Rebound? Q2 GDP Forecast Remains Gloomy! (0.9 Percent Only)

The talking heads on TV kept saying “Q1 was bad weather, so there should be a BIG pent-up demand in the economy. So Q2 should be gangbusters!


The Atlanta Fed GDP NOW, which correctly forecast the dismal Q1 growth rate of 0.2% QoQ, is now forecasting Q2 GDP growth at a dismal 0.9% QoQ.




Bubbles In Their Hair? San Francisco Median Home Prices Top $1 Million Despite Declining Median Family Income

As Scott McKenzie warbled, “If you’re going to San Francisco, be sure to wear some BUBBLES in your hair.”

Yes, median home prices in San Francisco have surged to over $1 million, up from $646,428 in January 2010. And despite falling median family incomes!


I would say that this qualifies as a bubble, particularly when The Fed benefits the wealthiest Americans and Chinese investors keep pumping money into the Bay Area.

Here is Fed Chair Janet Yellen singing “If you’re going to San Francisco, be sure to wear some BUBBLES in your hair.”


Bad Juju? Plunging Lumber Futures Prices Bad News For Homebuilders (If Lack Of Demand Is Driving Lumber Futures Prices Down)

I will be speaking at 10:30 AM EST at the National Association of Realtors joint conference with the National Association of Homebuilders and the McGraw-Hill Financial Global Institute in Washington DC. While I mentioned yesterday that I will be talking about low wage growth and real median household income as a factor in the failure of the housing market to ignite (at least for the middle class), I will also mention …

Lumber futures prices, while volatile, do show a relationship with the NAHB Builder Confidence Index. However, lumber futures prices are falling while the NAHB index is rising.


We already know that mortgage purchase applications are lower than in 2007 while home prices continue to rise at 2x the wage growth rate. While mortgage purchase applications are higher than last year, bear in mind that last year was the worst year in many years.


Spurious correlation or bad juju?

Baron Samedi from the James Bond flick “Live and Let Die” agrees with me that plunging lumber futures prices are BAD JUJU for homebuilders!


Let’s see how this plays out.

Cash Sales Made Up 39 Percent of All Home Sales in January 2015 (DC Lowest At 16.2 Percent)

According to CoreLogic, cash sales made up 38.9 percent of total home sales in January 2015, down from 41.4 percent in January 2014. The year-over-year share has fallen each month since January 2013, making January 2015 the 25th consecutive month of declines. Month over month, the cash sales share increased by 3.2 percentage points, which is typical in the month of January. Due to seasonality in the housing market, cash sales share comparisons should be made on a year-over-year basis.

The cash sales share peak occurred in January 2011 when cash transactions made up 46.5 percent of total home sales in the U.S. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25 percent. Should the cash sales share continue to fall at the same rate that it did in January 2015, the share should decrease to 25 percent in mid-2018.

Figure 1 shows the historical trend in the cash sales share by sale type. Real estate owned (REO) sales had the largest cash sales share in January 2015 at 60 percent, followed by short sales (34.5 percent), re-sales (38.5 percent) and newly constructed homes (17.3 percent). While the percentage of REO sales that were cash transactions remained high, REO transactions made up only 9.9 percent of all sales in January and, therefore, had a small influence on the overall cash sales share. In January 2011, when the cash sales share was at its peak, REO sales made up 23.9 percent of total home sales.


Figure 2 shows the cash sales share by state1 for January 2015. Florida had the largest share of any state at 56.3 percent, followed by Alabama (54.7 percent), New York (48.2 percent), Indiana (47.4 percent) and Missouri (47 percent). Of the nation’s largest 100 Core Based Statistical Areas (CBSAs)2 measured by population, Detroit-Dearborn-Livonia, Mich. had the highest share of cash sales at 65.6 percent, followed by Miami-Miami Beach-Kendall, Fla. (59 percent), West Palm Beach-Boca Raton-Delray Beach, Fla. (58.4 percent), Cape Coral-Fort Myers, Fla. (58 percent) and Fort Lauderdale-Pompano Beach-Deerfield Beach , Fla.(57.6 percent). Washington-Arlington-Alexandria, D.C.-Va.-Md. had the lowest cash sales share at 16.2 percent. Washington DC and Northern Virginia are leaders in terms of income.


