,000 rate.

But we have just ended the winter season, and year-on-year, single-family sales are up 5.8 percent with condos fading and barely over zero at 1.7 percent. Overall year-on-year sales are up a solid 5.4 percent with the median price of $228,400 up a healthy 7.7 percent. Supply has been very thin but is improving, with 1.750 million resales on the market for a 4.2 percent gain from January.

But existing-home inventories are very low at 3.8 months vs January's 3.5 months. Days on the market are very short, at 45 vs 59 days a year ago. This means there is no housing inventory in many parts of the country, so the surge in new-home construction should continue as homebuilders race to fulfill the rising demand for housing.

Harlan Green © 2017

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Monday, March 20, 2017

Leading Indicators Signal Strong Growth Ahead, If...

Popular Economics Weekly

The Republican Congress needs to abandon its obsession with repealing Obamacare, since Republicans will never agree on a replacement, and many Senate Republicans have just announced they oppose the current Republican House Trumpcare proposal.

Instead they need to focus on passing an infrastructure bill that will rebuild public and private infrastructure that the American Society of Civil Engineers (ASCE) says is now behind more the $4.5 trillion in maintenance alone, such as highways, harbors, wastewater facilities and bridges.

Graph: CBO

The Conference Board’s Index of Leading Economic Indicators is one of several anecdotal surveys (i.e., opinions) that aren’t yet borne out by actual activity. The Conference Board said its leading economic index rose 0.6 percent in February — the third straight gain of that magnitude — to reach its highest level in more than a decade.

“Widespread gains across a majority of the leading indicators point to an improving economic outlook for 2017, although GDP growth is likely to remain moderate,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board.

The improvement in the LEI over the past several months is said to be due to optimism that Congress can pass a massive infrastructure bill, as well as reducing regulations. But can Trump keep his promise to invest in infrastructure, when his new proposed budget cuts road spending by nearly half a billion dollars, and includes no new infrastructure spending?

The American Society of Civil Engineers (ASCE) estimates the US needs to spend some $4.5 trillion by 2025 to improve the state of the country's roads, bridges, dams, airports, schools, and more in its 2017 Infrastructure Report Card.

For instance, out of the 614,387 bridges in the US, more than 200,000 are more than 50 years old. The report estimates it would cost some $123 billion just to fix the bridges in the US, and many of the one million drinking water pipes have been in use for almost 100 years. The aging system makes water breaks more prevalent, which means there are about two trillion gallons of treated water lost each year.

And even more important to our security and economic well-being, the majority of the transmission and distribution lines were built in the mid-20th century and have a life expectancy of about 50 years, meaning that they are already outdated. So between 2016 to 2025, there's an investment gap of about $177 billion for infrastructure that supports electricity, like power plants and power lines, reports the ASCE. 

Need we say more about the importance of a major infrastructure bill, which is far more important to Americans that the ideological debate over Obamacare and healthcare in general?

Harlan Green © 2017

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Thursday, March 16, 2017

Single-Family Construction Exploding

Popular Economics Weekly

Starts on new houses climbed 3 percent in February to the second-highest level since 2007, reflecting pent-up demand in a steadily growing economy that builders are aiming to address. And builder optimism continues to rise to new levels.

In a sign that first-time homebuyers may finally find more affordable housing, the NAHB/Wells Fargo housing market index is up a very sharp 6 points in March to 71 for the best reading of the economic cycle, and a 12-year high. Home builders peg current sales at an index of 78, up 7 points from February, and see future sales also at 78, for a 5 point gain.

“While builders are clearly confident, we expect some moderation in the index moving forward,” said NAHB Chief Economist Robert Dietz. “Builders continue to face a number of challenges, including rising material prices, higher mortgage rates, and shortages of lots and labor.”
The pace of so-called housing starts rose to an annual rate of 1.29 million last month, with construction on single-family homes also hitting the highest level since before the Great Recession. And permits for single-family homes, where building costs and sale prices are the highest, rose 3.1 percent in February to an 832,000 rate that, in good news for a thinly supplied new home market, is up 13.5 percent year-on-year. This is offset, however, by a downturn in multi-family units where permits fell 22 percent in the month to a 381,000 rate that is down a yearly 11.2 percent.

