Record Post-Recession Home Sales, Construction, Case-Shiller Prices in July

The Mortgage Corner

With all the bad news coming from the stock market, it’s good to know that this hasn’t affected the housing market. In fact, it’s pushing interest rates lower, so that a conforming 30-year fixed mortgage rate has dropped to 3.50 percent in California. And that will continue to boost home sales (and prices, of course). That’s why Case-Shiller shows two cities already above their bubble highs, and the Conference Board’s Index of Leading Economic Indicators (LEI) shows continued strong growth ahead.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased a whopping 2 percent to a seasonally adjusted annual rate of 5.59 million in July from a downwardly revised 5.48 million in June. Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3 percent above a year ago.

Graph: Econoday

Lawrence Yun, NAR chief economist, says the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season. "The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now," he said. "As a result, current homeowners are using their increasing housing equity towards the downpayment on their next purchase."

And demand is well ahead of thin supply, at 4.8 months at the current sales rate vs 4.9 and 5.1 in the two prior months and 5.6 months in July last year. Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent.

The S&P/Case-Shiller U.S. National Home Price Index recorded a higher year-over-year gain with a 4.5 percent annual increase in June 2015 versus a 4.4 percent increase in May 2015. The smaller 10-City Composite had marginally lower year-over-year gains, with an increase of 4.6 percent year-over-year. Denver and Dallas are the two cities now above their 2007 bubble highs, while Denver (+10.2%), San Francisco (+9.5%) and Dallas (+8.2%) had the biggest year over year increases.

Graph: Calculated Risk

This mismatch of supply vs. demand means even higher existing-home prices ahead. Especially since housing construction is just beginning to play catch up after years of low growth—no coincidence, given the rising demand for housing of any kind—rental as well as for prospective homeowners. Led by a strong jump in single-family production, nationwide housing starts inched up 0.2 percent to a seasonally adjusted annual rate of 1.206 million units in July, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest level since October 2007.

It’s also why the Conference Board’s Index of Leading Economic Indicators (LEI) continues to show moderate growth for the next 6 months, and is up 1.7 points from January to July. “The U.S. LEI fell slightly in July, after four months of strong gains. Despite a sharp drop in housing permits, the U.S. LEI is still pointing to moderate economic growth through the remainder of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board.

Swings in housing permits have been distorting recent LEI readings including for July. Permits, which fell 16 percent in Tuesday's housing starts report, more than offset what are a run of mostly neutral readings among other components. Given the uncertainties of measuring housing data (readings with plus or minus 11 percent variations are common) the index could have added another 0.54 points to the July indicator, instead of subtracting that amount, for a much stronger reading.

The strongest component is the rate spread which reflects the Fed's ongoing accommodative policy. Also pointing to strength are initial jobless claims, which are at rock bottom lows, and the report's credit index which points to a rise ahead for lending.

So what’s happening in China and the so-called emerging markets (including the Petro states, and Russia) will help to keep interest rates low, housing strong, and maybe the Fed from raising their short-term rates for some time to come.

Harlan Green © 2015

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

New-Home Sales, Case Shiller Index On the Rise

The Mortgage Corner--II

As if to confirm U.S. housing starts and building permits’ jump to their highest levels in nearly 7-1/2 years, the sales rate of new single-family houses in April 2015 rose even higher at a seasonally adjusted annual rate of 517,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. “This is 6.8 percent above the revised March rate of 484,000 and is 26.1 percent above the April 2014 estimate of 410,000,” per the Census Bureau.

Graph: Calculated Risk

It means home construction is returning to pre-recession levels, as is the demand for more housing, which will spur more housing construction. The sales rate is rising fast enough to drop housing inventories to 4.6 months, at the low end of inventories.

The south was the biggest gainer, with construction up 5.8 percent. Also, the median price rose to $297,300 for a strong 8.3 percent year-on-year gain. So sales have finally reached the long term trend line, which should signal a longer term recovery as buyer’s enthusiasm tends to feed on itself, according to Behavioral Economist and Nobelist Dr. Robert Shiller.

Graph: Calculated Risk

As if to confirm the rising enthusiasm of buyers, the S&P Case-Shiller Home Price Index continued its climb to post-recession highs, with San Francisco now up 10.31 percent year over year, Denver and Dallas up 10 percent and 9.3 percent, respectively. Denver and Dallas housing prices have almost doubled since the Great Recession, per the above graph. San Francisco’s prices are just now approaching their bubble high.

“Home prices have enjoyed year-over-year gains for 35 consecutive months,” says David M. Blitzer, Managing Director & Chairman of the Index Committee for S&P Dow Jones Indices. “The pattern of consistent gains is national and seen across all 20 cities covered by the S&P/Case-Shiller Home Price Indices…”

Of course lower interest rates were also a factor, as I’ve said, with housing affordability increasing this year, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).

In all, 66.5 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $65,800, said the report. “This is up from the 62.8 percent of homes sold that were affordable to median-income earners in the fourth quarter.”

What is another catalyst? Housing formation is recovering, which is largely due to Millennials moving out of their parents’ homes, or higher education venues. Based on unusually low household formation numbers of past several years, "there's a ton of people living in basements," Fundstrat Global Advisors' Tom Lee said in a recent interview with CNBC's "Trading Nation." "Two quarters of pretty decent household formation isn't getting everybody out of the basement. I think this means we have multiple years where household formations are well over 1.3 million, 1.4 million."

