October 2011
U.S. Building Market
Intelligence Report
Building Stats for the Real Estate Market
for This Month
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October 2011 Building Statistics
Many thanks to our friends at John Burns Consulting for sharing their in-depth stats every month.
Enjoy
- Trevor
Trevor Mauch
The RE I Brain dot Com
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Debt is Addictive, and Requires a Painful Rehab
The Addict: The charts below tell the story. The typical U.S. consumer
has become addicted to debt, and the banker/dealer continues to supply
more debt drugs in the form of credit cards as well as low int erest rate
loans for homes, cars, televisions, and even cell pho nes (cheap phones in
exchange for multiyear contracts). Business owners and governments are
just as addicted. Why wait for what you want when you can get your fix
right away by signing on the dotted line?
The History: The history is very clear, and made even clearer by great research done by
economists Reinhart, Rogoff, Fisher, Minsky, Kindleberger and others. Recessions preceded by
credit booms are prolonged and vicious, particularly for those involved in housing. To shed some
light on why housing or the broader economy for that matter has yet to sustain any measurable
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recovery, one needs to look no further than the household balance sheet and the relationship to
growth in liabilities vers us growth in income, particularly since 2002
The Problem: Historically, household debt and disposable personal inc ome have moved in
lockstep, with income growt h exceeding debt from 1952 up until 2000, a 48 year holding pattern.
However, this trend sharply reversed itself during the recent credit boom, hinting at the
unsustainable nature of the housing bubble. As seen in the chart above, from 2000 through 2008,
household debt surged 111%, rising from $6.9 trillion to $14.6 trillion. During this time, disposable
personal income grew by less than half that rate, rising 54%, from $7.2 trillion to $11.1 trillion.
Moreover, of the $7.7 trillion added to the household balance sheet from 2000 to 2008, $6.1
trillion, or 80%, was attribut ed to home mortgage debt. Consequently, the household debt -to-
income ratio ballooned to over 135%, as seen in the chart below.
The Recovery: While many statistics are mean reverting (often times blowing through the mean),
we don't believe that household debt -to-income levels need to return to their long -run average of
78.5% for the housing mark et or the overall economy to rebound. Consumers from Gen Y to
Baby Boomers have become more comfortable with debt compared to past generations and i n
many ways have no choice. Thus, assuming that 2002 represents normal conditions, we are
close to halfway through the deleveraging phase of this downturn, a process that has taken
roughly four years, and suggests another 4+ years before returning to normal economic
conditions.
The Dealer: Our need to save is apparent, but you can't grow an economy when people are
saving. Understand that the Fed wants the banker/dealer to keep lending because without loans
there is little spending. The Fed is trying to engineer a scenario where the debt junk ies in society
slowly pay down their debts while they continue to spend just enough to prevent another
recession. To do this, the Fed will have to keep interest rates low for a very long time to allow
principal to be repaid.
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Great Decision Making: This debt reduction process, known as delevering, needs to be an
important component of your decision making as you plan for the fut ure of your business. For the
last five years, it has been an important component of our bearish forecasts, and it is now an
important component of our slow growth recovery scenario.
Keep in mind that delevering is the "best case" scenario. The alternative scenarios, which occur
when the debt cannot be repaid, result in bankruptcies, job losses, deflation followed by
wides pread inflation, and shocks to the financial system. The high likelihood of these alt ernative
scenarios is one reason why markets are so volatile today, and confidence is so low.
We stay on top of the macro trends by charting and analyzing more than 100 macro variables
every month, and publishing them in our US Housing Analysis and Forecast, which serves as the
macro analysis for all of the granular analysis done by MSA and by our consulting team. More
information is available here.
U.S. Housing Market Stati stics
Economic Growth............................................................................D+
The U.S. job market showed some improvement this month, with September job growth coming
in above expectations along with upward revisions for August and July. While still up YOY,
personal income fell sequentially in August for the first time since October 2009. Moreover, real
personal income excluding government transfers was down sequentially for the second month in
a row. The U.S. economy grew at a 1.3% annual rate during 2Q11, an upward revision from the
advance estimate of 1.0%. Consumption (the largest component of aggregate growth) slowed to
a 0.49% growth rate in 2Q11, its lowest since 4Q09.
Leading Indicators...........................................................................C-
While a horrible month for the stock market stole most of September's headlines, other leading
indicators were mixed this month. The ECRI index fell to an annualized growth rate of -8.1% in
September, down from -4.4% in August. In lat e September, ECRI officially called a recession
based on continued deterioration in this index as well as their other leading indices. The NFIB 's
Small Business Optimism Index fell for the sixth consecutive month in August, dropping to 88.1 .
