November Housing Starts and Permits

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: November Housing Starts and Permits
KEY DATA: Starts: +9.3%; 1-Family: +2.3%; Multi-Family: +25.3; Permits: +5.7%; 1-Family: +1.6%; Multi-Family: +13.9%

IN A NUTSHELL: “The slow process of getting back to normal seems to be underway as home construction is picking up some steam.”

WHAT IT MEANS: A major constraint to better economic strength has been the weak housing market. With so many distress homes on the market it is difficult for builders to compete. That reality still exists and is likely to continue that way for quite some time which means the pathway from disaster to health will be slow. But finally, it appears that the process of healing is underway. Housing starts jumped in November led by a huge increase in multi-family activity. With so many people out of the market and mortgages hard to get, a growing number of households are looking to rent so this segment of the market should remain strong. But there is also a steady upward trend in single-family construction as well. Looking across the nation, there was a huge increase in the Northeast that looks to be a bit overestimated. That could mean some reduction in December. Starts in the West were robust as well, they were up moderately in the South but down sharply in the Midwest. Looking outward, permit requests continue to rise and that means better construction in the months ahead. Builders are not requesting permits unless they intend to use them and the number of units authorized but not started keeps going down. We have begun to see that as the number of units under construction has increased.

MARKETS AND FED POLICY IMPLICATIONS: This was a surprisingly strong report continuing the trend of better than expected numbers. Home construction needs to improve if job growth is to pick up and that seems to be the case. While it may take two more years to return to decent levels of construction, the improvement over the next few years will add moderately to growth. But more importantly, it is estimated that an additional 100,000 starts will add roughly 250,000 new jobs and we are likely to see that increase in 2012. That bodes well for employment growth. Since these tend to be well paid positions, income growth should be bolstered as well. Thus, investors should take heart that if Europe doesn’t melt down and Congress figures out how to extend the payroll tax, the economy can continue to gain momentum. Indeed, if Europe was not such an unknown, the markets would be looking toward next year with some optimism instead the uncertainty now being felt.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

August Existing Home Sales

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: August Existing Home Sales
KEY DATA: Sales: +7.7%; 1-Family: 8.5%; Condos: 1.8%; Median Price (from 8 ’10)): -5.1%

IN A NUTSHELL: “The housing market is not robust but the rise in existing home sales shows we shouldn’t simply dismiss it.”

WHAT IT MEANS: Wonder of wonders, miracles of miracles, housing sales actually rose solidly in August. Granted the level is still nothing to make realtors smile, but improvement is not something to make light of. The sales rate was the highest since March, a period when confidence was rising and the job market was improving. The biggest gain was in the single-family segment as condo sales rose more slowly. Investors are a large part of the improvement as the large overhang of distressed homes is creating a lot of opportunity, especially for those with case. The sales of these properties accounted for 31% of the total, according to the National Association of Realtors. One of the big impediments to getting sales to really pick up is the mortgage/appraisal process. The Realtors said that 18% of the contracts failed because of low appraisals. That is likely the reason for the rising share of all purchases being distressed homes. It’s hard to get a decent appraisal for a “normal” property if the competition is a foreclosed home. Indeed, the sharp decline in prices over the year may be due to the shifting of the market into distressed homes. Geographically, all regions were up but there was a huge rise in the West. That came after a large decline in July so when you average the two months, the West is really not having a sudden return to happy days again.

MARKETS AND FED POLICY IMPLICATIONS: This was a good report as sales rose. But it also showed the problems the housing sector is facing. As long as non-distress homes have to compete with so many distressed homes, the mortgage process will restrain sales. You just cannot get a mortgage even if the comparables are just not comparable. That is a glitch in the system that it seems no one wants to touch but it is real and an issue. The rising share of distressed homes also points out the problems of prices, which everyone likes to look at. As the distribution gets skewed toward these lower priced homes, the price measure will be depressed. This report will likely be a tree falling in the forest as the FOMC is meeting and that is the focus of everyone’s attention, at least today. Despite the growing criticism of the Fed, the Committee is going to do what it thinks it should do, not what politicians think should be done. And that is the role of the Fed: To be an independent rudder to an economy that is too often driven adrift by the politics of fiscal policy. If leaning against the wind sometimes gets difficult, so be it. I have been critical of the Fed in the past and I certainly will be critical of it in the future but the members are non-political and above reproach. It is crucial that we support an independent Fed. Think of the messes we would get into if the politicians ran both fiscal and monetary policy.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com