Calculated Risk
Consumer Sentiment increases in May, Pending Home Sales decline sharply
Personal Income and Outlays increased 0.4% in April
Economic Slowdown: Temporary or Something Worse?
Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
Consumer Sentiment increases in May, Pending Home Sales decline sharply
Posted: 27 May 2011 07:06 AM PDT
From NAR: April Pending Home Sales Drop
The Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.
The data reflects contracts but not closings, which normally occur with a lag time of one or two months.This suggests a sharp decline in existing home sales in May or June.
Consumer Sentiment: The final May Reuters / University of Michigan consumer sentiment index increased to 74.3 from the preliminary reading of 72.4, and from 69.8 in April.
Click on graph for larger image in graphic gallery.
This was above expectations for a reading of 72.5.
In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices.
This is still a low reading, but sentiment probably improved a little possible due to the decline in gasoline prices.
Personal Income and Outlays increased 0.4% in April
Posted: 27 May 2011 05:53 AM PDT
The BEA released the Personal Income and Outlays report for April:
Personal income increased $46.1 billion, or 0.4 percent ... Personal consumption expenditures (PCE) increased $41.5 billion, or 0.4 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in April, the same increase as in March.The following graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.
Click on graph for larger image in graph gallery.
PCE increased 0.4% in April, but real PCE only increased 0.1% as the price index for PCE increased 0.3 percent in April. The graph shows the recent slowdown in the growth rate in real PCE.
Note: The PCE price index, excluding food and energy, increased 0.2 percent.
The personal saving rate was at 4.9% in April.
Personal saving -- DPI less personal outlays -- was $570.6 billion in April, compared with $576.7 billion in March. Personal saving as a percentage of disposable personal income was 4.9 percent in April, the same as in March. This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the April Personal Income report.
The saving rate has declined even as growth for real personal consumption expenditures has slowed.
Part of this is due to higher overall inflation and higher oil / gasoline prices.
Economic Slowdown: Temporary or Something Worse?
Posted: 26 May 2011 04:55 PM PDT
I'll have some thoughts on this topic in the next few days, but here are a couple of articles with differing views.
From David Leonhardt at the NY TimesThe Economy Is Wavering. Does Washington Notice?
The latest economic numbers have not been good. ... Macroeconomic Advisers ... tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent ... Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.
An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.
...
The latest signs of weakness suggest that policy makers remain too sanguine. It is easy to see how the rest of 2011 could end up disappointing, much as 2010 did. And from Patti Domm at CNBC: Some Economists Expect Recovery Later This Year
"We can put our finger on the problems, and they're temporary, I think," said Mark Zandi of Moody's Economy.com. "Oil prices were a blow. You can see that in the consumer spending numbers in Q1, and prices are coming back down."
...
Goldman Sachs economists Andrew Tilton said the ripple effect from supply chain issues were a big part of the reason for the [slow down, however] "That doesn't explain all the weakness relative to our original forecast. There are other things going on, the most obvious of which is oil prices," he said.
... "If oil is coming back down you certainly wouldn't want to be cutting your growth forecast for the second half of the year," he said.
...
"In so far as you think it's supply chain-related, the deeper the cutback due to supply chain factors now, the better you should feel about second half because it should bounce back," said Tilton.The supply chain issues should be resolved over
the next several months. And gasoline prices are falling and will continue to decline over the next few weeks, but oil at $100 a barrel is still a drag on the economy.
Earlier:
• Weekly Initial Unemployment Claims increase to 424,000
• Q1 real GDP growth unrevised at 1.8% annualized rate
• LPS: Mortgage Delinquency Rates increased slightly in April, Foreclosure pipeline "Bloated"
• Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
Posted: 26 May 2011 01:14 PM PDT
CR Note: This is a long piece from economist Tom Lawler. First Lawler looks at the Census 2010 data and compares to the Housing Vacancies and Homeownership (HVS). This is very important because the HVS is used by many analysts to estimate the excess housing supply.