 

Household formation will be the key to future housing growth, as the millenials’ population size has now reached that of the baby boomers, their parents. And many have yet to reach home-buying age. Household formation had dipped as low as 360,000 per annum in recent years, due to the housing bust. So this is yet another sign of a growing pool of homebuyers.

Harlan Green © 2015

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

New Home Sales Surging

The Mortgage Corner

New U.S. homes sold at an annual rate of 539,000 in February to mark the best month of sales in seven years, the government reported Tuesday. The pace of sales for January was also revised up sharply to 500,000. It's the first time annualized sales have hit 500,000 or more for two straight months since early 2008.

Graph: Calculated Risk

“This is 7.8 percent above the revised January rate of 500,000 and is 24.8 percent above the February 2014 estimate of 432,000," said the Census Bureau. And it reduced the for sale inventory to a 4.7 month supply, which is low considering the pent up demand for housing sales sure to grow this year, with low inflation and rising employment.

Low inflation should be a factor in housing sales this year, if oil prices stabilize, since it boosts householders’ take home pay. Price rises moderated last year. The Federal Housing Finance Authority just reported that same-home prices of homes with conforming loans rose 5.1 percent in January, down slightly from 5.4 percent in December. But we are in mid-winter, so look for more price rises as the spring selling season kicks in.

Graph: Econoday

Overall CPI inflation was unchanged in February, which is better than the negative -0.1 percent drop in January. Oil prices have stabilized around $50/barrel for Brent Crude at the moment, but who knows what this year will bring with so much unrest with major oil producers in the Middle East, and even Russia?

Graph: Trading Economics

CNBC’s Diana Olick reports that lack of existing-home inventory is the real problem. “Lack of supply of existing homes is pushing prices again, up 7.5 percent year over year to a median sale price of $202,600 in February, according to the NAR, that reported slower February existing home sales,” she says. “And don’t blame it on the weather, according to NAR chief economist Lawrence Yun.

“He calls this reacceleration of price gains, "unhealthy," per Olick. “Affordability had been helping the housing recovery inch along, but now it is weakening and fast becoming a roadblock to homeownership. Still-rising rents are contributing to the problem, keeping first-time buyers from being able to save for a down payment.”

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.2 percent to a seasonally adjusted annual rate of 4.88 million in February from 4.82 million in January. Sales are 4.7 percent higher than a year ago and above year-over-year totals for the fifth consecutive month.

Lawrence Yun, NAR chief economist, says although February sales showed modest improvement, there’s been some stagnation in the market in recent months. “Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” he said. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”

The median existing-home price for all housing types in February was $202,600, which is 7.5 percent above February 2014. This marks the 36^th consecutive month of year-over-year price gains and the largest since last February (8.8 percent).

Hence those rising prices and low inventories should spur more new-home construction this year.  But housing construction is barely in recovery mode, and has a long way to go to approach the 800,000 to 1 million unit per year average of past decades.

Harlan Green © 2015

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

Don’t Forget the Millennials—Part II

Financial FAQs

We have talked before about the upcoming Millennial, or Gen Y generation that will number more than 80 million eventually, 7 percent higher than their baby boomer parents that gave us such high economic growth in the 1980s and 90s. And chances are they will fuel similar economic growth as they mature in the 18 to 37-year age brackets, including a large boost to housing.

Why? Because favorable demographics is the main driver of economic growth and jobs, say Demographers, and millennials are  the right ages for having families and expanding the work force of eligible workers.

A record number are currently still living with their parents and staying in school. Who can blame them with the housing bust and current slow recovery? But that’s going to change. For instance, Forbes Magazine likes their work prospects. “No generation before has had as much access, technological power or the infrastructure to share their ideas as quickly as the millennials. They are used to speed, multi-tasking, and working on their own schedule. These can be great assets in a knowledge economy which values end results over the process.”

Graph: Calculated Risk

In fact, it is already happening. The US birthrate is up for the first time in 5 years, reports the National Center for Health Statistics. Though these millennial mothers may have fewer babies, there are more of them, hence the overall increase. And they are waiting longer to have babies, with teenage pregnancies down 10 percent from 2012 to 2013.

Whereas, the 2013 preliminary birth rate for women aged 30–34 was up 1 percent from the rate in 2012. The rate for women aged 35–39 was up 3 percent from 2012, reaching the highest rate for this age group since 1963. This is good news for future economic growth, which is currently in the 2 percent range. That’s because they will replace the retiring baby boomers in the workforce that have been the cause of so much doom and gloom about future budget deficits and care of the elderly.

They are considered optimistic, with 41 percent satisfied with the way things are going in the country, compared with 26 percent of those over 30, according to a US Chamber of Commerce Foundation study. “Optimism abounds despite the many tragic events that have shaped this generation, such as 9/11, terrorist attacks, school shootings like Columbine, the 2004 Southeast Asian tsunami, and hurricane Katrina. Political, economic, and organizational influences include the 2000 election, the impeachment of a president, the recession and the fall of Enron to name a few. As kids, they were tightly scheduled and many would say overindulged by helicopter parents. They were products of NCLB, reality TV, and an “iWorld,” where Starbucks is usually just a short walk away.”

There is a reason that millennials will boost the housing market, as they enter the jobs market. Rents are rising faster than interest rates and housing prices in many areas, making purchasing a home more affordable.

Job Growth Boosts Rents in Largest U.S. Rental Markets, says Trulia. Rents rose more than 10 percent year-over-year in five large rental markets – San Francisco, Sacramento, Oakland, Denver, and Miami. These five markets all had job growth ranging from solid to stellar, says Trulia economist Jed Kolko.  Overall, rents rose 6.1 percent nationally, with rents increasing more in markets with faster job growth.