Revenues for state and local governments grew on a YOY -basis for the sevent h straight quart er
in 2Q11, with a boost in income taxes providing much needed support to government coughers.
Affordability......................................................................................C+
Mortgage rates hit new all-time lows this month, pushing our JBRE C Affordability Index to an A+
grade. That said, owners continue to see the value of their home fall in value, further eroding their
equity position and ultimately preventing a measurable portion of sales - namely move up. The
average loan-to-value for all homeowners is now 84%.
Consumer Behavior..........................................................................D
Our cons umer behavior metrics remained relatively poor in September, res ulting in an unchanged
overall grade of D for the mont h. All three of the major consumer psyche metrics we track
(confidence, sentiment, and comfort ) remain at an F.
Existing Home Market.......................................................................D
The existing home market remains weak, with this subsection of the economy grading at a D for
September. Though pric es have det eriorated lately, sales volumes and supply levels have
improved slightly over the past several months, a trend we will continue to monitor into the Fall
and Winter months.
New Home Market..............................................................................D+
The new home market declined slightly this month, as our overall grade for this subsection of the
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economy stayed at a D+. The volatile single -family median new home price fell from $229K in
July to $209K in August. Prices are down 8% YOY, their worst annual rate of decline since April
2009. New home sales (SA) also fell this month from 302K in July to 295K in August.
Repairs and Remodeling....................................................................D+
Indicators for residential repairs and remodeling were mixed this month. Following nine
consecutive months of YOY declines, private residential construction has now risen on a YOY-
basis for four months straight. Homeowner improvement activity increased in 2Q11, climbing at a
1.3% YOY clip. Also, the Remodeling Market Index (current) fell in 2Q11, dropping from 46.1 to
44.8, below its historical average of 46.4. The Remodeling Market Index (fut ure expectations) fell
from 46.8 in 1Q11 to 43 in 2Q11. The Remodeling market Index (future expectations) is now
below its historical average.
Housing Suppl y...................................................................................F
While permits rose from last month, our overall housing supply indicator remains at an F. Single -
family permits increased to 413K units (SA), while single -family starts fell to 417K units (SA).
Single-family permits have generally trended up since February of this year. Multifamily permits
are up 22% YOY (SA), while multifamily starts are down 14% YOY (SA ). New housing units
completed fell this mont h to 623K (SA ), while manufactured housing placem ents increased to
42K (SA).
U.S. HOUSI NG MARKET STATISTICS
Data Current Through October 7, 2011
Grade*
Overall Grade D+
Statistic Grade
Economic Growth D+
These are the best indicators of how the ec onomy is currently performing.
Real GDP (annual rate) 1.3% C
Employment Growth (1-year Change)
- Non-ag Payroll, NSA 1,462, 000 C
Employment Growth Rate
- Non-ag Payroll, NSA 1.1% C
Unemployment Rat e 9.1% D-
Average Length of Unemployment (Weeks) 40.5
Median Length of Unemployment (Weeks) 22.2
% of Labor Force Unemployed (27 weeks and over) 4.1%
U.S. Initial Jobless Claims 395,000
Mass Layoff E vents, SA (YOY % Change) 3.9% C
Productivity -0.7% C-
Retail Sales 7.2% B
Capacity Utilization 77.4% D+
Inflation
Core CP I 2.0% B
Full CPI 3.8% C
Personal Inc ome Growth, nominal 4.5% C-
Federal Deficit (last 12 mos., $mil curr.) -$1,293,161 F
U.S. Immigration as a % of Total Population 0.3%
Total Population Growth 1.1%
Total Households 112,473,000
- Growth Rate 0.7% D
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Owned Hous eholds 74,131,000
- Growth Rate -0.8% F
Rent ed Households 38,342,000
- Growth Rate 3.8% B+
Statistic Grade
Leading Indicators C-
These have all proven to be predictable early indicators of the direction of economic growt h.
Leading Econ. Index (Ann. Growth Rate Last 6 Mos.) 4.8% C
ECRI Leading Index -8.1% D+
Manpower Net Employment Outlook 7% D
U.S. Vistage CEO Confidence Index 8350%
CEO Economic Outlook Survey 7760%
U.S. Average Hours Worked per Week 33.6
Temporary Employed Workers (YOY % Change) 8.4% B-
Corporate Profit Growth (pre-tax) 8.5% C
Corporate Bond Spread (Corp Bond vs. 10 -Yr Tres.) 179.0%
Capit al Goods New Orders 8.6% B-
Money Supply - M2 6.3% B
Interest Rate Spread
10-year Treasury 1.97%
2-year Treasury 0.26%
Interest Rate S pread 1.71% B-
3-month LIBOR 0.37%
3-month Treasury 0.02%
TED Spread 0.35% C+
Stock Market (Return over last 12 months )
Dow Jones 1% C
S&P 500 -1% C-
NASDAQ 2% C
Wilshire 5000 -1% C-
S&P Super Homebuilding -27% D
Tougher Standards on Business Loans - Large Firms -22% A+
- Small Firms -8% B
Crude Oil Price (Current $) $85.61 D
ISM Manufacturing Index 51.6 C
ISM Non-Manufacturing Business Activity Index 57.1 C
Statistic Grade
Affordability C+
These statistics are probably the most important indic ators of short -t erm housing market performanc e.