Later in the piece, Lawler looks at several quick and dirty methods of estimating the national excess housing supply. I suspect housing analysts and journalists will want to read the entire post (the excess supply is critical and just about everyone uses the HVS). For those only interested in the excess supply section, scan down to "excess supply" NOTE: I've added a page break because this is very long!
I will work up my own estimate of the excess supply very soon. The following is from Tom Lawler ...
From economist Tom Lawler: Census 2010
Demographic Profile: Highlights, and Comparisons to the Now Officially Discredited HVS/CPS
Census released the decennial Census 2010 demographic profile of the United States today, and the data confirmed that other Census housing data derived from the Current Population Survey are based on a sample not representative of the US housing market as a whole.
On the homeownership front, the Census 2010 data showed that the US homeownership rate on April 1, 2010 was 65.1%, or 1.9 percentage points below estimates from both the Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) for March and the CPS Housing Vacancy Survey (HVS) for the first half of 2010.
According to Census, the 90% confidence interval for the annual CPS/HVS US homeownership rate was +/- 0.5 percentage points. Given the actual “gap” between the CPS/HVS estimate and the Census 2010 homeownership rate, it is pretty clear from a statistical
standpoint that one can firmly reject the hypothesis that the sample used to generate housing tenure estimates from the CPS/HVS is NOT representative of the US as a whole.
Here is a chart showing homeownership rate estimates for (1) the last 3 decennial Censuses; (2) the CPS/ASEC; and (3) the CPS/HVS.
Click on graph for larger image in new window.
The differences among the various homeownership rate estimates were de minimus in 1990, but were
significant in 2000 – with the CPS based homeownership rates significantly higher than the Census 2000 estimates. That gap widened dramatically in 2010. E.g., the CPS/ASEC and the CPS/HVS both suggested that the US homeownership rate from the middle of the first half of 2000 to the middle of the first half of 2010 declined just marginally – to 67.0% from 67.2%. The decennial Census, in marked contrast, suggests that from 2000 to 2010 the US homeownership rate fell to 65.1% from 66.2%. From a demographers’ standpoint, these are HUGE differences.
On the housing stock front, on the next page is a table comparing the Census 2010 housing stock numbers, including tenure and vacancy status, compared to “adjusted” first-half HVS estimates. The adjustment to the HVS estimates makes the total US housing stock equal to that shown in Census 2010. The HVS is not designed to estimate the total housing stock but just
homeownership rates and vacancy rates.
Estimates of the US Housing Stock, 2010 (thousands)
Census 2010 (April 1)
Adjusted HVS (First Half 2010)
Difference
Total
131,705
131,705
0
Occupied
116,716
112,624
4,092
Owner
75,986
75,481
505
Renter
40,730
37,143
3,587
Vacant
14,988
19,081
-4,093
Seasonal, recreational, occasional use
4,649
6,753
-2,104
Vacant for Rent
4,138
4,459
-321
Vacant for Sale
1,897
1,992
-95
Rented/Sold Not Occupied
628
904
-276
Other
3,677
4,974
-1,297
Homeownership Rate
65.10%
67.00%
-1.90%
Rental Vacancy Rate
9.20%
10.60%
-1.40%
Homeowner Vacancy Rate
2.40%
2.60%
-0.20%
Gross Vacancy Rate
11.40%
14.50%
-3.10%
Vacancy Rate ex Seasonal/Recreational/Occasional Use
8.10%
9.90%
-1.70%
A few notes: The HVS has vacant categories for seasonal, occasional use, and usual residence elsewhere, while the data released for Census 2010 does not have a separate “usual residence elsewhere” category (it’s lumped into other). Also, based on the HVS website it appears that the HVS puts housing units for migrant workers in the “seasonal” category1 , while for Census 2010 such units are (for now) in “other” (it’s a small number). In the above table, the HVS “other” category includes usual residence elsewhere. I would prefer to show a vacancy rate ex seasonal, recreational, occasional use, usual residence elsewhere, and migrant workers, but the latter two categories have not been broken out in the data released so far for Census 2010.
