June 25, 2008 | posted by Michael Baxter in US economy | comments (0) |

Things are supposed to be getting better in the US. May saw a 1 per cent rise in retail sales, talk has been that we have passed the halfway stage in the credit crunch, George Dubya’s massive tax break has been busy landing on doorsteps across the US, and others have argued the housing crash is over the worst. But yesterday, two pieces of news emerged to put any talk of a US recovery in serious doubt.

Two months ago we told how US consumer confidence had fallen off the edge of a cliff. Well, in June it fell a good deal lower. In fact, the US Conference Board reported a score of 50.4 for its closely-watched headline consumer confidence index. To put that in context, this index stood at 105 last June. In fact the 50.4 reading was the lowest score in 16 years. It was also the fifth-lowest reading ever recorded by the Conference Board, and it has been compiling this data since 1967.

The US consumer is a resilient beast. There’s a saying: write off the US consumer at your peril. This argument has been put forward every time someone has argued the US balance of payments deficit is unsustainable, or consumer borrowing can not continue. But the decline in this index would certainly seem to suggest that, for the time being at least, there is nothing left under the bonnet. Maybe, we will have to wait until improvements in productivity and the resulting extra income this creates makes US debt more manageable.

Meanwhile, while consumer confidence falls as if the full weight of gravity is behind it; house prices seem to be falling just as fast.

For many economists, the Case Shiller Index is the best for giving a true indicator of the strength of US house prices. It’s a weighted index, with a base score of 100 for January 2000. The index is broken down into different regions, but has two indices for measuring national prices: the 10-City Composite and the 20-City Composite indices.

Data goes back to May 1987.

The latest Case Shiller indices measuring data relating to April were out yesterday. The Composite 10 index was down 1.6 per cent on March, 15.3 per cent on April 2007 and 19 per cent from peak in June 2006.

Not all regional indices were down in the month, but all have now fallen over the last 12 months.

Miami tops the chart, seeing prices fall 26.7 per cent over the last year, while Las Vegas, Los Angeles, Phoenix, San Francisco, Tampa and San Diego all saw falls in excess of 20 per cent.

More to the point, inventory levels of unsold stocks of houses relative to sales are near an all-time high. The decline in activity may be slowing, but the massive level of stocks means prices are likely to continue to fall for some time. Capital Economics reckons it will be another year, maybe two, before prices start rising. This means there must be a good chance the Case Shiller index will have fallen by 30 per cent from peak before it recovers – and that would technically be a crash.

Mind you, given that the US housing market has never crashed before, and given that whenever prices have so much as dipped in the past, a recession has followed, it is remarkable that the US economy as a whole has performed so well. Latest thinking suggests she will avoid recession – just.

June 10, 2008 | posted by Michael Baxter in US economy | comments (0) |

Rome wasn’t built in a day; when bubbles burst it takes time before they hit bottom, and even longer to climb back up. 

Sometimes forces can build which you would expect to stop the rot, yet falls can continue.  This is because there are multiple forces at work.  It takes time before new forces make an impact.

Yesterday, news broke that US sales of US pending homes jumped 6.3 per cent in April.    

The trouble is, inventory levels are so high, that it will take time, and for as long as this inventory makes it a buyers’ market, prices will fall.

Capital Economics said: “We suspect that the bottom for housing sales and construction may be closer than some people seem to think. House prices will continue to fall for at least another year or two given the excess inventory of unsold homes on the market. But sales have already been falling for a couple of years now and should have fully adjusted to the complete collapse in all non-conforming mortgage lending.”

Yesterday, the top man at the US Fed, Ben Bernanke, spoke out too.  He said, “Recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly.” Encouragingly, he added, “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

May 23, 2008 | posted by Michael Baxter in US economy | comments (0) |

And here’s yet another example of official stats differing from the rest.

US house prices are falling, we all know that, yet the Office of Federal Housing Enterprise Oversight (OFHEO) has price falls lagging well behind the falls stated by the widely watched Case Shiller index.