And we will be seeing supply relief for single-family homes even though completions, in a detail that home builders will note, fell 6.5 percent to a 754,000 rate. Nevertheless, new supply is coming as homes under construction rose 1.3 percent to 1.091 million for the highest reading since the great bubble in October 2007, said the NAHB in it press release.

In a sign that job availability is still tight, initial jobless claims remain low. Initial jobless claims are holding at trend, down 2,000 in the March 11 week to 241,000, reports Econoday. The 4-week average, little changed at 237,250, is down nearly 10,000 from mid-February in what offers a favorable signal for the March employment report that comes at the end of the month.

So we have a surging housing market for single-family homes in particular, a sign that homebuyers—including first timers—are feeling more confident about their jobs.  In fact, job openings in the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) came in at 5.626 million in January and remain strong and right at their 2-year trend.

But there was an acceleration is hiring, which rose 2.6 percent in the month to 5.440 million for one of the best readings of the economic cycle. This is while the quits rate, up 1 tenth to 2.2 percent, hints at improved confidence among workers while the layoff rate remains low and unchanged at 1.1 percent.

No wonder the Federal Reserve has turned optimistic as well. Janet Yellen in her latest press release after the Fed raised its fed funds rate another one-quarter percent said we were entering a virtuous cycle of robust growth that was neither too hot (i.e., inflationary), nor too cold (more jobs were being created).

Harlan Green © 2017

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Wednesday, March 15, 2017

Retail Sales, Inflation, Interest Rates Rising

Financial FAQs

Gasoline prices pulled down February's retail sales, falling 0.6 percent after rising 2.1 percent in January. But when excluding volatile autos and gasoline prices, sales rose 0.2 percent vs January's very strong 1.1 percent. And control group sales, which are another core measure, inched only 0.1 percent in the month but follow an outstanding 0.8 percent gain in January, one that initially posted at 0.4 percent, says Econoday.

And strong retail sales are helping to push retail inflation higher, with the Consumer Price Index for retail goods and services now at 2.7 percent. This has to be why the Federal Reserve on Wednesday just increased its benchmark short-term interest rate for the second time in three months and signaled two more rate hikes this year. The Fed policy committee voted 9-to-1 to raise interest rates to a range of 0.75 to 1 percent.

Graph: Econoday

The overall year-on-year CPI rate continues to climb, at 2.7 percent that is well above the general 2 percent Federal Reserve target rate that was last matched nearly 5 years ago, in March 2012. But the core rate, which excludes energy, is steady at 2.2 percent.

So inflation is hardly a problem, and the Fed may be acting too quickly when economies will only grow more with higher prices, hence higher inflation. Because this means companies can raise their prices, hence profits. They can then expand their production of goods and services. This should be a no-brainer, so it is puzzling why the Fed is acting now, when it’s not even clear when and how the Trump administration will be able to enact their growth agenda.

In fact, it is mainly because gas and energy prices are stable that inflation hasn’t been rising faster. Energy prices fell a very sharp 1.0 percent in the month of February with gasoline down 3.0 percent.
Yet year-on-year rates are still very strong, at plus 15.2 percent for overall energy and plus 30.7 percent for gasoline. These are the gains that are pushing up the headline year-on-year inflation rate.

Harlan Green © 2017

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Tuesday, March 14, 2017

Homeownership Is Rising

The Mortgage Corner

An improving economy, multiple years of strong job growth and the notable increase in home values in most markets fueled a greater share of purchases from Generation X households over the past year, says the National Association of Realtors in a recent survey.

And that is helping to boost the all-important household formation of younger generations, which is what ultimately precipitates home sales, especially among those young adults who are forming families.

This is according to the National Association of Realtors® 2017 Home Buyer and Seller Generational Trends study, which evaluates the generational differences of recent home buyers and sellers. The survey additionally found that a growing number of millennials and younger boomer buyers have children living at home; student debt is common among Gen X and boomer households; more millennials are buying outside the city; and younger generations are more likely to use a real estate agent.

A notable shift in the relative household growth rates after 2007 reflects declines in “headship” rates, that is, the share of the population identified as heads of households, according to a report by the San Francisco Federal Reserve. It is mostly the result of the Great Recession that decimated the earning power of so many young adults, in particular. This means that for over five decades headship rates in the United States had increased on average before falling off in the wake of the financial crisis after 2007.

