Monday, August 30, 2021

California's NIMBY Problem


The Mortgage Corner

Calculated Risk

It’s no secret that California has a housing problem. Its bias for single-family, ‘not-in-my-backyard’ (NIMBY) zoning since the 1960s has finally caught up with reality—in the form of more than 150,000 residents homeless and some 700,000 new homes built last year in California, whereas 1,500,000 new jobs were created.

Where are these people expected to live? It’s no secret that the real problem is affordability. Commuters that work in Silicon Valley, for instance, must travel up to two hours per day to reach their jobs, because homes they can afford are on the farthest outreaches of metropolitan areas, with little mass transit yet planned to speed up the commute.

COVID-19 exacerbates the problem with existing-home inventories dropping to their lowest level in 2020, and annual prices then rising at double-digit rates when consumers came out of their stay-at-home shells looking for too few available to purchase.

The Calculated Risk graph dating from January 2002 shows that existing-home inventories in YoY change (blue line) and months of supply (red line) reached their low in January 2021 and have been rising fairly sharply since then.

Gov. Gavin Newsom, who came into office with bold pronouncements about a “Marshall Plan for Housing,” said he supported plans to increase density near transit, but never endorsed an individual bill that would implement that goal.

California legislators just took a huge step to address the state’s housing crisis by allowing homeowners to double up.  The state assembly passed a bill last week (Aug. 26) that allows for two-unit buildings to be built on lots previously zoned for single-family homes.

It’s a significant reversal of decades of policy built around restrictive single-family zoning. In California, as across the US, allowing for one housing unit to be built per parcel of land has been standard. It’s what gave rise the suburbs as we know them, but has also been used as a tool in racist housing policies that have excluded Black, brown, and Native Americans from homeownership. In recent years, restrictive zoning has been a primary driver of the state’s affordable housing shortage. The median home price in California has risen 27% in the past year alone, and currently sits at more than $800,000.

The bill would allow more building where it’s now illegal, with the intent of reducing California’s fast-rising home prices and increasing access to homeownership through a greater variety of options, according to state Senate leader Toni Atkins, D-San Diego, who introduced the bill and similar versions in the past.

To lessen concerns from more than 100 cities and neighborhood groups that oppose the bill, Atkins on Monday added a few amendments that give local jurisdictions some veto power over units that threaten public health and safety and curtail potential speculation. The bill — approved by the Senate in May and two Assembly policy committees in June — made it out of the Assembly Appropriations Committee Monday and was approved by the full Assembly Thursday on a 45-19 vote.

I reported last week that there is not enough housing to meet soaring demand. The national existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million) according to the NAR. Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means most young adults leaving school and/or their parents’ home may find rental housing to a more viable option for the foreseeable future.

Much more must be done, in other words. It will take years for this to happen with more multi-family housing amid denser zoning in the cards. And it will be closer to needed public transportation hubs, whether the NIMBYs like it or not.

Harlan Green © 2021

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Wednesday, August 25, 2021

July Home Sales Stay Strong


The Mortgage Corner

Calculated Risk

WASHINGTON (August 23, 2021) – Existing-home sales rose in July, marking two consecutive months of increases, according to the National Association of Realtors®. Three of the four major U.S. regions recorded modest month-over-month gains, and the fourth remained level.

New-home sales also increased, signaling that soaring home prices haven’t discouraged buyers who are migrating to the suburbs and hinterlands as more work from home in the new gig economy. We have seen digital workers migrating from their offices in Seattle and other major cities to smaller towns in the Midwest and New England to live in more comfortable surroundings, thanks to the Internet.


The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering existing-home sales in all nine U.S. census divisions, reported a 16.6 percent annual gain in May, up from 14.8 percent in the previous month.

The median existing-home price tallied by the NAR for all housing types in July was $359,900, up 17.8 percent from July 2020 ($305,600), which differs from Case-Shiller because CS uses a 3-month trailing average to make it more statistically valid. Each region saw prices climb. This marks 113 straight months of year-over-year gains, say the Realtors.

Total existing-home sales,1, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.0 percent from June to a seasonally adjusted annual rate of 5.99 million in July. Sales inched up year-over-year, increasing 1.5 percent from a year ago (5.90 million in July 2020).

"We see inventory beginning to tick up, which will lessen the intensity of multiple offers," said Lawrence Yun, NAR's chief economist. "Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren't seeing as much growth because there are still too few starter homes available."

The months of supply increased in July to 6.2 months from 6.0 months in June, with inventories returning to normal levels. The all-time high was 12.1 months of supply in January 2009. The all-time low was 3.5 months, most recently in October 2020.

There is still not enough housing to meet soaring demand. Total existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million). Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means the rest of the young adults leaving school and/or their parents may find rental housing to be a more viable option for the foreseeable future. How long is that—who knows?

