Date:
Case-Shiller Home Price Index
The Case-Shiller HPI came out yesterday, showing that home prices are basically flat. I think we are fairly close to the peak of the cycle, and it is remarkable that despite the total adoption of a policy to reinflate the housing market, it still hasn’t happened. Despite the tax credits and the Fed purchase programs, the average home price has still not had any appreciable gain on a year-over-year basis. According to the 20-city Case-Shiller index, home prices fell 0.7% compared to one year ago. This was the best reading for this index since 2007.
Many will look at the fact that the price index has moved closer to a year-over-year level of 0% and then assume that this means we have hit the bottom. This will be correct exactly one time; just because something stops going down does not mean that it has reached the absolute low. In fact, home prices are back to the levels they were in 2003 – so it is not like there has actually been a major move in valuations; just a blowing off of the absolute froth.
Finally, today is March 31st, the stated end of the Fed MBS purchase program. One of the major supports holding the housing market together, the direct subsidizing of mortgage rates by the Federal Reserve, comes to an end. The tax credit will be the next support to fall when it expires on April 30th, the date buyers must be contracted to buy. We will get the first true look at the supply-demand dynamics of housing in June 2010 home sales data. Until then, the housing data generally remains useless and unfit for any reasonable analysis due to external interference.
Consumer Confidence
Consumer Confidence was reported at 52.5 in March, versus a revised 46.4 level in February. As is typical, the immediate proclamation of the bullish types was that this was evidence of no “double dip” in the economy, and that we are in fact having a V-shaped recovery. That is a lot of information to determine from the release of a survey.
Here are some of the internals of the report:
Consumers’ assessment of current-day conditions was less negative in March. Those claiming conditions are "bad" decreased to 42.8 percent from 45.1 percent, while those claiming business conditions are "good" increased to 8.6 percent from 6.8 percent. Consumers’ assessment of the labor market was also less pessimistic. Those saying jobs are "hard to get" declined to 45.8 percent from 47.3 percent, while those saying jobs are "plentiful" increased to 4.4 percent from 4.0 percent.
May some of this be linked to the continuing strength of the equity market? I suppose we will find out when the equity market turns down. It is worth mentioning that the ABC Consumer Comfort Index, a weekly measure of consumer confidence, fell. It still remains in deeply negative territory.
Employment Week Begins Tomorrow
The number I am most interested in comes tomorrow when the ADP Employment Report is released. The ADP report measures private hiring and employment, so it will not be affected by any US Census hiring. Currently, the consensus forecast is for a gain of 40,000 private sector job, up from last month’s 20,000 loss.
States Hopeful to the Point of Ridiculousness
Everyone is officially now bullish on the economy (except me), even to the point where it doesn’t make sense. Witness the Bloomberg article Tax Receipts Rebound as 15 Biggest States See 4% Gain in 2011.
In the mind of the forecasters, tax receipts are going to increase 4%, basically in line with the stimulus/inventory rebuild led GDP numbers of the 1st Quarter of 2010. I would be very interested to see where many of the assumptions for this number are coming from, since the bulk of receipts that governments collect are tied to income and spending. Income is not rising 3.9% over the next year – there is simply no way that is going to happen. How can there possibly wage growth of 3.9% when there is no discernable inflation and a higher than average unemployment rate, likely still hovering near 8%?
Sales taxes may increase if consumers continue to diminish their personal savings, as they have for the past few months – but even then, tax receipts growing at near 4% is optimistic. A return to consumption spending is also not likely to return to that degree either.
This is nothing more than states crafting good expectations in order to model a positive long-term outcome – and then hoping for the best. Of course, these rosy projections have the effect, on the margin, of keeping the credit agencies from downgrading the credit worthiness of the state. Perhaps that is the intent altogether.