The patterns in headship rates over the housing cycle differ considerably across age groups. Specifically, in recent years most of the changes were among young adults. For two groups—ages 18 to 24 and ages 25 to 29—headship rates have declined appreciably in recent years. Headship rates among older age groups have been more stable.

Also apparent in the SF Fed’s chart is that headship rates among young adults rose considerably from the mid-1990s up to the financial crisis. That was the period of the strong housing market, rapidly rising house prices, and booming homeownership rates, including among young adults. Indeed, the movements in shares of young heads of household closely track the rise and decline in homeownership ratios.
"Gen X sellers' median tenure in their previous home was 10 years, which puts many of them selling a property they bought right around the time home values were on the precipice of declining," said NAR chief economist Lawrence Yun. "Fortunately, the much stronger job market and 41 percent cumulative rise in home prices since 2011 have helped a growing number build enough equity to finally sell and trade up to a larger home. More Gen X sellers are expected this year and are definitely needed to ease the inventory shortages in much of the country."
The uptick in purchases from Gen X buyers this year (28 percent) was the highest since 2014 and up from 26 percent in 2016. Millennials were the largest group of recent buyers for the fourth consecutive year (34 percent), but their overall share was down slightly from a year ago (35 percent). Baby boomers were 30 percent of buyers, and the Silent Generation made up 8 percent.

This year's survey also brought to light how the soaring cost of rent in many areas is likely influencing the decision of middle-aged parents to buy a home with their young adult children in mind. Younger boomers were the most likely to purchase a multi-generational home (20 percent; 16 percent in 2016), and the top reason for doing so was that children over 18 years old either moved back home or never left (30 percent; 27 percent in 2016).
"The job market is very healthy for young adults with a college education, but repaying student debt and dealing with ever-increasing rents on an entry-level salary are forcing many to either shack-up with several roommates or move back home," said Yun. "This growing trend of delayed household formation is one of the main contributors to the nation's low homeownership rate."
Similar to previous years, roughly two-thirds of millennial buyers are married. One aspect of their household that has changed is the number of children in them. In this year's survey, 49 percent of millennial buyers had at least one child, which is up from 45 percent last year and 43 percent two years ago.

With more kids in tow, the need for more space at an affordable price is increasingly pushing millennial buyers outside the city. Only 15 percent of millennial buyers bought in an urban area, which is down from 17 percent last year and 21 percent two years ago.
"Millennial buyers, at 85 percent, were the most likely generation to view their home purchase as a good financial investment," added Yun. "These strong feelings bode well for even greater demand in the future as more millennials settle down and begin raising families. A significant boost in new and existing inventory will go a long way to ensuring the opportunity is there for more of them to reach the market."
But that isn’t yet the case. Inventories are still in the 5-month range with current sales rates. So something must happen to increase housing inventories of existing homes, such as the sale of tens of thousands of foreclosed homes hedge funds purchased at fire sale prices when the housing bubble burst that are rental units.

The Blackstone’s Invitation Homes subsidiary, under the auspices of Blackstone's real estate leadership, began purchasing homes in 2012 and eventually amassed more than 60,000 homes, investing $1.2 billion in renovations. At one point it was reportedly spending $150 million per week on homes.

And now the Dallas-based single-family rental real estate investment trust, one of the largest in its class, raised $1.54 billion in an initial public offering this January. It priced 77 million shares at $20 each, well within its previously stated range of $18 and $21, said the press release.

So until hedge funds decide it’s no longer lucrative to hold rental properties, we may continue to experience a housing shortage, which means prices will continue to rise above the inflation rate for the foreseeable future.

Harlan Green © 2017

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Friday, March 10, 2017

Strong February Jobs Report = Rising Interest Rates

Popular Economics Weekly

Economists are almost unanimous that the Fed will raise their short term rates at next week’s FOMC meeting. This is because total nonfarm payroll employment increased by 235,000 in February, and the unemployment rate dropped slightly to 4.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment gains occurred in construction, private educational services, manufacturing, health care, and mining.

This is while Federal Reserve Chair Janet Yellen indicated last Friday that if the economy stays on track for the next few weeks, a rate hike would likely come when Fed leaders meet March 14-15.
"At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," Yellen said in the Chicago speech.
It’s now the 8th year of the post-Great Recession growth cycle, with a total of almost half a million jobs in the first two months of 2017, the best back-to-back performance since last summer. The unemployment rate dipped to 4.7 percent from 4.8 percent.

