The National Association of Realtors Economic Outlook is showing some interesting forecasts for 2012. Keep in mind no one has a crystal ball, but the economists go ahead and make forecasts anyhow. The great thing about economists is they are usually about as accurate as the weather forecasters, yet I continue to listen to the weather forecast anyhow…
As of October 2011, here is what the economists are currently forecasting for 2012.
It looks like they are forecasting very little change in the unemployment rate, nudging down to 8.6%. I am particularly interested that they are forecasting the 30 year mortgage rate to inch upwards to 5% by the end of 2011. Apparently they are not expecting much help from Operation Twist, which I think is accurate.
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Their forecast (above)on Existing Home Sales is showing a fairly steady growth through 2012. While Housing starts and new construction sales are showing a big jump in the last 2 quarters of 2012. This is showing % change from a year ago.
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The above chart is kind of frightening, take a look at the Real Disposable Income line. I didn’t realize I had any disposable income and their forecast is showing it is going to get worse! The GDP is showing a forecast of pretty flat growth and the CPI showing flattening mid 2012. I would disagree with that, but I am no economist… I would expect the CPI to increase steadily throughout 2012…
These graphs are just a couple snapshots from their Forecast. For more information on their Economic Outlook, check out their data here.
Sometimes a Picture is worth a thousand words… This one speaks volumes.
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Linked from Captain Capitalism
The Metropolitan Area unemployment rates were released by the St Louis Federal Reserve this evening for August 2011.
We know the State of Minnesota held at 7.2% unemployment rate for August, but now we can see how our local real estate market is doing with the unemployment rate.
For August 1st, 2011 the unemployment for Minneapolis, St-Paul-Bloomington, MN-WI MSA (aka The Twin Cities) took a pretty significant drop from 7.4% to 6.7%. Unfortunately there is no information suggesting why that drop took place. A couple of theories are: Minnesota added 5,800 jobs, a large number would be in the Twin Cities and that there was a spike in unemployment due to the State shutdown. These were explanations given for the State unemployment figures, and I just figure they would hold true for the Twin Cities…
Headed the right direction! Long ways to go to get back below 5%, not even to mention 2% like we saw in the late 1990’s. This is a good reduction and we should be happy for small gains. Let’s hope for many more reports this direction.
As regular readers, you already know that the number one thing hurting our real estate market is the lack of jobs. That is why I am watching the unemployment rates.
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Image via Wikipedia
Here we go again..
Operation Twist has been launched by the Federal Reserve. The idea is the Federal Reserve will buy long-term T-Bills, $400 billion worth. The theory is it will lower the long-term interest rates. This is also supposed to give banks cash balances. Sounds good, except it has been tried in the past and did not work.
The term “Operation Twist” comes from the early 1960s, when the Fed tried something similar. (It’s named for the Chubby Checker hit.) It may have had a small effect — one recent studyfound that it drove down the interest rate on Treasury bonds by 0.15 percentage points. But the effect on mortgage rates was smaller, and the effect on corporate borrowing costs was tiny.
Read Article from NPR
One problem, okay one of many problems… Mortgage Interest Rates are already at record low levels. This is not the problem with the housing market. The housing market is suffering because of the high unemployment and underemployment. You may argue: it is because of the foreclosures! Well, sure – why are people going into foreclosure?? Maybe because of job loss and under-employment??
I don’t care if mortgage rates are 2% or 4%, if you are unemployed you still won’t buy a house!
Let’s phrase this differently, someone will buy a house at 12% interest rate if they have a job before someone buys a house at 3% interest rate that has no job.
How did the market respond to this news? Take a look at the Dow Jones chart for the day and see if you can identify what time the news was announced:
Welcome to the Lost Decade.
I do hope this works, but I am not optimistic on this strategy at all…
Ever wonder how you can add employment and yet the unemployment rate stays the same? It always seems like “fuzzy” math to me… But then again, I am no economist – I am only looking into the employment situation because this is the key factor holding the real estate market down.
Basically the report indicates Minnesota added 28,400 jobs in August, of which 22,600 were government workers going back to work after the State shutdown. (wow. that’s a big number!)
According to their news release: 5,800 private sector jobs were created and we still hold at a 7.2% unemployment rate.
…other sectors that gained jobs during the month were trade, transportation and utilities (up 4,100), construction (up 2,200), education and health services (up 1,400), manufacturing (up 1,200), and professional and business services (up 700).
The construction industry has added 7,500 jobs in the past four months, the first gain in jobs during the summer construction season since before the housing crash in 2006.
Job losses occurred in Minnesota last month in leisure and hospitality (down 3,300), financial activities (down 200), other services (down 200) and information (down 100). Mining and logging was unchanged.
Read Full Report from State of Minnesota DEED (Department of Employment and Economic Development)
The “pent-up demand” for housing is stuck right now with high unemployment. If we can get jobs creation going, allowing the younger age group to move out and create new households, the housing market will start to hum along.
These “doubled-up” households are defined as those that include at least one “additional” adult – in other words, a person 18 or older who is not enrolled in school and is not the householder, spouse or cohabiting partner of the householder.
