Vat Is Das? A Low Consumer Confidence Recovery?

Confounded Interest ^ | 03/28/2013 | Anthony B. Sanders

[whitedog57]

yesterday the Fed of Minneapolis President Narayan Kocherlakota reinforced the notion that The Fed will keep the pedal to the metal (MORE asset purchases) even if unemployment falls below 6.5%.

Bloomberg News reports that Federal Reserve Bank of Minneapolis President Narayana Kocherlakota, in a speech he gave on Wednesday, said the Fed’s Open Market Committee “may choose not to raise the main interest rate when the jobless rate falls below 6.5 percent.” Kocherlakota said, “The unemployment rate threshold is not a trigger for FOMC action.” Bloomberg notes the FOMC “affirmed last week it will keep the federal funds rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation does not exceed 2.5 percent.”

The third estimate of Q4 GDP report was released this morning, and although GDP was revised up, growth was still very weak at a 0.4% annualized real rate in Q4. Personal consumption expenditures (PCE) were at a 1.8% annualized real growth rate; the third consecutive quarter with a sub 2% growth rate.

Slow economy, slow recovery, Fed printing like crazy. And then there are other issues for the housing market.

The Supply Side: Limited Inventory

Inventories of homes for sale (NAR) are back to levels not seen since the early days of the housing bubble.

At the same time, housing inventories that have been held off the market are far above early bubble levels. So there is still more “hidden inventory” to work through.

The Demand Side: Population Growth

While housing inventories for sale are at early 2000s levels, the US population continues to grow. So simple population growth will put pressure on limited inventories resulting in higher prices.

The Demand Side: Historically Low Mortgage Rate

Thanks to The Fed’s massive intervention since 2000 in markets (and Europe’s continuing meltdown), mortgage rates near an all-time low. The Bankrate 30 year fixed average is the white level, The Fed Funds Target rate is the red line.

This, along with the crash of house prices, has led to increased housing affordability, the highest it has been in a long time.

So, what’s not to like? Low mortgage rates, relatively low house prices, rising population.

Here is what NOT to like.

Mortgage Applications Remain at Pre-Bubble Levels

Applications for mortgage purchases remain in a rut at the end of what Chris Whalen from Carrington calls the “Sanders Polynomial.” Despite record low mortgage rates, credit remains tight after the housing bubble burst.

Consumer Confidence Remain Low

I referred to this as “The Grumpy Cat Recovery.” Bloomberg Consumer Confidence came out today and it has fallen to -34.4, well below the long-run average. The growing populations needs to be sheltered, but could it be that apartments are in the long-run cards?

Economy Remains Weak: M1 Money Multiplier Remains Below 1

The M1 Money Multiplier has remained below 1.0 since the recession indicating that for every $1 increase in the monetary base – the money supply only increases by 84 cents. That’s not good!

Economy Remains Weak: M2 Money Velocity Is At All-time Low

And the M2 Velocity of Money Stock has plunged to an all-time low. Essentially, this means that growth in the money stock is barely helping increasing GDP.

Slow Employment Recovery

The Fed wants to keep rates low even after the 6.5% unemployment level is breached. Odd, since the money multiplier and velocity are so low. But many love cheap money (except savers). U6 unemployment and parital unemployment (the deadly serpent) remains very high and is slowly improving.

The employment to population rate is likewise disturbing. It is back to Jimmy Carter levels. And we are looking more and more like Japan (aging population which changes the type of housing that will be demanded).

Household Income Continues to Decline

I have said this before. Wages and salaries continue to fall as a percentage of GDP.

And REAL household income continues to fall.

There are many more headwinds that I could list, such as the incredible increase in insurance premiums (thanks to Obamacare) that kick in for 2014.

In summary, we have a Fed-induced low mortgage rate recovery with minimal money multiplier (below 1) and money velocity. Cash investors (30% of the house sales) are driving the market along with population growth.

And consumers remain grumpy.

[whitedog57]

OMG!

[FreeAtlanta]

I am sick of people smiling and saying, housing in my neighborhood are being bought up and the prices are coming back up. Then they say, big national investment corporations are swooping in and buying these homes up.

These pathetic souls are generally Obama drones and can’t put 2 and 2 together that these purchases are being done with mystical taxpayer debt. It is Obama and gang trying not to let the bottom fall out of the well bucket before Obama departs office. Can they fake it long enough to get the bucket to the top of the well?

[nascarnation]

I think the hedge fund that bought my daughter’s house last week is just trying to turn Baraqqi/Bernanke/Lew minibucks into hard assets.

Not a bad strategy in my view.

[Zeneta]

100% correct on both accounts.

The recent housing index numbers show a significant percentage of buyers are in fact Private Equity/Hedge Funds.

An admission came from Robert Shiller, that these funds are distorting the housing data.

[faithhopecharity]

This policy is wrong on multiple counts but here’s just one: the chief way the administration is cutting the “unemployment rate” is to drop Americans out of the “labor force” even faster than the administration’s destroying jobs. A deliberate statistical trick. Pretty soon they’ll have a giant gourmet roast dog party at the whitehouse announcing “zero unemployment”. But alas, they’ll have gotten rid of all our jobs by then, too.

[FreeAtlanta]

This should be the new symbol for Obama's job recovery;

[FreeAtlanta]

Low job numbers are because people are missing from the statistics....