The residential mortgage market continues to remain dormant as wage growth remains week.


Another Brick In The Wall: New Starter Homes Hit a Dead Stop

Another brick in the wall.

The Fed’s zero interest rate policy has really benefited the wealthy relative to the middle class. Now we learn that new start homes have hit a brick wall.

Bloomberg – Megan McArdle – Can you build a house for less than $200,000?

Well, you personally probably can’t. But what about developers? Builder magazine says it’s getting harder and harder to do. The market for new “starter homes” is drying up, mostly on the supply side. As credit markets recover, there are more and more people who could be buying their first homes … if only builders could build them. But for a host of reasons, they can’t:

Materials costs have risen.

They lost a lot of their labor force during the economic downturn.

Communities entitled large lots during the boom, and now they won’t zone them for smaller parcels.

Cash-strapped local governments have raised permitting and other fees.

Building codes and other requirements make it harder to build cheap.

This makes it extremely difficult to build a house for less than $200,000 in many places, which is a hefty multiple of local median incomes.

How much does this matter, though? It’s not actually necessary that starter homes be new. In most places, housing goes through a natural cycle: New homes sell for a premium, then decline in value. You could conceivably have a healthy housing market with builders building for the top of the market, with new families taking over the older houses that have been vacated.

But the builders in the article say that many communities also don’t offer a strong market for the more expensive homes on larger lots that they are theoretically permitted to build. So the inability to build cheaper homes effectively means an inability to build at all, starving the market of housing it needs to let new households form.

The article suggests that, for some communities, that’s the point: It keeps out younger, poorer people who might change the “character” of the place (and require lots in the way of services such as schools). But for others, it’s merely inertia, combined with the fact that land is a finite resource, and communities only have one shot to get the various upfront payments that will help them cover the costs of new infrastructure that will be required.

For the country as a whole, however, this is a giant problem. We need space for people to live, grow families, build lives. The more costly we make it to build those spaces, the less of it we will get.

Well, lumber prices have been falling like a paralyzed falcon, so it is more than just “material costs have risen.”


Or could it be that average wage growth is only 2.1 percent YoY while home prices are rising at a 4.5 percent clip?


And no, it isn’t that credit is too tight, although it makes a great headline. How about millions of household that can’t meet the DTI requirements.


China Moves to Stimulus Mode With Cut to Bank Reserve Ratio (Biggest Drop Since 2008)

Another one bites the dust!

China has joined other global Central Banks in financial stimulus by lowering their bank reserve ratio.

China’s leaders swung into stimulus mode, cutting the amount of cash lenders must set aside as reserves by the most since the global financial crisis just days after a report showed the slowest economic growth in six years.

The reserve-requirement ratio will be lowered 1 percentage point effective April 20, the People’s Bank of China said on its website Sunday, the second reduction this year and the largest since November 2008. The level will decline to 18.5 percent, still high by global standards, based on previous statements.


The move puts China more firmly in the easing camp with the European Central Bank and the Bank of Japan and follows a vow by Premier Li Keqiang last month to step in if the economy’s slowdown hurts jobs as well as PBOC Governor Zhou Xiaochuan’s weekend comment that China has room to act. The cut will allow banks to boost lending, unleashing about 1.2 trillion yuan ($194 billion), and may spur another leg higher in the nation’s booming stock market.

“This RRR cut is much bigger than the market anticipated and banks will be flooded with liquidity,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

“It will also add fuel to the already red hot stock market.”

Yes, the Shanghai stock market is red-hot.


But China home prices are not.


China’s slumping economy and housing market are driving their Central Bank to prop up bubbles.

Even The Great Mall of China is for sale.