Existing Home Sales (December 2011)
- Existing Home Sales - 4,610,000 (seasonally adjusted annual rate)
- Previous was 4,420,000
- Month/Month +5.0 %
- Year/Year +3.6 %
All cash transactions were 31% of the market. The issue may be that many foreclosures are in condition not up the FNMA lending standards. Distressed sales were 32% of the market. 21% of the sales were to investors.
This trend is healthy because it is only investors buying homes they will fix and rent who can provide the buying capacity to absorb the present supply (which was down to 6.2 months from 7.2 months at the end of November) as well as the shadow inventory of distressed sales which will be created by foreclosures this year. The folks who buy, repair and rent out these homes are helping stabilize values and also creating cash flow for themselves which will be a plus for the economy.
I do not see this as a story indicating that the housing market is in significant recovery. It is, however, a necessary step to recovery. It also shows that recovery is accomplished by letting the market work rather that by taxpayer funded incentives which add to an already massive national debt. The supply of existing homes for sale - both actual listings and shadow inventory - must be cleared before Housing Starts return to the natural level of 1,500,000 annual.
Fundamentals so far this new year have been weak. We may see very slower growth or a decline in 1stQ2012 GDP. The increase in Existing Home Sales, while modest, is at least a step in the right direction.
Rick Davis on Models, Beliefs and Data
This is by Rick Davis of Consumer Metrics Institute.
What's going on? Why do we have such mixed signals?
Model Disconnect
Our answer to those questions is relatively simple: mixed signals generally indicate models that are no longer working; where paradigm shifts have rendered the underlying assumptions inaccurate -- if not irrelevant. Extreme or historically unprecedented circumstances can break any model, and persistent extremes can even challenge the underlying economic dogma.
(One of the more glaring examples of a model breaking down is a popular economic "leading index" which has been premised (and heavily weighted) for years on the assumption that the money supply (M2) and the yield curve manipulations of Messrs. Volcker/Greenspan/Bernanke accurately presage changes in economic growth -- an assumption that even the publisher of that index now admits had flaws.)
Our Beliefs
We believe that the situation with U.S. consumers is to some extent too complex for "macro" modeling. At the heart of the complexity are 100 million households that are each uniquely impacted by circumstances and who react uniquely to their various plights. We believe that the past five years have not been a fully shared experience, and that the policy responses of government over that time span have only amplified that disparity.
Furthermore, we believe that the ongoing acceleration of the speed with which cultures evolve or people communicate and transact have caused economic paradigms to shift faster than even the most nimble survey or model can handle. Among the obvious questions: what currently constitutes the paradigm for the household that a "household survey" is designed to sample? (And how do you reach a full cross-section of those households -- especially if some only communicate via Twitter?) Or perhaps more importantly for certain key statistics: what is the distinction between being unemployed and "going back to school"? Between unemployment insurance and student loans? For five years this economy and society have been in flux and turmoil in ways that don't lend themselves to "macro" treatments or generalizations.
At the Consumer Metrics Institute we have been fortunate enough to be able to measure the aggregate behavior of a certain demographic: consumers who are purchasing discretionary durable goods on the Internet. Several years ago we were confident that such data could serve as an adequate proxy for the "macro" behavior of U.S. consumers -- and for the larger part of the U.S. economy as a whole, since consumers represent some 70% of that economy. For the reasons outlined above, we are now far less certain that any "macro" behavior actually exists or can be extracted from the economic turmoil.
But for exactly those very same reasons -- particularly the rapidly evolving nature of households, communications and marketplaces -- we believe now more than ever that our data comes closer to documenting the real-time economic turmoil than any of the orthodox surveys or governmental data series.
Our Data
For whatever reason, our data for aggregate consumer demand for discretionary durable goods surged during June and July, plateaued for a couple of months before retreating slightly at the end of the year:
(Click on chart for fuller resolution)
(If a chart is not visible above, please click here to see this commentary as a Web Page.)
When we say "whatever reason" we know that there are roughly 100 million variations on those reasons, representing the 100 million or so U.S. households that are to some extent economic "loose-cannons" doing whatever makes the most sense for them. We also know that our data is early (i.e., far "upstream" from an economic standpoint), and we suspect that the early third quarter surge we saw explains the stronger consumer expenditures reported in the 3Q-2011 GDP reports.
The daily version of the above chart shows the normal holiday patterns:
(Click on chart for fuller resolution)
What the charts don't show, however, is the surge of returns experienced by brick-and-mortar retailers. Anecdotal reports in the media indicated that the returns were prompted both by shoppers trying to cash in on deeper discounts as the season progressed and by "buyer's remorse" when the euphoria of the "Black Friday" deals turned into budget realities. We expect that another form of "buyer's remorse" will be felt during the first quarter of 2012, when the reality of contracting real pay will result in 4Q-2011 gains that were merely moved forward from a weakening 1Q-2012 consumer sector.
Dick Lepre
RPM - SF Van Ness
CA DRE # 01143973 | NMLS # 302379