The Harvard Joint Center For Housing Studies also reports more favorable household formation, and so housing trends over the next 10 years in their State of the Nation’s Housing 2014 report.

“Given the current size of the adult population as well as current headship rates by age or race/ethnicity, the Joint Center for Housing Studies estimates that demographic trends alone will push household growth in 2015–25 somewhere between 11.6 million and 13.2 million, depending on foreign immigration. This pace of growth is in line with annual averages in the 1980s, 1990s, and 2000s, and should therefore support similar levels of housing construction as in those decades.”

So, why worry so much about future growth and budget deficits when we have a generation that might equal the purchasing power and job growth of the baby boomers? We really need to give millennials, born during much more trying times, the chance to prove their mettle, and it looks like that is already happening.

Harlan Green © 2014

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Pending Home Sales Remain Strong

The Mortgage Corner

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8), reports the National Association of Realtors. Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).

Lawrence Yun, NAR chief economist, says the housing market is stabilizing, but ongoing challenges are impeding full sales potential. “Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved,” he said. “However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates.”

We also have to look at the newest generation for those potential buyers, the Millennials, or echo boomer children of the baby boomers born after 1980. From ages 18 to 36, they could number as much as 80 million, according to Barron’s Magazine. And this could ultimately generate a huge pent up demand for housing, according to Goldman Sachs analyst Hui Shan.

The fact is more than 35 percent of so-called young adults still live with their parents. It’s in part because of the recession, but also because record numbers have remained in school. Whereas the normal percentage of young adults remaining with parents is about 25 percent, so that extra 10 percent should eventually find their own housing.

"As long as economic recovery and labor market improvements continue, household formation should eventually normalize," Shan writes. "Given the severe damage caused by housing busts to the economy, the process of normalization may take a number of years."

Past history also tells us that new-household formation will pick up, says Shan. "The average household size increased during the first few years of each housing bust, presumably driven by young individuals living with their parents and roommates doubling up to save rent. Over time, the effect reversed itself and average household size retraced the earlier increases, translating into increases in household formation.”

What is normal household formation? It has averaged more than 1 million per year over past decades, but today is somewhere between 350 to 600,000/year, depending on whom you ask. The Harvard Joint Center For Housing Studies predicts it will rise to some 1.2 million annually over the next decade precisely because of Millennials coming of age.

Given the sheer volume of young adults coming of age, the number of households in their 30s should increase by 2.7 million over the coming decade, which should boost demand for new housing. “Ultimately, the large millennial generation will make their presence felt in the owner-occupied market,” says Daniel McCue, research manager of the Joint Center, “just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013.”

So despite these headwinds, the NAR’s Yun ultimately expects a slight uptick in pending, and existing-home sales during the second half of the year. Price appreciation has decreased to its slowest pace since March 2012 behind larger increases in inventory, and rents are rising 4 percent annually. So those potential buyers are less likely to experience sticker shock, which makes it more likely that many will choose to buy in order to participate in potential price appreciation, rather than tolerate greater rent increases.

Harlan Green © 2014

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

Where is Housing Affordable?

The Mortgage Corner

Why aren’t there more home buyers? It seems that housing can’t really recover until household incomes recover, and household incomes are barely keeping up with inflation at the moment. We also know that can’t happen until we are closer to full employment. Right now housing prices are rising faster than incomes, which means an ever shrinking number of homebuyers are eligible purchasers, unless current strict lending standards are eased.

At least, that’s what one report suggests. In Trulia’s Price Monitor for June, Trulia’s chief economist Jed Kolko compares the rise in asking prices with the rise (or lack thereof) of wages in the 100 largest metro areas.

“In fact, average wages per worker rose less than 1 percent in 2013 in all but one of the 10 metros with the largest price increases,” Kolko said. “Nationally, asking prices (year-over-year in June 2014) rose faster than wages per worker (year-over- year in 2013) in 95 of the 100 largest metros.”

Graph: Housing Wire

The report might be slightly biased, as those areas with the highest price increases; such as Detroit, Riverside-San Bernardino, and Florida; were severely overbuilt with mostly low cost housing. But even Silicon Valley suburbs such as San Francisco had 20 percent annual price increases, while average incomes even there can’t keep up.  They rose as much as 5 percent Y-o-Y in the high cost areas.

And Fannie Mae and Freddie Mac conforming loans have been getting more expensive. They can add as much as 3 pts. to loan costs if a buyer’s credit score drops below 680. And many lenders have dropped their Fannie Mae maximum debt-to-income ratio to 43 percent, though Freddie Mac’s can as high as 50 percent with compensating factors, such as a good savings history.

The good news is that the unemployment rate has dropped to 6.1 percent, but when part timers and those no longer looking for work are included, it is still stuck at 12.1 percent, according to the US Census Bureau’s June unemployment report.

The best answer to slow down price increases is to build more housing, of course. We know existing-home inventories continue to increase, with inventory now higher than in 2013, which is also helping affordability.

Graph: Investors Daily

Though we may have to wait for more jobs, the jobs picture is looking better. The latest indicator is the Labor Department’s May JOLTS report, which says that employers are firing fewer workers and hiring more.

Job openings rose to a recovery high in May, the Labor Department said Tuesday in its Job Openings and Labor Turnover Survey (JOLTS) report. The 4.64 million U.S. job openings topped economists' expectations for 4.4 million and hinted at improvement in the economy and job market.

