Tuesday: Trade Deficit

An interesting article on investor buying from Nathaniel Popper at the NY Times Dealbook: Behind the Rise in House Prices, Wall Street Buyers

Large investment firms have spent billions of dollars over the last year buying homes in some of the nation’s most depressed markets. The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out. Some are already wondering if prices will slump anew if the big money stops flowing.
...
Blackstone ... has bought some 26,000 homes in nine states. Colony Capital, a Los Angeles-based investment firm, is spending $250 million each month and already owns 10,000 properties. ... Most of the firms are renting out the homes, with the possibility of unloading them at a profit when prices rise far enough.

While these investors have not touched many healthy real estate markets, they are among the biggest buyers in struggling areas of the country where housing prices have been increasing the fastest. Those gains, in turn, have been at the leading edge of rising home prices nationwide.

Investor buying has played a key role, but I don't expect investors to start selling in bulk (although the buying will probably slow down). Most of these large investors are planning on holding the properties for some time, but you never know ...

Tuesday economic releases:
• At 8:30 AM ET, Trade Balance report for April from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $41.2 billion in April from $38.8 billion in March.

Fannie Mae, Freddie Mac: Mortgage Serious Delinquency rates declined in April, Lowest since early 2009

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in April to 2.93% from 3.02% in March. The serious delinquency rate is down from 3.63% in April 2012, and this is the lowest level since January 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined in April to 2.91% from 3.03% in March. Freddie's rate is down from 3.51% in April 2012, and this is the lowest level since June 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

Although this indicates some progress, the "normal" serious delinquency rate is under 1%. 

At the recent rate of improvement, the serious delinquency rate will not be under 1% until late 2016 or 2017.

U.S. Light Vehicle Sales increased to 15.3 million annual rate in May

Based on an estimate from AutoData Corp, light vehicle sales were at a 15.31 million SAAR in May. That is up 10% from May 2012, and up 3% from the sales rate last month.

This was slightly above the consensus forecast of 15.2 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for May (red, light vehicle sales of 15.31 million SAAR from AutoData).


Click on graph for larger image.

This was the near the post-recession high for auto sales. 

After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry even if sales move mostly sideways for the rest of 2013.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Unlike residential investment, auto sales bounced back fairly quickly following the recession and had been a key driver of the recovery.    Looking forward, growth will slow for auto sales.  If sales average the recent pace for the entire year, total sales will be up about 5% from 2012.

Construction Spending increased in April

The Census Bureau reported that overall construction spending increased in April:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2013 was estimated at a seasonally adjusted annual rate of $860.8 billion, 0.4 percent above the revised March estimate of $857.7 billion. The April figure is 4.3 percent above the April 2012 estimate of $825.1 billion.

Private construction spending increased, and public construction spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $602.0 billion, 1.0 percent above the revised March estimate of $595.9 billion. ...

In April, the estimated seasonally adjusted annual rate of public construction spending was $258.8 billion, 1.2 percent below the revised March estimate of $261.8 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 55% below the peak in early 2006, and up 36% from the post-bubble low.   Note: Residential spending was revised up for February and March.

Non-residential spending is 28% below the peak in January 2008, and up about 33% from the recent low.

Public construction spending is now 20% below the peak in March 2009 and at the lowest level since 2006 (not inflation adjusted).

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 19%. Non-residential spending is flat  year-over-year. Public spending is down 5.1% year-over-year.

A few key themes:
1) Private residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).  Private residential is now slightly higher than private non-residential, and residential will probably be the largest category of construction spending in 2013.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.

3) Public construction spending has declined to 2006 levels (not adjusted for inflation).  This has been a drag on the economy for 4 years. In real terms, this is the lowest level of public construction spending since February 2001.