Harlan Green © 2021

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Wednesday, August 18, 2021

Strong July Retail Sales

Financial FAQs


The DOW plunged more than 400 points at Tuesday’s opening, because retail sales were “weaker”, per the consensus estimate of pundits. But it was in large part because of lower new car sales, due to a shortage of computer chips.

In fact, the demand for both new and used cars is soaring, and retail sales are holdingup. The average new car price hit a record $38,255 in May, according to JD Power, up 12 percent from the same period a year ago, and the cost of used cars and trucks has soared by 32 percent in the first six months of 2021. By contrast, their prices fell by an average of 0.6 percent a year from 2009 to 2019.which is a better way to look at sales activity, says MarketWatch.

And if the pundits looked just a bit further, they would know that auto manufactures are racing to meet the demand by not taking the normal summer factory shutdown to retool for new models. So it is really good news that demand is running so high for autos, and restaurants and gasoline products, as consumers are traveling more in the summer months.

Overall U.S. industrial production rose a seasonally adjusted 0.9 percent in July, the Federal Reserve reported Tuesday, and manufacturing activity alone rose 1.4 percent in July, boosted by an 11.2 percent jump in output of those motor vehicles and parts.

Even then auto production remains about 3.5 percent below its recent peak in January. It will take several months to play catchup, when additional computer chips used in autos are manufactured. US chip manufacturers such as Intel are part of the chip shortage caught by the surprise surge in demand.

But as the long-term FRED graph shows, retail sales are still far above the historical five percent annual increase.

“Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1 percent from the previous month, but 15.8 percent above July 2020, reported the US Census Bureau.

So market investors in particular should take a step back from the unrelenting news headlines that react to every piece of bad and good news without looking between the lines.

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy, as I said recently.

The Q2 GDP report verifies that the American economy is capable of easily accomodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additonal government investments should they be passed in their present form.

We still cannot ignore the soaring hospitalizations from the Delta variant that will slow down some economic activity through the fall. We won’t know until school openings how the Delta variant will affect school children and teaching staff, for starters. And many essential workers are hanging back because of the variant’s surge as well.

Covid Tracker

The CDC says, “The current 7-day moving average of daily new cases (114,190) increased 18.4% compared with the previous 7-day moving average (96,454). The current 7-day moving average is 66.3% higher compared to the peak observed on July 20, 2020 (68,685). (But) The current 7-day moving average is 65.0% lower than the peak observed on January 10, 2021 (254,023).”

So we can only hope that the latest rise in vaccinations and addition of a third booster shot for the most vulnerable that is already widely available in pharmacies will prevent further damage.

Harlan Green © 2021

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Thursday, August 12, 2021

Job Openings At Record High

 Popular Economics Weekly

Calculated Risk

The number of job openings increased to a series high of 10.1 million on the last business day of June (yellow line on CR graph), the U.S. Bureau of Labor Statistics reported on Monday.

It seems many working-age adults aren’t ready to return to work for several reasons, based on early data from Ziprecruiter, an online employment agency. About 13 million Americans are currently receiving unemployment benefits. In some states, they stand to lose them if they don’t actively search for work. That’s because some states have reimposed work search requirements that were waived in the early days of the Covid-19 pandemic.

Ziprecruiter lists which states are terminating unemployment benefits early. “Early indications are that (unemployment) benefits have had some effect on job search,” says Julia Pollak, chief economist at Santa Monica, California-based Ziprecruiter, “but the effect is likely rather small because there are other things that are keeping people out of the labor force,” cited in a MarketWatch article.

She also lists some obvious reasons: The pandemic, which is resurgent in much of the country, and childcare, which has caused droves of workers — largely women — to stop working. Data from the Federal Reserve Bank of Dallas puts this number at 1.3 million.

The Dallas Fed says 31 percent of workers are reluctant, for whatever reason, to return to their previous job. It’s a data point that has increased slowly but steadily for more than a year.

Hires rose to 6.7 million and total separations edged up to 5.6 million in the JOLTS report, which tells us there were one million new hires in July, which then is seasonally adjusted to give the actual unemployment report. Within separations, the quits rate increased to 2.7 percent. The layoffs and discharges rate was unchanged at 0.9 percent, matching the series low reached last month, which tells us that employers are reluctant to lay off anybody with the current labor shortage.

Could record high consumer confidence be another reason employees are reluctant to return to work during the ongoing pandemic? They feel flush with all the $4 trillion in pandemic aid already flowing through the economy, so they can afford to look for better job choices with higher pay and benefits.

The Conference Board’s jobs-plentiful index increased to a 21-year high of 54.9, for starters, and wages and salaries at the bottom end of salaried workers are rising at the fastest clip since the pandemic.

“Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.”

American workers are perhaps in the best place in decades to take advantage of this economic recovery.