So economic growth and employment are picking up, which means the gap between incomes and housing prices will probably decrease, allowing more homebuyers into the housing market this year.

Harlan Green © 2014

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

 

Home Sizes Ballooning Again

The Mortgage Corner

Housing sizes are ballooning, after a slight pause due to the Great Recession, reports the U.S. Census Bureau and Marketwatch. In 2013 the median floor area of new single-family homes sold in the U.S. rose 4 percent to hit almost 2,500 square feet, according to recently released data from the U.S. Census Bureau.

That compares to the median 1,800-square-foot size of a single detached home, as reported in the 2011 American Housing Survey, when 40 percent of homes were 1-2,000 square feet in size.

Graph: WSJ Marketwatch

The biggest new single-family homes of all were sold in the South, hitting a median of 2,534 square feet in 2013, up 1 percent from the prior year. Homes in the Northeast reached 2,456 square feet, up 3 percent. Homes in the Midwest measured 2,405 square feet, up 9 percent from 2012, and homes in the West hit 2,394 square feet, up 5 percent.

And prices continue to rise. The Case-Shiller Home Price Index of same-home sales has risen 12.4 percent in a year, and buyers are paying more for these larger homes. The median sales price of new single-family homes rose to $268,900 last year, up 10 percent from 2012.

What does that say? Those with the money are moving the various markets. The fastest growing segment are homes from 3,000 to 3,999 square feet, says the Census Bureau. Last year 9 percent of new single-family homes sold in the U.S. were at least 4,000 square feet, up from 8 percent in 2012. Meanwhile, the share of homes under 1,800 square feet fell to 17 percent in 2013, down from 22 percent in 2012 and 33 percent a decade earlier.

Existing-home sales are following the same trend. April’s sales of existing homes that cost at least $1 million grew more than 5 percent from a year earlier, while sales of homes under $250,000 fell more than 5 percent, according to the National Association of Realtors.

What will bring more buyers into the housing market? Even lower mortgage rates, it seems. Purchase mortgage applications are still declining since January, even though mortgage rates have plunged on late, with the 30-year conforming fixed rate falling to 3.875 percent, and Hi-Balance conforming fixed rates at 4.00 percent for 1 origination point.

Graph: WSJ Marketwatch

So the big question remains whether middle class families will be able to afford those middle class homes anymore? That has as much to do with households starting up, or new household formation. And with so many of the 25 to 55 year-olds out of work, it may take years for households formation to pick up to the 1.2m per year average that prevailed before the Great Recession, from the current 600,000 new annual households being formed.

Graph: Zero Hedge

For instance, in the April unemployment report, one of the most important age group for jobs, those workers aged 25-54 which represent the bulk of the US labor force and are also the best and most productive group, the total number of jobs tumbled from 95,360K to 95,151K, a drop of 209K, reports Zero Hedge.

Seniors were the winners. According to the establishment survey, the only beneficiary of whatever this jobs "recovery" is, were workers aged 55-69, that have gained 174,000 jobs to date.

Harlan Green © 2014

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

Where Is Housing Affordable Anymore?

Financial FAQs

How much salary do you need in order to afford the principal and interest payments on a median-priced home in your metro area? To find out, HSH.com, a mortgage data service, took the National Association of Realtors’ first-quarter data for median home prices and HSH.com’s first-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home--the principal, interest, taxes and insurance--in 27 metro areas.

Graph: HSH

The good news is that conforming 30-yr fixed rates are now down to 3.875 percent for a ½ origination point in California. The Hi-Balance conforming 30-yr fixed rate is now 4 percent with a ½ pt. origination fee.

Residents of the five cities that need the lowest annual salary to afford a median-priced home were: Cleveland ($29,788), Pittsburgh ($30,177), St. Louis ($31,275), Cincinnati ($31,850) and Detroit ($32,250). The five least-affordable cities were: Boston ($79,820) Los Angeles ($85,964) New York City ($89,788), San Diego ($98,534) and San Francisco ($137,129).

Unfortunately, HSH used very conservative debt-to-income (DTI) ratios to arrive at these numbers, making them seem more sensational that they really were. HSH used standard 28 percent "front-end" debt ratios, and a 20 percent down payment taken from the NAR’s median-home-price data to arrive at their figures, said the blog. But Fannie Mae allows up to 45 percent for all debt, and even 50 percent DTI, in some cases, so that homes even in the most expensive cities don’t require such high salaries.

A buyer can in fact own a home that is 160 percent higher than the median prices with the same income, or conversely, instead of the $137,150 annual salary, it can be as low as $103,000 per year with San Francisco’s $679,800 median price, if no other debt obligations.

This is while April total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.3 percent to a seasonally adjusted annual rate of 4.65 million in April from 4.59 million in March, but are 6.8 percent below the 4.99 million-unit level in April 2013.

Graph: Calculated Risk

Total housing inventory at the end of April jumped 16.8 percent to 2.29 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, up from 5.1 months in March. Unsold inventory is 6.5 percent higher than a year ago, when there was a 5.2-month supply, which is slowing those price increases.

Homes are still affordable, even in the highest-priced cities, in other words. But it’s no surprise those are the coastal cities that also have the most robust economies.

Harlan Green © 2014

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Home Price Strength To Boost Sales

The Mortgage Corner

Data through February 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, show that the annual rates of gain posted 13.1 (in 10-city index) and 12.9 percent (20-city index) in the twelve months ending February 2014. Though some regions had flat or slightly negative readings—e.g., Cleveland and Chicago are still affected by winter weather—it is good news for sales.

