Saturday, July 31, 2010

Real GDP grows 2.4% in Q2

This graph shows actual real GDP vs. potential real GDP:

U.S. real gross domestic product increased at a 2.4% annual rate in the second quarter.
The U.S. economy continued to grow during the second quarter, the government reported Friday. But the pace slowed more than economists were expecting, raising concern about growth — or even another recession — in the months ahead.

Gross domestic product, the broadest measure of the nation's economic activity, rose at a 2.4% annual rate during the three months ended June 30, the Commerce Department said.

The sluggish pace was down from the upwardly revised 3.7% growth rate in the first quarter, and missed economists' forecast for a 2.5% increase.

Still, the figure marked the fourth straight quarter of growth and gave credence to some economists' views that the recession that began in December 2007 likely ended at some point in mid-2009. ...

Most troubling to economists — particularly in the months ahead — was a slowdown in consumer spending, which accounts for 70% of economic activity.
The GDP numbers given in the article are actually for real GDP, not nominal GDP. From the BEA:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.4 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent. ...

The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, exports, personal consumption expenditures, private inventory investment, federal government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending. ...

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.1 percent in the second quarter, compared with an increase of 2.1 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 0.9 percent in the second quarter, compared with an increase of 1.6 percent in the first. ...

Real disposable personal income increased 4.4 percent, compared with an increase of 1.7 percent.
A side note: I have trouble getting from the definition of "sputter" that exists in the dictionary to the way the word is frequently used by headline writers.

Wednesday, July 28, 2010

More Americans are chosing to rent

The U.S. home ownership rate continues to fall:
The number of Americans who own homes fell in the second quarter of the year to the lowest level since 1999, said a government survey released Tuesday.

The Census Bureau said the home ownership rate fell to 66.9% in the second quarter of 2010, down half a percentage point from the previous year. The home ownership rate was 67.1% in the first quarter of the year.
And renting is becoming more popular:
With homeowner markets stressed, it appears renting has become more appealing than owning. Between 2004 and 2009, the number of renter households rose nearly 10% or by 3.4 million, according to a 2010 study of the Joint Center for Housing Studies of Harvard University. The rise was most dramatic in the Midwest, where growth of renter households swung upwards by 15.4% between 2004 to 2009. The South added the biggest number of renter households with a 1.2 million increase from 2004 to 2009, the study states.

All that has made Capitol Hill rethink its definition of the American Dream. As recently as the Clinton and George W. Bush administrations, the mantra of homeownership was almost synonymous to civic duty, but top policymakers now say that homeownership isn't necessarily good for everyone.

In May, U.S. Housing and Urban Development Secretary Shaun Donovan testified before a House committee that the financial crisis proved the need for a better balance between ownership and rental housing. And HUD senior official Raphael Bostic last week told the Washington Post: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go," Bostic said. "You're not going to hear us say that." ...

"The government shouldn't blindly encourage homeownership," says Joe Gyourko, real estate finance professor at University of Pennsylvania's Wharton School. "If the government does anything the government should encourage people to make the right decision."

Home prices up in May

The S&P/Case-Shiller index was up in May:
Home prices rose slightly in May compared with a month earlier, appearing to have stablized at the lower levels that followed the end of the residential real estate bubble, according to the S&P/Case-Shiller Home Price Index of 20 major housing markets released Tuesday.

Prices were up 1.3% from April, and 4.6% from 12 months earlier.

The price rise might have reflected one of the last gasps of the government's incentive program, which paid tax refunds of as much as $8,000 to homebuyers if they signed a sales contract before May 1.

"It does look like the market was boosted by the tax credit," said Robert Dye, senior economist for PNC Financial Services. "It seems to have pulled some of the demand forward."

Thursday, July 22, 2010

Cool real estate for sale: Nakatsu Castle

I think this is very cool. If you've got the money, you can now buy your very own Japanese castle.
Nakatsu Castle, located in Oita prefecture, in western Japan, is for sale.

The castle, a 14-minute walk from the nearest train station and just minutes away from the Sea of Japan coastline, features 5.7 acres of land bordered by a traditional stone wall and moat, with a five-story, steel-framed building. Built in 1964, the current building is a replica of the original castle, constructed in 1588.

...a third-party real-estate assessment valued the castle at 196 million yen, or $2.3 million.
Still think those Arlington condos are impressive?

Tuesday, July 20, 2010

New real estate tax in 2013

Apparently, ObamaCare contains a new tax on real estate. It only affects "the rich." However, given enough time and inflation, it may start affecting middle class Americans, much like the AMT.

Monday, July 19, 2010

Lost decade ahead? Lost decade behind!

CNN Money warns that the U.S. could experience an economic "lost decade" over the next ten years:
The risk of a double-dip recession is getting a lot of attention, but even that grim prediction could prove a little too optimistic.

Disappointing job reports, weakness in housing and consumer spending and problems in world financial markets have raised concerns about the U.S. economy stalling out later this year. Now some economists are starting to talk about an even worse fate: a prolonged period of very weak growth, a so-called "lost decade." ...