1 “Housing units held for occupancy by migratory labor employed in farm work during the crop season are tabulated as
seasonal.” (HVS website).
Obviously, the HVS is just “missing” a lot of renters, though only some of the “miss” reflects occupied rental units mischaracterized as vacant for rent. Apparently many units occupied by renters are identified in the HVS as “other vacant.” I don’t know if it is the sample used or the sampling methodology used that is behind the gross mischaracterization of the US housing market in the HVS, though it’s probably a mix of both.
The rental vacancy rate for Census 2010 was a sizable 1.4 percentage points below that of the HVS, and was way below the HVS’ 90 percent confidence level.
On the next page is a similar comparison of Census 2000 and the HVS first-half 2000 estimates, with HVS numbers adjusted to equal the Census 2000 housing stock numbers.
Estimates of the US Housing Stock, 2000 (thousands)
Census 2000 (April 1)
Adjusted HVS (First Half 2000)
Difference
Total
115,905
115,905
0
Occupied
105,480
102,304
3,176
Owner
69,816
68,721
1,095
Renter
35,664
33,583
71,897
Vacant
10,425
13,601
-3,176
Seasonal, recreational, occasional use
3,579
5,297
-1,718
Vacant for Rent
2,615
2,929
-314
Vacant for Sale
1,204
1,080
124
Rented/Sold Not Occupied
702
798
-96
Other
2,324
3,497
-1,173
Homeownership Rate
66.20%
67.20%
-1.00%
Rental Vacancy Rate
6.80%
7.90%
-1.10%
Homeowner Vacancy Rate
1.70%
1.50%
0.20%
Gross Vacancy Rate
9.00%
11.70%
-2.70%
Vacancy Rate ex Seasonal/Recreational/Occasional Use
6.10%
7.50%
-1.40%
Recall that a subsequent analysis of Census 2000 data suggested that (1) overall housing units were undercounted; (2) that the undercount was larger for vacant homes than for occupied homes; and (3) that a “better” estimate of the gross vacancy rate was 9.24%, instead of the “official” 8.99%. The study did not, however, identify the distribution of the vacant unit count “miss” by status. The study also suggested that the US homeownership rate was just a tad overstated in Census 2000 (but by only 0.1 percentage point).
Here is a table showing changes from 1990 to 2010 in select measures. Once again, recall that subsequent studies of Census 1990 and Census 2000 suggested undercounts both in housing unit counts and gross vacancy rates – for 1990, a ‘better” estimate of the gross vacancy rate from the post-Census Housing Unit Coverage Study is 10.46%, instead of the “official”
10.08%.
Select Housing Measures: Decennial Census (4/1)
1990
2000
2010
Rental Vacancy Rate
8.50%
6.80%
9.20%
Homeowner Vacancy Rate
2.10%
1.70%
2.40%
Gross Vacancy Rate
10.10%
9.00%
11.40%
Vacancy Rate ex Seasonal/Recreational/Occ’l Use
7.30%
6.10%
8.10%
Homeownership Rate
64.20%
66.20%
65.10%
Select Housing Measures: HVS/CPS (H1)
1990
2000
2010
Rental Vacancy Rate
7.20%
7.90%
10.60%
Homeowner Vacancy Rate
1.70%
1.50%
2.60%
Gross Vacancy Rate
11.40%
11.70%
14.50%
Vacancy Rate ex Seasonal/Recreational/Occ’l Use
7.50%
7.50%
9.90%
Homeownership Rate
63.90%
67.20%
67.00%
Many observers have been puzzled by the HVS vacancy measures for decades, and the HVS’ estimates showing higher rental and overall vacancy rates in 2000 compared to 1990 (not a great year for housing) always seemed “whacky,” and were not confirmed when Census 2000 data came out.