Graph: Calculated Risk

“Prices remained steady from January to February for the two Composite indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks.”

California cities San Francisco (22.7 percent), San Diego (19.9 percent), and Los Angeles (18.2 percent) led the way, with Las Vegas (23.1 percent) still the overall leader in annual price increases.

The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even there prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.

Another reason for optimism that home sales will increase this year is inventories are increasing again. Housing Tracker (Department of Numbers) has been providing some weekly inventory data for the last several years to Calculated Risk. And inventories are up 8.2 percent already this year.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  Inventory in 2013 finished up 2.7 percent YoY compared to 2012. But inventory in 2014 (Red) is now 8.2 percent above the same week in 2013.

The median asking price for homes in the US peaked in June 2006 at $319,459 and is now $48,209 (15.1 percent) lower. From a low of $211,844 in January 2011, the median asking price in the US has increased by $59,404 (28.0 percent) to $273,759, says Housing Tracker.

Graph: Calculated Risk

So though the price increases had some effect on slowing sales of new and existing-home over the past several months, the severe winter weather and lower inventories have a larger effect. And don’t forget rising prices also mean rising equity levels, which means more homes are eligible for sale.

Harlan Green © 2014

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

Rising Consumer Confidence To Boost Growth

Popular Economics Weekly

Consumers seem to finally be consuming their normal share of economic growth—which is currently 68.2 percent of GDP, or overall economic activity. We know this because they are spending more, and their confidence numbers are returning to historic levels.

Graph: Reuters-Inside Debt

The April consumer sentiment report is very strong, with the composite index at 84.1 versus the final March reading of 80.0. The latest reading is tied for the third best of the recovery, only 1.0 off from the recovery high of 85.1 in July last year. Perhaps the biggest plus in the report was the current conditions component, at 98.7 for a new recovery best and a very strong 3.0 points above March.

And April retail sales were as good—which is about ½ of personal consumption expenditures. Retail sales grew 1.1 percent in March after rebounding 0.7 percent in February (originally up 0.3 percent). Much of the latest advance came from motor vehicles which jumped 3.1 percent, following a 2.5 percent rebound in February. Excluding motor vehicles, sales increased a still healthy 0.7 percent, following a gain of 0.3 percent in February.

Graph: Econoday

The main reason for all this is the thaw in job creation, with the unemployment rate at 6.7 percent, 197,000 nonfarm payroll jobs created in March, and economists predicting even higher job growth ahead. And the manufacturing sector is growing again, after a winter pause.

"The March PMI^® registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month,” said Bradley J. Holcomb, chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee.

The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1 percent compared to February's reading of 52.3 percent. Several comments from the panel reflect favorable demand and good business conditions, with some lingering concerns about the particularly adverse weather conditions across the country.

I still maintain that the housing market is the other sector that will boost employment this year. For instance, pending home sales rose 3.4 percent in March - the first gain in nine months - signaling that sales of existing homes may pick up, the National Association of Realtors reported Monday. The index of pending home sales hit 97.4 in March -- the highest reading since November -- compared with 94.2 in February.

"After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers," said Lawrence Yun, NAR's chief economist. Despite March's gain, the gauge was down 7.9 percent from a year earlier. Low inventory, declining affordability and poor weather have hit the housing market in recent months.

There are other factors that boost consumer confidence, of course. But housing is the largest wealth-creator for middle class wage earners, so the wealth-effect from growing housing equity will boost their confidence as housing prices increase.

Harlan Green © 2014

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

January New-Home Sales Soar

Financial FAQs

The Polar Vortexes haven’t stopped everything.  It looks like new-home sales are picking up in midwinter, a sign that existing-home inventories are too low. Sales of new single-family houses in January 2014 were at a seasonally adjusted annual rate of 468,000, according to estimates released jointly today by the U.S. Census Bureau and HUD. This is 9.6 percent above the revised December rate of 427,000 and is 2.2 percent above the January 2013 estimate of 458,000.

Graph: Calculated Risk

It was the highest sales rate since 2008, the end of the housing bubble. But inventories are still too low, which means new-home sales will continue to increase as more housing construction comes on line, with close to 1 million units already in the construction pipeline. The months of supply decreased in January to 4.7 months from 5.2 months in December.

Graph: Calculated Risk

The problem is obvious from this graph. Inventories have returned to levels that prevailed from 1997 to 2005, a prolonged period of pent up demand for housing that, along with prolonged easy credit conditions, caused the housing bubble.

January's data show a big 10.4 percent gain in the South which is by far the largest region for new home sales. The West, which is a distant second behind the South, shows an 11.0 percent gain.

A plus for sales has been recent price concessions as the median price is down 2.2 percent to $260,100. The year-on-year sales gain, which spent most of last year in the double digits, is now modest, at 3.4 percent and in line with the 2.2 year-on-year gain for sales.

This is while total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January from 4.87 million in December, and are 5.1 percent below the 4.87 million-unit pace in January 2013.

So new-home sales are surging, and will continue to surge, as long as existing inventories are so low. Last month’s existing-home activity was the slowest since July 2012, when it stood at 4.59 million, and signals the effect of low inventories and rising interest rates that have cut mortgage applications to their lowest level in a year.

Harlan Green © 2014

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2013 Home Sales Highest Since 2006

The Mortgage Corner

The National Association of Realtors (NAR) just reported that for all of 2013, there were 5.09 million sales, which is 9.1 percent higher than 2012. It was the strongest performance since 2006 when sales reached an unsustainably high 6.48 million at the close of the housing boom, and is now back to the 2000 sales rate at the beginning of the housing bubble.