Conforming Mortgage Rates (contract rate; an additional 0.6 - 1. 0 points are also paid up front by the
borrower)
JBRE C Affordability Index 0.2 A+
US Median Home Payment / Income Ratio 22.7%
US Median Home Price / Income Ratio 3.0 B
Mortgage Rates, Fixed 4.01% A+
Mortgage Rates, Adjustable 2.83% A+
Fixed/Adjustable Spread 1.18% D+
Fixed/10-year Spread 2.04% C
Fed Funds Rate 0.15%
Percentage of Adjust. Loans 6.4% B+
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Equity/Owned Home (Current $) $84,256 F
A vg. Debt % in Home (LTV ) - Homes with Mortgages 84.4% F
Median Household Income $56,193
- Growth Rate, nominal 1.7% D+
Statistic Grade
Consumer Behavior D
Cons umer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt
levels and job prospects affect the long-term outlook for housing sales.
Cons umer Confidence Index 45.4 F
Cons umer Sentiment Index 59.4 F
Cons umer Comfort Index -50.9 F
Revolving Cons. Credit per Household (inflation adjusted) $7,007
- Growth Rate -3.6% B
Personal Savings Rate 4.5% C-
U.S. Net Worth Growth Rate 8.4% C
Financial Obligation Ratio 16.1% B+
Misery Index (Unemployment + Inflation) 12.87 D+
Statistic Grade
Existing Home Market D
Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales
market.
S&P/Case-Shiller® U.S. Price Index (YOY % Change) -5.9% D
NAR Single-Family Median Home Pric e $168,400
NAR Single-Family Annual Price Appreciation -5.4% D
Freddie Mac Annual Price A ppreciation -7.0% D-
Annual Sales Volume, SA 5,030, 000 B-
Existing Home Inventory for Sale, SA 3,577, 000 D
Months Supply of Unsold Homes, SA 8.5 C-
Purchase Mort. App. Index, SA 175.2 D
Pending Home Sales Index, SA 88.6 D
Homeownership Rate 65.9% C
Statistic Grade
New Home Market D+
High appreciation and low inventory would mean an excellent short -term outlook for the new home industry.
Housing Market Index 14 F
Multifamily Condo Market Index 28 C-
Median Price, NSA $209,100
Annual Appreciation Rate -7.7% D-
Constant Quality Price Index (YOY % Change) -0.6% D
Sales Volume, SA 295,000 F
New Home Inventory for Sale, NSA 164,000 A+
Months Supply of Unsold Homes, SA 6.6 C
Months of Homes Completed, SA 2.4 C
Months of Homes Under Const., SA 3.1 C+
Months of Homes Not Started, SA 1.1 C
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Statistic Grade
Repairs and Remodeling D+
High remodeling levels are good for the economy and are closely tied to consumer confidence.
Homeowner Improvement Activity (YOY % Change) 1.3% C
Remodeling Market Index - Current 44.8 C
Remodeling Market Index - Fut ure Expectations 43.0 C
Privat e Residential Construction (YOY % Change) 3.9% C
Residential Investment as % of GDP (nominal) 2.2% F
StatisticGrade
Housing Suppl y F
High construction levels are good for the economy. However, if new supply exceeds demand, prices could
fall.
New Housing Units Completed, SA 623,000 F
Single-Family Starts, SA 417,000 F
Multifamily Starts, SA 154,000 F
Total Starts, SA 571,000 F
Single-Family Permits, SA 413,000 F
Multifamily Permits, SA 207,000 F
Total Permits, SA 620,000 F
Manuf. Housing Plac ements, SA 42,000 F
Total Supply, SA 662,000 F
Total Housing Stock 131,173,000
Excess Vacancy 108715753.1% D
SA stands for Seasonally Adjusted Annual Rate. NSA stands for Not Seasonally Adjusted.
* The best 15% ever are "A" scores, the average is a "C", and the worst 15% ever are "F" scores, with
distributions throughout.
This October 2011 real estate building stats report as provided by our friends at John Burns Consulting .
© 2008-2011 All Rights Reserved - The REI Brain.
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