Okay, the OFHEO has prices down, in fact it has falls hitting a record – but only because it has rarely recorded any kind of fall at all in the past.

“Over the past year, prices fell 3.1 per cent between the first quarter of 2007 and the first quarter of 2008. This is the largest decline in the purchase only index’s 17-year history,” said the official OFHEO release.

Yet the Case Shiller index has got prices down by 9 per cent.

Why do they differ so? Capital Economics reckons it is down to this:  “The OFHEO index is based only on sales where the mortgage conforms to the standards required by Fannie Mae and Freddie Mac, while the Case-Shiller index also includes purchases based on sub-prime, Alt-A and jumbo loans. The problem is that issuance of all non-conforming loans is now basically zero, so the two samples should be closer than ever. The geographical coverage also differs slightly: the Case-Shiller index gives a heavier weighting to urban areas that are likely to see bigger price falls.”

So who do you believe?   Well, the OFHEO’s President was appointed by George Dubya himself, but on the other hand, the Case Shiller index is much closer to the indices published by other bodies showing prices for starter and existing homes.

Besides, when the official data doesn’t support what everyone is saying, and another index which has long been highly acclaimed is closer to what people are saying, who do you believe?

Mind, whoever is right, one thing is for sure.  Not only are US house prices falling, but the fall shows no signs of slowing.

April 30, 2008 | posted by Michael Baxter in US economy | comments (0) |

Meanwhile, in an  economy far, far away, and in an economic cycle about 12 months ahead of us, consumer confidence continues its fall off the edge of a cliff, and a leading index for tracking the housing market fell by 14 per cent from peak.

There are several consumer confidence indices covering the US, but the index published by the Conference Board is our preferred measure, and yesterday its latest reading was out.

This time, the index was down to 62.3, the lowest reading since the invasion of Iraq in 2003.    To put a score of 62.3 in context, in July last year it hit 111 points.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “This month’s decline in Consumer Confidence was the result of yet another sharp decline in the Present Situation Index. This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further. And, not only are lacklustre business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns. Consumers’ inflation expectations continue to rise and this measure now matches the all-time high reached in the aftermath of Hurricane Katrina. The percentage of respondents intending to take a vacation over the next six months has fallen to a 30-year low, another sign of consumers turning more cost conscious. Looking ahead, consumers’ outlook for the economy, the job market and their income prospects remains quite pessimistic and little changed from last month. Or, in other words, the glass remains half empty.”

Meanwhile, the closely-watched Case Shiller index from Standard & Poor’s for tracking US house prices, fell again.

The 10-City Composite index posted a new record low annual decline of 13.6 per cent, and the 20-City Composite recorded an annual decline of 12.7 per cent.  More to the point, the 20-City composite Index is now 15 per cent down from the peak set in July 2006.

“There is no sign of a bottom in the numbers,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

It seems that US house prices, and in their wake consumer confidence, are in freefall.

Bear in mind the following.  Consumer confidence only started to fall almost 12 months after the Case Shiller index peaked and went into decline.   If the UK follows a similar pattern, then don’t expect significant falls in UK consumer confidence for a while.

Bear in mind also that there are many parallels between the US housing market a year ago, and the UK market today.  This may be a coincidence – but, on the other hand, it is possible that what is occurring in the US now, is a taster of what will happen in the UK next year.

Never forget, average UK house prices are much higher than average US house prices.

April 23, 2008 | posted by Michael Baxter in US economy | comments (0) |

Look, one swallow doesn’t make a summer, and all that, but house prices – or at least existing homes, actually rose in the US last month.

The headline figures are not so good, though. The median price of existing homes across the US is 7.7 per cent down on last year, and sales are now 19.3 per cent down, but even so, good news on US house prices is so rare that we should perhaps make the most of this small glimmer.

According to the National Association of Realtors the median price of existing homes in the US in March was $200,700, compared to $195,600 in February.  The year high was $229,000, a full 12 per cent up on the March price, however, so, even if prices stay flat for the next three months, the annual fall will still be alarming.