Graph: Calculated Risk

Lawrence Yun, NAR chief economist, said housing has experienced a healthy recovery over the past two years. “Existing-home sales have risen nearly 20 percent since 2011, with job growth, record low mortgage interest rates and a large pent-up demand driving the market,” he said. “We lost some momentum toward the end of 2013 from disappointing job growth and limited inventory, but we ended with a year that was close to normal given the size of our population.”

But for sale inventories have declined and are putting upward pressure home prices. The national median existing-home price for all of 2013 was $197,100, which is 11.5 percent above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4 percent.

The is in large part because total housing inventory at the end of December fell 9.3 percent to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from 5.1 months in November. Unsold inventory is 1.6 percent above a year ago, when there was a 4.5-month supply.

The median existing-home price for all housing types in December was $198,000, up 9.9 percent from December 2012. Distressed homes – foreclosures and short sales – accounted for 14 percent of December sales, unchanged from November; they were 24 percent in December 2012. The shrinking share of distressed sales accounts for some of the price growth.

Ten percent of December sales were foreclosures, and 4 percent were short sales. Foreclosures sold for an average discount of 18 percent below market value in December, while short sales were discounted 13 percent.

Interest rates will play a big part on home sales this year, needless to say, but will probably not rise much above current rates, even with higher economic growth. This is because of the tremendous cash hoard of businesses that obviates their need to borrow, as well as consumers that are borrowing much less than in the past. The 30-year conforming fixed rate is averaging 4.0 percent in California for a 0.5 point origination fee, and high-balance 30-year conforming is averaging 4.125 percent for a 1 point origination fee.

Harlan Green © 2013

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Affordable Housing In Decline

The Mortgage Corner

The Harvard Joint Center for Housing Studies has just come out with their rental market report, and it shows very little low rent housing available, due mainly to both increased household formation and those who have lost their homes from the busted housing bubble. Almost all of the 2.7 million abandoned and/or foreclosed homes are gone; most becoming rentals that do not meet the expanding need for rental housing.

Millions of Americans are in precisely that situation, according to a study released today by Harvard’s Joint Center for Housing Studies. The availability of apartments, especially cheaper ones, hasn’t nearly kept up with demand, and the problem has worsened since the 2007-09 recession, the study says.

In 1960, about one in four renters paid more than 30 percent of income for housing. Today, one in two are cost burdened,” according to the study, America’s Rental Housing.

Graph: Harvard Center for Housing Studies

Rick Judson, chairman of the National Association of Home Builders (NAHB), issued the following statement on the rental housing report:

"The report released today by the Harvard Joint Center for Housing Studies highlights serious affordability problems for many of America's renter households, and NAHB supports many of the policy initiatives outlined in the study to meet this ongoing challenge.  Of primary importance, efforts to reform the housing finance system must include a federal backstop to maintain broad liquidity during all economic cycles and ensure that rental housing can continue to be built and preserved.”

Judson and the NAHB have supported maintaining some form of Fannie Mae and Freddie Mac to guaranteed conforming loans that currently cover more than 90 percent of mortgages originated. There have been no viable alternatives proposed to date.

"It is clear that the federal role in ensuring the availability of financing for multifamily rental housing for low- and moderate-income households is critical,” said Judson. “Other ways to reduce the costs of providing affordable housing must be pursued as well, such as strengthening the Low Income Housing Tax Credit program, removing regulatory barriers to construction, providing gap financing to help reduce construction costs, streamlining program rules and allowing agencies to align administrative procedures across programs.”

Graph: Boston Globe

So the real problem is rising housing prices, coupled with very low housing inventories that are putting pressure on affordable housing. The good news is that a lot more rental housing is being constructed with strength in the multifamily component that spiked a monthly 15.3 percent after a 20.1 percent surge in September. The multifamily component is up 22.5 percent on a year-ago basis while the single-family component is up 8.8 percent.

Harlan Green © 2013

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Mortgage Delinquencies Down, Equity Higher

Financial FAQs

According to the second quarter Zillow Negative Equity Report, the national negative equity rate continued to fall in the second quarter, dropping to 23.8 percent of all homeowners with a mortgage from 25.4 percent in the first quarter of 2013. The negative equity rate has been continually falling for the past five quarters.

More good news was that real GDP growth for the second quarter was raised to an annualized rate of 2.5 percent compared to the initial estimate of 1.7 percent and compared to a fourth quarter rise of 1.1 percent. Expectations were for 2.2 percent.

Graph: Econoday

Final sales of domestic product showed a revised gain of 1.9 percent versus the advance estimate of 1.3 percent. This series increased 0.2 percent in the first quarter. Final sales to domestic producers (which exclude net exports) was nudged down to 1.9 percent versus the initial estimate of 2.0 percent. This followed a 0.5 percent gain in the first quarter.

In the second quarter of 2013, more than 805,000 American homeowners were freed from negative equity. However, more than 12 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally — where the loan-to-value ratio is more than 80 percent, making it difficult for a homeowner to afford the down payment on another home — is 41.9 percent of homeowners with a mortgage.

While not all of these homeowners are underwater, they have relatively little equity in their homes, and therefore selling and buying a new home while covering all of the associated costs (real estate agent fees, closing costs and a new down payment) would be difficult. Of all homeowners – roughly one-third of homeowners do not have a mortgage and own their homes free and clear – 16.7 percent are underwater.

