by Calculated Risk on 1/11/2012 09:48:00 PM

Last week I posted some housing forecasts from Wells Fargo, Goldman Sachs and Fannie Mae: Some Housing Forecasts.

Here are two more forecasts ...

From Merrill Lynch on Housing "It is too early to get bullish"

We expect single family housing starts to be little changed in 2012 relative to 2011. This will continue the sideways movement which began in 2009 after single family housing starts plunged 80% from the peak...

The good news is that builders have been successful at reducing inventory, bringing new supply to 6 months. This means that any increase in demand will warrant a new housing start. If the economy recovers more quickly this year than we assume, single family housing starts will receive a boost.

And real estate consultant John Burns is forecasting an increase to 359 thousand new home sales in 2012 (from around 300 thousand in 2011), and for total starts to increase to 717 thousand from around 600 thousand in 2011 (this includes a significant increase in multifamily starts).

And comments from homebuilders Lennar and Toll Brothers:

From Reuters: Lennar Says High Rents Helped Home Orders Increase 20%

“As I look ahead to 2012, I am cautiously optimistic that we are seeing a real bottom form and we will begin to see signs of recovery,” Lennar’s chief executive, Stuart A. Miller, said in a conference call.

Lennar said high rents were driving customers to buy new homes, and low home prices and low interest rates were helping.

The company is experiencing more traffic at its model homes, Mr. Miller said.

From Bloomberg: Toll Brothers: NYC Best Home Market in ’12

Nationwide, Toll Brothers expects to sell “not that much more” than 2,600 homes in 2012, [Chief Executive Officer Douglas Yearley Jr.] said in today’s interview. If the traditional spring selling season is strong, the company could deliver as many 3,200 houses this year, he said. The company sold 2,611 homes in fiscal 2011 ...

As I noted last week, I think a small increase in new home sales and housing starts is likely in 2012. The increase in sales in 2012 will not be huge; even a 20% increase in new home sales would make 2012 the third lowest on record behind 2011 and 2010.

by Calculated Risk on 1/11/2012 06:24:00 PM

Yesterday, in answering a question on China, I mentioned that Professor Michael Pettis is an excellent source about China. He also comments on Europe.

An excerpt from Michael Pettis: If no trade reversal now, then when?

Europe’s underlying problem is not budget deficits or even unsustainable debt. These are mainly symptoms. The real problem with Europe is the huge divergence in costs between the core and the periphery – in the past decade costs between Germany and some of the peripheral countries have diverged by anywhere from 20% to 40%. This divergence has made the latter uncompetitive and has resulted in the massive trade imbalances within Europe.

Trade imbalances, of course, are the obverse of capital imbalances, and the surge in debt in peripheral Europe in the past decade – debt owed ultimately to Germany and the other core countries – was the inevitable consequence of those capital flow imbalances. While European policymakers alternatively sweat and shiver over fiscal deficits, surging government debt, and collapsing banks, there is almost no prospect of their resolving the European crisis until they address the divergence in costs. Of course if they don’t resolve this problem, the problem will be resolved for them in the form of a break-up of the euro.

It doesn't appear European policymakers are addressing the imbalances at all.

And on China:

There isn’t nearly as much (at least visible) antagonism and undermining behavior among Chinese policymakers, but I worry that there is nonetheless the same lack of logical thinking among them in regards to their “right” to a trade surplus – although at least they are not facing massive defaults in the countries to whom they have lent. As China’s trade surplus declines dramatically, more and more people within the country are calling for interventionist steps to halt the decline, including depreciating the RMB, or at least halting its appreciation.
...
But we would have to ask the same question of China as we would of Germany: if now is not the right time for China to run a trade deficit, when its reserves are sky high, when rebalancing the Chinese economy away from investment to consumption is more urgent than ever, when global imbalances have thrown the world into crisis, when will it ever be the right time?