The table above highlights not just that the HVS data are “different” than the decennial Census data, but trends in the data are different as well, meaning that one can’t just use a “scalar” to adjust the HVS time series.
Net, it seems crystal clear that the HVS/CPS data do not portray an accurate picture of the US housing market, materially overstating US homeownership rates, and materially overstating gross, rental, and “ex seasonal” vacancy rates. As a result, estimates of the “excess supply” of housing in the US using the HVS/CPS data are almost certainly grossly overstated, and
estimates in the 3.5 million range seem just plain silly.
Excess Supply
Having said that, trying to determine the “excess supply” as of April 1, 2010, much less “walking it forward” to today, is not an easy task, as it requires one to determine what various “normal” vacancy rates are – and sadly, decennial Census data are only available – well, gee, once every 10 years. And since the HVS data are not only biased but show rising vacancy rate trends not matched by decennial Census data, using “long-run” trends from the HVS is unambiguously inappropriate. (And, of course, changes in definitions and sampling in the HVS over time make the “long-run” vacancy rates unusable as well.)
E.g., was Apri1 1, 2000 “normal?” Or was April 1, 1990? Given subsequent analysis of the 1990 and 2000 Census, should one adjust all vacancy rates higher, or just “gross” vacancy rates?
As a “Q&D”
exercise, let’s assume that (1) the “relevant” measure to look at is the vacancy rate excluding seasonal, recreational, and occasional use; (2) either 2000 was normal, 1990 was normal, or the average of the two was normal; and (3) this vacancy measure was either accurate in the “official” Census data, or it was understated by the same difference as was the gross vacancy rate suggested by post-Census Housing Unit Coverage studies.
April 1, 2010 "Excess Supply",
Various Measures
(thousands)
2000 Normal, No Adjustment
2,540
1990 Normal, No Adjustment
1,020
Average Normal No Adjustment
1,780
2000 Normal, Adjusted
2,220
1990 Normal, Adjusted
550
Average Normal, Adjusted
1,380
Now assuming 1990 was “normal” seems silly, as a few regional housing markets were still suffering from “irrational exuberance” and in a bust, and “real” home prices on a national basis declined for the next several years. But 2000 was hardly “normal” either, as various other inventory measures (e.g., month’s supply) were very low, and “real” home prices were rising at a faster-than-trend clip and rose at an even quicker pace in the next several years.
In addition, it is probably likely that the Census “undercounts” of vacant homes were more in “seasonal/rec/occ’l” category that in the “for rent/for sale/other” categories, and as such adjusting downward the “non-seasonal/rec/occ’l” vacancy rates by the estimated “misses” in the gross vacancy rates is probably excessive.
So .. what’s the “best” number to use? I’m certainly not sure, but
a number in the 1.6 to 1.7 million range seems “about right.”
And what about today? Well, overall housing productions (completions plus MH placements) from April of last year though April of this year totaled about 720,000. Net “scrappage” numbers are completely unknown, but probably ranged from 150,000 to 300,000. So in the 13 months since Census 2010, the housing stock probably increased anywhere from 420,000 (low) to 570,000 (high).
And what about household growth? Well, er, the only reasonably timely data that are available are from …. you guessed it, the HVS, and we know THEY aren’t reliable!!! But let’s assume a “slow” (for a recovering economy) 13-month increase if, say, 800,000.
So where’s that leave the “excess” supply today? Well, probably in the 1.2 to 1.4 million range on May 1, 2011.
Of course, this is a very “Q&D” estimate. It’s also a “national” one, while “excesses”
are much larger in some areas than others. It also doesn’t take into account differences in “types” of homes, which could be material.
Oh ... the decennial Census data also clearly indicate that housing “demographic” analyses and forecasts based on headship and homeownership rates from the CPS ASEC – such as the ones done by the Joint Center for Housing Studies – asymptote to being useless.
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