Young adults were especially hard-hit, with 5.9 million people ages 25 to 34 living in their parents’ household in 2011, up from 4.7 million before the recession. That left 14.2 percent of young adults living in their parents’ households in March 2011, up more than two percentage points over the period.
Read Full Census Article
This age group that is now stuck living with their parents is what the market needs back in the workforce and buying houses. There is a potential for this to come down the pipeline in a wave, creating a shortage of housing believe it or not. It all depends on how we pull out of this recession/or recovery.
For a good analysis of this Census report, check out Calculated Risk
Image via Wikipedia
The National Association of Home Builders has started a new data series called the NAHB/First American Improving Markets Index (IMI). This is new so there is not a detailed history to get much perspective. They did however identify 12 areas that are improving first. These are as follows:
NAHB/First American Improving Markets Index (IMI) 9/07/2011
Unfortunately Minneapolis/St Paul didn’t make this first list… I was curious about why these Cities are recovering. Judging by the locations, most of them being in oil producing fields, I suspected employment was behind this. So I pulled together the unemployment rates in the Cities highlighted. This isn’t scientific, but of the 4 I looked up, they were all between3% and 6% unemployment rates. Nationally we are around 9.1% and Minneapolis/St Paul is around 7.2%.
Unemployment Rates of 4 of the Cities listed on the IMI
Again, this isn’t “scientific” proof, but it sure supports the theory of correlation between housing and employment…
Marty Andrade wrote an interesting post about unemployment rates, he also broke it down to the Twin Cities level in the comments section.
I will continue to watch this and keep you updated. This information may be of value, hard to tell right now with so little data available so far.
Image via Wikipedia (MN state population density map)
This is good news, Minnesota Unemployment Claims decreased for August. We need to take this in baby steps, and enjoy little successes here and there until we get to the point of growing jobs again… More jobs = more qualified home buyers, more qualified home buyers = property value stabilization.
Source: Positively Minnesota
Initial claims for unemployment decreased 18,474 for August to 19,625, returning to a more normal pattern following a state government shutdown. It’s the first time there have been fewer than 20,000 initial claims in a month since September of 2008. Year-over-year, the decrease is of 17.8 percent, or 4,238. The largest decrease was in Construction (down 29.6 percent, to 2,657 claims), while the only increase was in Arts, Entertainment, and Recreation (up 5.9 percent, to 306 claims). Most other industries saw moderate declines over the year, consistent with the past several months and seasonal trends. On a seasonally adjusted basis, initial claims were 24,994, down 22,726 from July.
Click Here for a detailed break down by industry. Great Stats for the detail oriented person.
Image via Wikipedia
There are 2 problems with our local real estate market, well make that three.
1) the housing downturn nationally (no housing market escaped this)
2) Un-employment (some areas are harder hit than others)
3) Financing regulations, underwriting standards and burdensome regulations. (all housing markets were hit).
For the twin cities, I believe our biggest problem of the 3 right now is the lack of jobs. It is difficult to buy a home if you don’t have a job, unless of course you pay cash.. It is also scary to the move-up buyers if there is uncertainty with their employment. As we lose jobs, we lose households and population contributing to even further price erosion (Detroit is an extreme example of this..) Granted we are not at Detroit’s level and from an unemployment rate we look fairly good compared to the rest of the nation. Saying “we are not as bad as the other guy” is just a rationalization, we still have a jobs problem.
Minneapolis St Paul Business Journal just published this article about a 2.3% medical device tax enacted by the Federal health care overhaul last year. The tax is to take effect in 2013 and according to this article we could lose 2,767 medical device jobs. It appears as if Rep. Erik Paulsen, R-Minn., and U.S. Sen. Amy Klobuchar, D-Minn have been working on eliminating this tax.
Image by Wonderlane via Flickr
We have all heard about the “pent up demand” for housing. What exactly is that? Quite simply, it is the younger generation that have not been able to enter the workforce because 14.9% unemployment rate and underemployment. It is possible when we get through this “recession” or “recovery” we could see a shortage of housing relatively quickly. It will likely start with the “starter home” price ranges, which then starts a domino effect up the price ranges. The housing market is basically stuck until this age group gets steady employment. To which I might say “Get a Job!”, like an old codger… They are in a tough spot, as we all are.
Back to Jobs, Jobs, Jobs.
Read Full Article from Star Trib.
For most young adults, the only jobs market they know is the one shaped by the Great Recession. Unemployment for 20- to 24-year-olds is about 14.9 percent, still well above the national average of 9.1 percent. That doesn’t allow young workers to think much about the job they want, just the job they can get. And if they live on their own, it’s often with roommates.
The economic impact extends well beyond mom and dad’s wallet. With young adults struggling to live independently, household spending is diminished as fewer new households are being created. As a result, less need exists for furniture, appliances and a variety of services.
“Job formation helps determine household formation,” said Maury Harris, chief U.S. economist for UBS Securities.
From March 2009 to March 2010, the number of new households in the United States was the lowest on record. The plight of younger workers played a large part in the downturn of households, as families were forced to consolidate.