Graph: Zillow

Figure 3 shows the loan-to-value (LTV) distribution for homeowners with a mortgage from 2012 Q2 to 2013 Q2. Even though many homeowners are still underwater and haven’t crossed the 100 percent LTV threshold to enter into positive equity, they are moving in the right direction. The good news is that with these high rates of appreciation negative equity has been reduced at a fast pace in the near-term (this will change as home value appreciation moderates later on this year and into the next, as the current rates are not sustainable).

Over the last year Phoenix’s negative equity rate dropped by 20.4 percentage points, Las Vegas’ dropped by 20.1 percentage points and Sacramento’s dropped by 17.7 percentage points (Q2 2012-Q2 2013). However, nationally the effective negative equity rate remains very high at 41.9 percent. In a move-up market, homeowners with less than 20 percent equity will effectively still be “locked” into negative equity. On average, a U.S. homeowner in negative equity owes $74,700 more than what their house is worth, or 42.3 percent more than the home’s value. While roughly a quarter of homeowners with a mortgage are underwater, 92 percent of these homeowners are current on their mortgages and continue to make payments.

Almost half of the borrowers with negative equity have a LTV of 100 percent to 120 percent (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140 percent (about 8.7 percent of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Harlan Green © 2013

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Case-Shiller Home Prices, Consumer Confidence Up

The Mortgage Corner

Housing prices continue to climb, but not as fast in the hardest hit areas of Las Vegas and some Florida cities. This is probably because mortgage rates have already risen 1 percent. But rates are no longer rising, as the bond market seems to have already digested the possibility of Fed QE3 ending.

The price appreciation is very strong but has slowed from early in the year. Case-Shiller's 20-city adjusted index is up 0.9 percent in the June report vs an average monthly gain of 1.4 percent from January to May. But the year-on-year adjusted gain, at a very sizable 12.0 percent, is just off its best level of the recovery which is May at plus 12.2 percent.

Graph: Econoday

Monthly declines have been popping up in the data for the first time this year but are still isolated and mostly marginal. The West had the highest gains, around the 20 percent area led by Las Vegas at 24.8 percent and San Francisco at 24.4 percent. Note that West coast cities posted some of the sharpest declines during the 2008 meltdown. Cities showing the least gains this year are New York, at a year-on-year plus 3.2 percent, and Cleveland at 3.4 percent.

“Overall, the report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6 percent, home buyers may be discouraged and sharp increases may be dampened," said David M. Blitzer, Index Committee Chair at S&P Dow Jones Indices.

Meanwhile, the Conference Board’s consumer confidence index improved, but mainly in future wage growth, believe it or not. The report's composite headline index showed a slight increase, to 81.5 this month from July's revised 81.0.

But consumers’ expectation took a big jump in income, believe it or not. The expectations component rose to 88.7 for a 2.7 point gain. And it was mostly their outlook on income which, after sliding at the beginning of the year in reaction to the hike in payroll taxes, is now at a 2-1/2 year high. The consumer's outlook on business conditions and the jobs market are also up.

Graph: Econoday

This is huge, needless to say, as consumers have been spending less because of the higher payroll tax rate until now. In fact, if interest rates do hold at, say, 4.50 percent with zero origination points in California, at least, then housing prices should continue to climb this year with such higher confidence.

Harlan Green © 2013

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

Builder Confidence Soaring

The Mortgage Corner

The National Association of Home Builders just announced that home builder confidence soared to the highest level since 2006, the height of the housing bubble.  This can only mean more new-home construction to fill the pent up demand for housing after 4 years of housing depression.

Builder confidence in the market for newly built, single-family homes rose six points to 57 on the Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today. This is the index’s third consecutive monthly gain and its strongest reading since January of 2006.

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” noted NAHB Chief Economist David Crowe. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

Graph: Calculated Risk

That brings up the subject of inflation, as building material prices are bound to rise with the increase in demand for new homes. And the Consumer Price Index is rising, but it also means housing prices are rising, a good thing. Housing prices tend to rise with inflation—in fact, are a sign of rising inflation—as do interest rates. So it will be a race for homeowners to get in on any bargains left with Bernanke’s Federal Reserve determined to slow down QE3 purchases this year.

Graph: Calculated Risk

Year-on-year, overall CPI inflation jumped to 1.8 percent from 1.4 percent in May (seasonally adjusted). The core rate posted at 1.6 percent, compared to 1.7 percent. By major components outside the core, most of the rise was in energy, up 3.4 percent. Gasoline surged 6.3 after no change in May. Advances for shelter, medical care, and apparel accounted for most of the rise in the core measure, with increases in the indexes for new vehicles and household furnishings and operations also contributing.

A major reason for the surge in builder confidence is also the lean inventory of existing home sales. The home resale market is surging, up 4.2 percent to an annual sales rate of 5.18 million which is the highest since the home stimulus credits of late 2009. The gain is centered in the key single-family home category which is up 5.0 percent in the May report.

This is while the median price is up 8.4 percent in May alone, to a recovery best $208,000. The average price, at $255,300, is up 5.6 percent in the month. Year-on-year gains are 15.4 percent for the median price and 11.2 percent for the average.

Lack of supply is a key factor behind the price surge, as we said, and the reason for so much builder optimism. More supply did come into the market in May, totaling 2.22 million homes for sales vs 2.15 million in April, but declined relative to the surging sales rate. Supply measured against sales is at 5.1 months vs 5.2 months in April in a reading that points to further price strength for housing construction and new home sales, as well.