Yet Treasury yields retreated today, even after official data showed that U.S. employers created more jobs than expected in February, but wage growth remained unexpectedly weak. In February, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $26.09, following a 5-cent increase in January.

Over the year, average hourly earnings have risen by 71 cents, or 2.8 percent, which is still not enough to cause substantial inflation, and that is what worries bond traders that have an almost knee-jerk reaction to any sign of increased inflation. In February, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.86 in February. The yield on the 10-year Treasury note was off nearly three basis points at 2.580 percent in recent trade, while the 30-year yield was down two points at 3.173 percent.

And lower inflation expectations will keep mortgage rates from rising as well, which means the construction industry—and housing—will continue to boom. Which is why sales of newly built, single-family homes rose 3.7 percent in January to a seasonally adjusted annual rate of 555,000 units, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

In February, construction employment increased by 58,000, with gains in specialty trade contractors (+36,000) and in heavy and civil engineering construction (+15,000). Construction has added 177,000 jobs over the past 6 months.

Employment in private educational services rose by 29,000 in February, following little change in the prior month (-5,000). Over the year, employment in the industry has grown by 105,000. Manufacturing added 28,000 jobs in February. Employment rose in food manufacturing (+9,000) and machinery (+7,000) but fell in transportation equipment (-6,000). Over the past 3 months, manufacturing has added 57,000 jobs.

Health care employment rose by 27,000 in February, with a job gain in ambulatory health care services (+18,000). Over the year, health care has added an average of 30,000 jobs per month.

Employment in mining increased by 8,000 in February, with most of the gain occurring in support activities for mining (+6,000). Mining employment has risen by 20,000 since reaching a recent low in October 2016. Employment in professional and business services continued to trend up in February (+37,000). The industry has added 597,000 jobs over the year.

Economists and bond traders don't seem to agree with Yellen's Fed and the inflation hawks, which is why longer term interest rates, and bond yields shouldn't rise substantially this year.  There just isn't enough inflation to justify more than one Fed rate hike in 2017.  Time will tell, of course, as will any substantial rise in the budget deficit due to increased federal spending.

Harlan Green © 2017

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Thursday, March 9, 2017

U.S. Will Badly Need Immigrants

Popular Economics Weekly

For most of the past half-century, adults in the U.S. Baby Boom generation – those born after World War II and before 1965 – have been the main driver of the nation’s expanding workforce, reports the PEW Research Center. But as this large generation heads into retirement, the increase in the potential labor force will slow markedly, and immigrants will play the primary role in the future growth of the working-age population (though they will remain a minority of it).

The stakes are enormous if Republicans succeed in removing most of the estimated 11 million undocumented worker (only half of which are from Mexico and the Latin countries), and cut legal immigration in half, as they have promised to do. Economic growth will plummet, since it is mainly based on growth of the working age population, as well as labor productivity, which has also fallen since 2000.

The causes of the drop in labor productivity are largely because of the fall in capex spending, the investment in new plants and equipment, which has fallen by half since 2010, in large part because of the Great Recession, but also because corporations have chosen to move so many jobs overseas where labor is cheaper, rather than investing domestically to improve the productivity of American workers.
Graph: Econoday

The plunge in capex has been most noticeable last year, perhaps because of uncertainty over economic growth in what is the 7th year of this long growth cycle, or uncertainty about results of the President election. Such expectations can be self-reinforcing in these anecdotal surveys, of course, given the poor 1.9 percent GDP growth in 2016.

The ISM manufacturing survey, which tracks anecdotal assessments from a national sample of purchasers, made big headlines in the week with a 4.7 point jump in its new orders index to 65.1. This level of order growth was last exceeded in August 2009 and follows two prior 60 readings.

The number of adults in the prime working ages of 25 to 64 – 173.2 million in 2015 – will rise to 183.2 million in 2035, according to Pew Research Center projections. That total growth of 10 million over two decades will be lower than the total in any single decade since the Baby Boomers began pouring into the workforce in the 1960s. The growth rate of working-age adults will also be markedly reduced, says the study.

So the Trump administration has to be careful of what they wish for, if they want to boost economic growth domestically.

Harlan Green © 2017

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