Harlan Green © 2021

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Friday, August 6, 2021

Another Strong Jobs Report

 Popular Economics Weekly

This was another very strong unemployment report by the Bureau of Labor Statistics (BLS) with 943,000 new nonfarm payroll jobs added in July and most of it in the service industries. Leisure/Hospitality, Government, Education/Health, and Professional/Business added 767,000 of those jobs.

“The unemployment rate declined by 0.5 percentage point to 5.4 percent in July, and the number of unemployed persons fell by 782,000 to 8.7 million,” said the BLS Household Survey. “These measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain well above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020.”

This is why consumers remain so optimistic, even with alarm bells ringing that economic activity may slow due to the pandemic’s latest surge, as I said last week. Because July’s unemployment report confirms it’s not hurting the jobs market with the 6 million plus job vacancies and employers practically begging their employees to return to work.

Another reason for consumers’ optimism is that average hourly pay rose 4.0 percent and is now above the pre-pandemic level. No wonder, with the 8.7 million still unemployed, many of which may be holding out for better pay and working conditions!

“At the current rate of hiring, the U.S. won’t regain all the lost jobs at least until early 2021 — and it could even take a lot longer than that,” says MarketWatch’s Jeffry Bartash.

How much longer it will take might depend on COVID-19, and the Delta Variant, which is causing a fourth surge in infections, overwhelming some hospitals in Texas, Florida, and other red states that aren’t enforcing a mask mandate.


“The current 7-day moving average of daily new cases (66,606) increased 64.1% compared with the previous 7-day moving average (40,597),” reports the CDC. “The current 7-day moving average is 73.8% lower than the peak observed on January 10, 2021 (254,063) and is 480.1% higher than the lowest value observed on June 19, 2021 (11,483). A total of 34,722,631 COVID-19 cases have been reported as of July 28.”

That is huge, folks, and even throws into doubt just when and how schools will open this fall. To see the level of community transmission in your county, visit COVID Data Tracker.

Harlan Green © 2021

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Monday, August 2, 2021

Can We Make a Soft Landing?

 The Mortgage Corner


Fed Chair Alan Greenspan in early 2000 convinced GW Bush that he could finance GW’s war on terror without raising taxes by borrowing money at ultra-low interest rates. America’s sovereign debt had AAA credit rating at the time, and still does with two of the three major accreditation agencies. Greenspan maintained we could have a “soft landing” if the US economy overheated by tightening credit gradually without causing a recession.

Problem was the Fed under Greenspan held rates down too long with too easy credit as inflation began to rise and the economy overheated, resulting in too much irrational exuberance by banks and lenders that resulted in the Great Recession.

Does that sound familiar? Economists are beginning to wonder if the Fed under Jerome Powell to making the same mistake in financing our recovery from the COVID-19 pandemic.

However, the US economy is in a much better place now to tame economic activity—i.e., can create a soft landing without causing an ensuing recession—if the Biden administration and congress will pay for the investments we are making in our public improvements with the current infrastructure and family plan bills working through congress.

This is in addition to the already passed $trillions to pay for the pandemic. The new legislation will increase productivity by giving Americans earning wages and salaries better working conditions, and families a better education, including paid childcare and family leave that will lift many families with young children out of poverty.

The benefits of putting Americans back on a footing with other developed countries in the 38-member Organization of Economic Co-operation and Development (OECD) are almost incalculable, most of whose citizens work fewer hours for the same or better pay while producing the same amount of goods and services.

The bipartisan infrastructure deal reached by President Joe Biden and a group of senators would not only add to economic growth, but also lower the national debt, according to a new study from the University of Pennsylvania’s Wharton School.

“Over time, as the new spending declines, IRS enforcement continues, and revenue grows from higher output, the government debt declines relative to baseline by 0.4 percent and 0.9 percent in 2040 and 2050 respectively,” said Wharton team as cited by CNBC in June.

The problem has never been what policies would improve the lives on America’s Main Street, but how to pay for them, and it will take additional legislation under the budget reconciliation process to boost taxes. Over the past 40-odd years government-is-the-problem policies instigated in 1980 by conservative Democrats and Republicans had cut taxes and whittled down government programs that would benefit Main Street.

The solution is more progressive taxation enacted that would divert profits from corporations and investors not investing in America’s future to where it will do the most good—in our sadly neglected infrastructure and social safety net.

There are many more safeguards in place that should cushion a soft landing if inflation becomes worrisome because of safeguards put in place since the Great Recession; such as requiring banks and other lending institutions to maintain higher reserves.

The Biden administration wants to pay for future, more equitable economic growth by raising taxes on the wealthiest and corporations, rather than borrowing more that would increase the federal debt. The problem will be to refute the reigning economic orthodoxy that says higher taxes inhibit growth and investment.

However, the lower tax rates since 1980 have increased income inequality rather than boosted long term growth rates,

The best ways to deal with inflation and any possible overheating is to invest in the health and economic security of future generations rather than those of past generations that haven’t done enough to pay for the future.

Harlan Green © 2021

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