Furthermore, there are supposedly 9.9 months of supply of existing houses for sale – so although the March rises were nice to see, don’t expect a repeat any time soon.

The real question, surely, is how much further have prices got to fall.  According to the IMF, although US house prices are overvalued – actually in comparison with other countries, the overvaluation Stateside is quite modest – around 10 per cent.    In fact the IMF had the level of overvaluation higher in Ireland, Netherlands, UK, Australia, France, Norway, Denmark, Belgium, Spain, Sweden, Italy and Spain.

But now Robert Shiller, the economics professor from Yale University who lent his name to the closely watched Shiller index, has said he believes US house prices could fall by 30 per cent, or even as much as 45 per cent, in total.  Speaking yesterday, after drawing a comparison with the 30 per cent fall seen between 1925 and 1933 said, “I think there’s a good chance we’ll exceed that this time.”

By contrast, the National Association of Realtors has long been predicting only modest falls in prices.

Although Professor Shiller’s words seem too pessimistic in the extreme, it does seem curious he believes US prices will fall so far, when the IMF seems to think US prices are only in the region of 10 per cent too high. 

One thing is for sure, with the median price of an existing home in the US translating to the equivalent of around £100,000, most British first time buyers would love it if average prices in Blighty were so low.

March 26, 2008 | posted by Michael Baxter in US economy | comments (0) |

It was all woe again in the US yesterday.

This time it was two closely-watched indices that caused the fans to clog up.    The two indices were not just bad either, they were downright awful.

First there was the US Consumer Confidence Index produced by the Conference Board.  Now this index stayed high throughout last year, and in fact last July the index hit its highest level in years.  It was the strength of this index that partially led many forecasters to predict only a mild slowdown in the US, with many saying things like, “The US consumer continues to defy the gloom.”

That all changed last month when the index fell off the edge of a cliff.  In July last year the index stood at 111.9, last month it fell to just 75, the  lowest level in five years. But then yesterday the data for March was out, and things are even worse, the index fell to 64.5.   The index was marginally lower than that in march 2003 – but only for one month, and that was when the US invaded Iraq.  That rather ‘blippy’ month aside, the last time the index was so low was in the early 1990s.

But the Conference Board also produces a forward-looking expectations index –and this fell to 47.9, the lowest level in, wait for it, this is a big number, the lowest level in 34 years. The last time consumers’ forward expectations were so low the Oil Embargo and Watergate were making the headlines.

If that wasn’t bad enough, inflation expectations calculated by the Conference Board also rose, hitting 6.1 per cent. 

So, that leaves us with a bit of a problem.  Expectations are at  their lowest level since the mid 1970s; how do we top that?

Well, that’s easy, because if you now turn to the US housing market, and look at the latest Case-Shiller report from Standard and Poor’s, out yesterday,  its index that tracks house prices in the top 20 cities in the US fell by 10.7 per cent, the biggest fall ever recorded.

The index is now 12.5 per cent down from peak, recorded in July last year.

“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” said David M. Blitzer, Chairman of the Index Committee at Standard Poor’s.

Capital Economics said, “The bottom line is that regardless of the measure used, house prices are now falling and the rate of decline is accelerating.”

March 25, 2008 | posted by Michael Baxter in US economy | comments (0) |

There was a 2.9 per cent pick up in existing home sales in February.  In all, 5,030,000 existing homes were sold in the year to February, making it the best month for sales since October.

The inventory of sales fell too, so that there are now 4,034,000 existing homes for sale in the US.
 
The trouble is, the inventory levels still amount to 9.6 months of supply – way too high.

The median price of existing homes fell by 2 per cent in the month, to $195,900.  The annual fall in prices was 8.2 per cent, the biggest annual fall ever recorded.

But actually, things are worse than that.

The median price is now 15 per cent down from the peak hit last June.  With inventory levels so high, it seems reasonable to assume prices will fall even further.    If prices continue to fall by the $4,000 seen from January to February, for four more months, then by June, US median prices would have fallen by $51,000, or 26 per cent.