A lost decade, or something like it, could feel like a never-ending recession to many Americans, as the economy does not grow fast enough to recoup lost jobs, and investments like homes and stocks continue to lose value.
What CNN Money seems to overlook is that, in a sense, we've already experienced a lost decade over the past ten years. Take a look at the aggregate weekly hours worked over the past decade:

Or look at total nonfarm payrolls over the past decade:

Or look at the S&P 500 over the past decade:


From CNN Money: Confessions of former debt collectors.

Friday, July 16, 2010

More sellers slashing home prices

From CNBC's Diana Olick:
That heady buzz from the home buyer tax credit is now turning into a grinding headache, as home sellers realize their very temporary, government-induced catbird seat has now fallen back to earth.

As of July 1st, 24 percent of sellers on the market had cut their asking prices at least once, according to

That's up 9 percent from the previous month and represents about $27 billion worth of vanished national home equity (or home equity hopes).

"The market is going to maintain a relatively flat trajectory, if not more like a saw tooth trajectory, for the near future, and meaningful recovery may not happen until some time in 2011, 2012," says Trulia's Heather Fernandez.

Thursday, July 15, 2010

Mortgage applications hit a 13-year low

With the tax credit mostly gone, we're starting to get a better sense of what the free market thinks of housing:
Mortgage applications to buy a home plunged last week — to the lowest level in more than 13 years — as the housing recovery continued to struggle following the expiration of the homebuyer tax credit, an industry group said Wednesday.

The Mortgage Bankers Association said application for mortgages to purchase a home sank a seasonally adjusted 3.1% for the week ended July 9 on a week-over-week basis, driving the volume to its lowest level since December 1996. On an annual basis, applications for the week were down 43%.

Much of the slowdown has come since the April 30 expiration of homebuyer tax credit. Homebuyers had until that deadline to sign contracts. Congress extended the deadline to close deals to Sept. 30.

The government's latest reading on new home sales plummeted to a record low in May, thanks largely to the expiration of the tax credit.
Here's a graph of mortgage applications since 1990 from Calculated Risk:

Wednesday, July 14, 2010

REITs vs. Stocks & Commodities

The financial crisis started three years ago this summer. Since that time, real estate investment trusts (REITs) really haven't performed much worse than stocks and commodities.

The graph below from shows the Vanguard REIT Index ETF (VNQ), the S&P 500 Index (SPX), and the iPath Dow Jones-UBS Commodity Index ETF (DJP).

You would have been worse off during most of the past three years by owning REITs, but today all three asset classes are roughly even.

Tuesday, July 13, 2010

Fed worried about economic double-dip

It appears the Federal Reserve has recently become increasingly worried about the prospect of an economic double-dip:
Federal Reserve officials, increasingly concerned over signs the economic recovery is faltering, are considering new steps to bolster growth. ...

Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. But weak economic reports, the debt crisis in Europe and faltering financial markets have led them to conclude that the risks of the recovery losing steam have increased. After months of focusing on how to exit from extreme efforts to support the economy, they are looking at tools that might strengthen growth.

Friday, July 09, 2010

Alan Greenspan on the economy

Video: Former Fed Chairman Alan Greenspan on the economy, stocks, the financial sector, and housing.

You can count me as one of the people who blame him for the current economic mess, but I still think he's very knowledgeable about the economy. His book, The Age of Turbulence, is excellent.

Tuesday, July 06, 2010

Housing outlook grim

The Washington Post illustrates the growing bearish view of the housing market, even as it misleads readers about historical housing prices.
After showing signs of a fledgling recovery from the worst downturn in decades, the U.S. housing market appears to be heading back toward the doldrums, as the expiration of a lucrative tax credit for buyers and increased uncertainty about the economy cause home sales to plummet.

The sudden weakness in residential real estate has struck nearly every region of the country, according to recent government and industry data, driving down sales of new and previously owned homes alike in May. On Thursday, the National Association of Realtors said an index that measures sales contracts signed on existing homes plunged 30 percent in May, more than twice what analysts had forecast, to the lowest level since the group started tracking the numbers in 2001.

Those sharp declines come despite record-low mortgage rates and historically cheap home prices. The market's renewed fragility highlights concerns about whether the U.S. economy will hurtle back into recession and illustrates the impact of the nation's high unemployment rate...
Check the graph in the sidebar, home prices are not "historically cheap."

Enjoy the heat today

Here in the Washington, DC area it's supposed to hit three digits on the thermometer in the late afternoon.

Thursday, July 01, 2010

Congress won't let the housing tax credit die

It was originally supposed to expire last fall, but now it will live on through September.
First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.

President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.

The bill doesn't help anyone currently shopping for a home. Buyers must have signed a contract by April 30 to qualify for the tax break. At issue is when the deal must be finalized.

Qualified existing homeowners also have until Sept. 30 to close on new homes and receive a tax credit of up to $6,500.
If housing prices begin to decline again, as is widely expected, I bet Congress will listen to NAR lobbyists and bring back the tax credit in the fall.