Paper Money - A US Real Estate Bubble Blog

Question of The Day - S&Ls To Collapse Next?

Posted: 04 Dec 2008 11:11 AM CST

Will S&Ls meltdown next?

Why would they perform any better during this downturn than they did during the housing bust of late 80s and early 90s?

Aren't we simply just now entering the period where supposedly "prime" mortgage portfolios will come under significant stress as rampant unemployment lays waste to the cash-strapped and largely insolvent middle-class?

The Arlington Artifice: October 2008

Posted: 04 Dec 2008 10:54 AM CST

This recurring monthly post tracks the latest results of the housing market seen in Arlington Massachusetts.

I choose Arlington as a result of the Boston Globe's recently published and absurdly anecdotal and ludicrous farce about the town's "hot" housing market.

The ridiculous tone and outright mishandling of the housing data by the Boston Globe "reporter" would almost be comical if it weren't for the fact that the Globe's editor, Martin Baron, ALSO blundered seriously when he responded to my email about the discrepancies.

Baron attempted to justify the articles contents and in so doing, he disclosed his disgracefully poor and obviously unsophisticated abilities with even the most basic economic data.

The October results again confirm that Arlington is by no means a "stand out" amongst its neighboring towns as Baron suggested in his email and, in fact, is following along on a path wholly consistent with the trend seen in the county, state, region and nation.

Why would an editor of a nationally recognized newspaper think that a single town would continue to function as an isolated bubble amongst a backdrop of the most significant nationwide housing recession since the Great Depression?

As I have shown in my prior posts, this data when charted and compared to other towns in the region proves there are absolutely no grounds to call Arlington's market exceptional.

The most notable feature of the recent results is unquestionably the low number of home sales with only 221 sales for the entire year to date, the lowest readings since the recessionary period of 1990.

Another important point to remember is that when sales decline dramatically the median selling price can jump wildly up or down since the small number of sales provides a small set with which to determine the "middle" selling price.

The following chart (click for much larger version) shows a history of Arlington's October median sales price since 1988 along with the annual outcome.

Regular readers will notice that the "year-to-date" median selling price, a more accurate median indicator, has declined significantly from where it stood earlier in the year as the number of home sales have slowly accumulated and now stands at $475,000.

My expectation, now that we are in the weakest season for home sales, is for the median selling price to slide well below $470,000 by the end of the year.

The next chart (click for much larger version) shows that home sales in Arlington have been essentially flat during the last 15 years, a result that is generally to be expected when looking only at the sales of one town in isolation.

That being said though, Arlington has seen only 221 home sales this year, the lowest result on record since 1991.

The final chart shows how the year-to-date median sales price and combined sale count for Arlington, Bedford, Belmont, Cambridge and Lexington have changed since 1988.

Notice again that as sales have mounted for the year, the median values are looking generally flat to trending down.

My expectation is that all the towns except for Cambridge (which will likely be flat to modestly up on an extremely low number of single family sales) will have lower medians than 2007.

In review, the data shows that there is nothing exceptional about Arlington's housing market proving clearly that the claims made in the Boston Globe article and later endorsed by its editor Martin Baron were entirely erroneous.

Mid-Cycle Meltdown?: Jobless Claims December 04 2008

Posted: 04 Dec 2008 10:45 AM CST

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted "initial" unemployment claims declined 21,000 to 509,000 from last week's revised 530,000 claims while "continued" claims increased 89,000 resulting in an "insured" unemployment rate of 3.1%.

It's very important to understand that today's report continues to reflect employment weakness that is strongly consistent with past severe recessionary episodes and that this signal is now so strong and sustained that a significant contraction in the economy is fundamentally certain.

Historically, unemployment claims both "initial" and "continued" (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows "population adjusted" continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit but as you can see, the pattern is still indicating that recession has arrived.

The following chart (click for larger version) shows "initial" and "continued" claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a "monthly" average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.
As you can see, acceleration to claims generally precedes recessions.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a "flattening" period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the "mid-cycle slowdown" where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until recently, one could make the case that we were again experiencing simply a mid-cycle slowdown but now that now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing "initial" and "continued" unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-"dot com" recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential "mid-cycle" slowdown that appeared to be shaping up recently, had been traded for a less severe downturn in the aftermath of the "dot-com" recession, and now has we have fully entered, instead, a mid-cycle meltdown.