Harlan Green © 2013

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Shadow Inventory of Bad Loans Still Too High

Financial FAQs

The shadow inventory of troubled homes fell to about 2 million in April, down 18 percent from the same period in the prior year, and down 34 percent from a peak of 3 million in early 2010. But that is still too many homes in trouble for the Fed to begin to reduce its asset purchases.

Shadow home inventory includes properties with seriously delinquent mortgages, in foreclosure or held by mortgage servicers, but not yet listed, according to CoreLogic, an Irvine, Calif.-based analysis firm. Bad loans are working their way out of the system, and new mortgages for borrowers with better credit are taking their place. Also, rising home prices and low interest rates are helping troubled owners sell or refinance their homes, reducing the pipeline of foreclosures.

Graph: WSJ Marketwatch

This is when interest rates have risen to 2-year highs. A gauge of mortgage applications has contracted almost every week since mortgage rates started climbing more than two months ago, according to data released Wednesday. For the week that ended July 5, the Mortgage Bankers Association’s barometer of mortgage loan application volume fell 4 percent as rates hit the highest level in two years.

Graph: WSJ Marketwatch

Interest rates have risen some 1 percent since April, which means some consumers will have a tougher time affording monthly mortgage payments. With a $417,000 conforming loan, that 1 percent rise means either a borrower needs 8.6 percent more income, or a home worth 8.6 percent less. With 20 percent down and a $417,000 loan, that would mean a reduction of $41,000 in what a prospective buyer could afford.

This will not encourage middle class buyers who now have to earn some $74,664 per year to afford a home in that price range. This has to slow down housing activity to some extent, which is another reason for the Fed to stand pat at present.

Harlan Green © 2013

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Housing Is Definitely Recovering

The Mortgage Corner

In spite of warnings from such as Robert Shiller of Irrational Exuberance fame that housing values could remain stagnant over the next ten years, housing prices are making a comeback, which is boosting economic growth. Some of the worst hit bubble cities have the largest price increases, and diminished inventories. Even better news is that housing prices have returned to historical levels as measured by the price-to-rent ratio, which measures the relationship between rents (which are closely tied to incomes) and housing values, signaling that housing values are no longer in bubble territory.

Graph: Calculated Risk

Data through February 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed average home prices increased 8.6 percent and 9.3 percent, respectively, for the 10- and 20-City Composites in the 12 months ending in February 2013, said the press release.

“Home prices continue to show solid increases across all 20 cities,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The 10- and 20-City Composites recorded their highest annual growth rates since May 2006; seasonally adjusted monthly data show all 20 cities saw higher prices for two months in a row – the last time that happened was in early 2005. Home sales aren’t doing badly either.”

For instance, we can say that housing prices in California cities, San Francisco, Los Angeles, and San Diego have recovered more than half their values lost since 2000. And the Price-to-Rent ratio is back to 1 to 1, meaning that the historical ratio held since January 1983 is probably the best indicator that prices have now stabilized for the longer term.

Graph: Calculated Risk

Some economists, including Dr. Shiller, seem to be puzzled by the price surge, in particular. But what about the return to more than 1 million plus new households being formed in 2012—a tripling of the recession lows, when children fled back to their parents homes because of the hard times?

And we mustn’t forget that employment has improved substantially, with some 6 million jobs now added to payrolls since the Great Recession. Dr. Shiller’s latest conclusions are based on surveys and his theories that much of consumer behavior comes from hearsay and not much research into investments, hence the housing bubble.

Dr. Shiller, an Economics Professor at Yale University, also says the biggest home price increases now are seen in multifamily rather than single-family homes which reflects a shift from home ownership to renting. The buyers are investors who rent their properties, in other words.

“Most of the increase in households in this country has been met by an increase in renting,” says Shiller. “My own survey data with Chip Case confirms that people feel more positive about renting.” He suggests that those investing in real estate are buying homes most suitable to convert to rentals, which means price increases will be more closely tied to rent increases, which means closely tied to inflation. Hence he is intimating the price-to-rent ratio should remain stable around its historical 1 to 1 ratio for years to come, which means housing prices won’t rise faster than rents.

But whether rental or primary residences, housing is contributing to overall economic growth. The First Quarter contribution by the U.S. Bureau of Economic Analysis shows that housing contributes more than 2 percent of GDP growth, and is on the upswing, particularly in single-family construction. Home improvements and broker commissions provide slightly less, while office and shopping mall investment provides contribute little at present, due to the high vacancy rates still prevailing, an overhang from the Great Recession.

Needless to say, construction spending means greater construction employment, and spending has been surging. Construction outlays rebounded 1.2 percent in February after dropping 2.1 percent in January. Private residential construction jumped 2.2 percent. For the latest month, the new one-family component was particularly strong, gaining 4.3 percent, following a 3.6 percent boost in January. The new multifamily component fell back 2.2 percent but followed a robust 6.1 percent jump the prior month. Public construction gained 0.9 percent, following a 0.2 percent rise in January. On a year-ago basis, overall construction was up 7.9 percent in February compared to 6.1 percent in January.

Graph: Econoday

Single-family investments is about to surpass home improvement outlays, says the BEA, with multifamily outlays still a minor component. So will Americans give up their home-ownership dream, and become a nation of renters? In fact, the current 64 percent home ownership rate is the long term ownership rate, which is one more factor that should tell us the housing bubble mentality Dr. Shiller so warns against has been deflated.

Harlan Green © 2013

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Higher Home Prices Driving Construction

The Mortgage Corner

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

Graph: Calculated Risk

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

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

Graph: Calculated Risk

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

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

Graph: Calculated Risk

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

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

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

Harlan Green © 2013

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