Not [this] year, apparently. There is developing in Beijing, I think, almost a panic about global economic prospects and the impact of the European crisis on China. This panic is going make the rebalancing process harder than ever ...

by Calculated Risk on 1/11/2012 02:00:00 PM

Fed's Beige Book:

Contact reports from the twelve Federal Reserve Districts suggest that national economic activity expanded at a modest to moderate pace during the reporting period of late November through the end of December. Seven Districts characterized growth as modest; of the remaining five, New York and Chicago noted a pickup in the pace of growth, Dallas and San Francisco reported moderate growth, and Richmond indicated that activity flattened or improved slightly. Compared with prior summaries, the reports on balance suggest ongoing improvement in economic conditions in recent months, with most Districts highlighting more favorable conditions than identified in reports from the late spring through early fall.
...
Consumer spending picked up in most Districts, reflecting significant gains in holiday retail sales compared with last year's season, and activity in the travel and tourism sector expanded in most areas.
...
Upward price pressures and price increases remained quite limited for most categories of final goods and services, as the effects of prior increases in the costs of selected inputs have eased.

And on real estate:

Activity in residential real estate markets largely held steady at very low levels, with the exception of further increases in the construction of multifamily residences. The pace of single-family home sales remained quite sluggish throughout the country, although the Dallas District reported a modest increase over the prior reporting period. Some Districts, such as Boston and Atlanta, noted that home sales exceeded levels from twelve months earlier, but mainly because the earlier levels reflected a substantial drop following the expiration of the homebuyers' tax credit in mid-2010. Prices were largely stable on a short-term basis in most areas but in many instances were below their levels from twelve months earlier. Extensive inventories of distressed properties were reported to be a source of price restraint in the Boston, Richmond, Chicago, and San Francisco Districts.
...
Demand for nonresidential real estate remained somewhat soft overall but improved in a number of Districts. Vacancy rates and other indicators in markets for office space were largely unchanged in the major metropolitan markets in the Boston, Philadelphia, Cleveland, Richmond, and St. Louis Districts. By contrast, New York reported that demand for office space "picked up in late 2011," causing vacancy rates to edge down and asking rents to rise.

This was based on data gathered on or before December 30th. More sluggish growth...

by Calculated Risk on 1/11/2012 12:53:00 PM

A few comments from Herman Van Rompuy, president of the European Council (translation via Google Translate):

It is a crisis in the € zone. The divergent trends in the € zone are too large. It is not an "optimum currency area"

It's not just government, to "sovereign debt" but also excesses in the financial sector, real estate etc.

We must do everything to avoid recession. ... We need a fiscal strategy that is "growth friendly"

Fiscal consolidation will not tell us to say "no" to all or which is cut everywhere. We must "prioritize"

We ask each member state to establish a "job plan", we make commitments we can evaluate

This is a prelude to the next European Union summit meeting in Brussels on January 30th - the key topic will be a growth agenda.

Maybe even Germany will pay attention to growth now that the German economy appears headed into recession too (no surprise since they export to other EU countries that are already in recession), from the WSJ: German Economy Shrank Slightly at End of 2011

Germany's statistics office said GDP slid around 0.25% in the fourth quarter from the third, ending a two-year expansion.

by Calculated Risk on 1/11/2012 11:10:00 AM

The LPS HPI is a repeat sales index that uses public disclosure by county recorders or loan origination data for purchase loans (if the sales price isn't disclosed).

From LPS: LPS Home Price Index Shows U.S. Home Prices Declined 0.8 Percent to Late 2002 Levels in October; Early Data Suggest 0.5 Percent Drop in November Likely

The LPS HPI national average home price for transactions during October 2011 was $200,000 – a decline of 0.8 percent during the month relative to September, reaching a price level not seen since October of 2002. This is the fifth consecutive month of decreases in prices. The partial data available for November suggests more moderation of price declines to approximately 0.5 percent.

Click on graph for larger image.

Figure 1: "Prices have fallen since autumn 2008 with brief interruptions each spring. Prices have not been at the current level since October 2002."

During the period of most rapid price declines, from June 2007 through December 2008, the LPS HPI national average home price dropped $56,000 from $282,000, which corresponds to an average annual decline of 13.8 percent. Since December 2008, prices have fallen more slowly, interrupted by brief seasonal intervals of rising prices. During this period of more slowly declining prices, the national average price has fallen approximately $26,000 from $226,000.

The October national average price is down 2.7 percent from the average price at the beginning of the year.

The LPS index is already showing a new post-bubble low, and it appears all of the price indexes will show new post-bubble lows later this year - or early in 2012.