Existing Home Sales and Prices Fall

The National Association of Realtors released the existing home sales figures for January 2009 today. Sales decreased to a seasonally adjusted annual rate of 4.490 million units in January down from 4.740 million units in December but down from 4.910 million units in January 2008. The median sales price was $170,300 for January down from $175,700 in December (down 3.1%) and down from $199,800 in January 2008 (down 14.8%). The price decline was again led by the West where the median price declined by 4.2% compared to the previous month dropping from a median price of $229,700 in December 2008 to $220,000 last month. The median home price for the West in July 2007 was at $349,400; the median is now 37.0% lower.

Months supply rose to 9.6 in January from 9.4 in December. This was due to a drop in sales while inventory dropped slightly. According to the NAR, currently 45% of all transactions are distressed sales.

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Case-Shiller Home Price Index falls slightly faster

The S&P Case-Shiller home price index for December 2008 was released today by Standard and Poors. The composite-10 declined 2.34% from November 2008 (last month it declined by 2.20%) and declined by 19.14% from a year ago (compared to 19.09% last month). The composite-10 is now down 28.34% from its peak. All 20 individual markets in the composite-20 are down year over year with Las Vegas and Phoenix down the most at -32.98% and -33.96% respectively. Dallas and Denver are down the least year over year at -4.26% and -4.00% respectively. All 20 markets were down in December compared to the previous month. The markets with the biggest declines from the peak are also declining the fastest. 10 markets have now dropped over 25% from their peak. The Composite-10 has now declined at a faster pace year over year for 24 straight months now.

You can click on the images for a larger view.

The CME futures market is pricing in a further drop of -9.39% by next December for the composite-10. The home price index is not seasonally adjusted. In the last 20 years, home prices have averaged appreciation of 5.29% a year. March through August are typically the strongest months for appreciation and home prices have on average appreciated by 4.40% during that 6 month period. September through February are the weakest months; home prices have on average appreciated by only 0.89% during that 6 month period. In 2007, the declines were moderate in the first half of the year and started rapidly declining in August. The composite-10 did not record a 1% loss month over month until October 2007. Right now we are declining at a slightly faster pace than we did last year at this time. The month to month change in the composite-10 bottomed in February when it declined by 2.80% in one month and peaked in June with a 0.61% decline over the previous month. S&P Case-Shiller index uses a three month average. The CME futures market is pricing in that housing will bottom at 142 in September 2010. This is a 12.4% further drop from December 2008's mark of 162.17. The CME futures are pricing in that the home price index will recover to 152 by September 2012.

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Retail Sales Down by 9.3%

The U.S. Census Bureau released the Retail Sales figures for January 2009 today. Adjusted for inflation and for seasonal variation, Retail Sales were up in January compared to December 2008 by 1.0% and down by 9.3% compared to a year ago. Economists were expecting a 0.8% drop compared to December.  A large part of the gain in January from the previous month was due to downward revisions of previously reported figures.  Retail Sales for December were revised downward this month by 0.6%. 

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Unemployment rate continues to rise; will hit 8.5% in 2009

Some economists are predicting that the unemployment rate will hit 8.5% in 2009. Today, we already hit 8.5% unemployment rate when not seasonally adjusted, up from 7.1% in December and 5.4% a year ago. January is typically the highest month for the unemployment rate. According to "The Employment Situation" for January 2009, released today by the U.S. Department of Labor, seasonally adjusted, the unemployment rate was 7.6%, up from 7.2% in December and 4.9% a year ago. Since 1948, the unemployment rate has never risen by more than .5% in a 12 month span without entering into a recession. The unemployment rate is now up 2.7 percentage points in the last twelve months and is up 3.2 percentage points from its recent low of 4.4%.

Nonfarm payrolls decreased by 598,000 in January, 577,000 in December, and 597,000 in November. This month they revised the previous two months of December and November downward by 66,000 jobs. In December they revised downward the amount of jobs lost in the previous two months by 154,000. In November, they made a downward revision of 199,000. They also made huge revisions for last year and revised as far back to 2004. Last month, the total jobs lost from December 2007 to December 2008 was reported to be 2,589,000. This month, with the revisions, the total jobs lost from December 2007 to January 2009 has reached 3,572,000 jobs. The average recession since World War II has had a loss of 1,917,000 jobs on average. The biggest loss before this recession came in 1982 with 2,838,000 jobs lost. In terms of job loss, we are in the biggest recession since the Great Depression. And the end is not in sight yet.

The U.S. Department of Labor released the Weekly Claims data for Unemployment Insurance yesterday. Initial claims were at 626,000 for the week ending January 31st. This is up from the previous week's number of 591,000. The four week average of initial claims, which is not as volatile, was at 582,250. This is up from the previous week's figure of 543,250. Continued claims for unemployment insurance increased to 4,788,000 for the week ending January 24th up from the previous week's number of 4,768,000. The four week average for continued claims was also up to 4,672,000 from 4,628,000. This is the highest continued claims has ever been. The previous high was in 1982. Initial claims is faster to move up and signals increases in the unemployment rate. Continued claims take longer to go down than the initial claims once the unemployment rate is elevated. The Unemployment rate doesn't drop until continued claims start to come down.

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Pending Sales Rise in December

Today, the National Association of Realtors released the Pending Home Sales Index for contracts signed in December 2008. On a seasonally adjusted basis the index was at 87.7 up from 82.5 in November 2008 and up from 85.9 in December 2007. 2001 was previously the slowest year for pending home sales on record. Without seasonal adjustments, November 2008 was 17.0% lower than November 2001's sales pace. The increase in month over month pending sales were due to strong seasonally adjusted gains in the Midwest and South. The increase in the year over year pending sales was mainly due to strong sales in the West. Seasonally adjusted the West saw a decrease of 3.7% month over month but an increase of 17.5% year over year. The Midwest and South increased by an average of 12.9% month over month but increased by only an average of 0.2% year over year.

The NAR made a downward adjustment in their median home sales price forecast for 2009 to $192,800. Just a few months ago, their forecast for median sales prices in 2009 was $215,800. The NAR is forecasting the median home sales price for 2010 to be $201,700.

Pending sales have settled down over the last 12 months. However, the foreclosure mix has been rising.

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PMI posts small gain; indicator shows manufacturing and economy still contracting

The Institute for Supply Management released their monthly Manufacturing ISM Report on Business today. The Purchasing Manager's Index (PMI) came in at 35.6% for January which is up from 32.9% for December which was the lowest PMI had reached since May 1980.  Economist's had expected PMI to drop to 32.5%. A PMI reading of 35.6% suggests that the manufacturing economy and the overall economy are both contracting. Per ISM:

"A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting...if the PMI for November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease in real GDP annually....A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy."

Here is what some of the respondents to the ISM survey are saying:

• "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)
• "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)
• "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)
• "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)
• "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)

In the past, when PMI has dropped below 40, the recovery is swift, averaging a 14.7% point rise in three months.  The current 2.7% point rise is minor in comparison. 

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