Sunday, March 25, 2012

the ryan budget, february housing, & the March heat wave

except for a wonkish blog debate on the output gap, and whether the recession did permanent damage to the nation's potential (it didnt), the news that garnered the most attention and blogospheric commentary was the release of the 2013 republican budget by congressman paul ryan (pdf), who is the chairman of the house budget committee; although we know this budget is unlikely to be enacted as it stands (fiscal 2013 starts in october), its worth looking at what is being proposed, if only to contrast with the relatively static obama budget proposal from earlier this year...essentially, not much of the general outline has changed from the overall plan that ryan released to similar coverage last year, except that it's been refined to obscure the massive safety net cuts that resulted in the most outrage last year, so without being specific, he calls for $1.9 trillion less discretionary spending than obama’s ten year budget; & since pentagon spending is left untouched, the only way to achieve cuts of that magnitude is to hack the budgets for Medicaid (for the elderly and disabled poor), the dept of agriculture (food stamps), child nutrition, TANF (which we’ve pointed out only supplements needy families to 30% of the poverty level), and unemployment insurance…the plan also kills the tax provisions of obama’s health reform & cuts the top tax bracket to 25%, and combined with other tax reductions for the rich, would result in an average tax cut of $265,000 for those with incomes over a million dollars (obama’s ‘buffett rule’ tax on the rich aint so great, either, since his plan simultaneously cuts the alternative minimum tax, resulting in only a $47 billion revenue increase over 11 years)...Ryan’s new plan now leaves social security and medicare untouched initially, but Medicare would still become a voucher-program in his ten year plan..amazingly, although this plan passed Ryan’s budget committee, two of his own members voted against it because it wasnt conservative enough

Total Housing Starts and Single Family Housing Startsprobably the most significant economic releases of the past week were three reports on February housing; new home starts, new home sales, and home re-sales, referred to as 'existing home sales' in real estate parlance; february is typically a off month for housing activity, but all reports are reported at a seasonally adjusted rate, meaning the actual number is converted into a fiction representing what sales or starts would be if february's rate as compared to previous februarys were converted into an annual number; thus, with this february an exceptionally mild month over most of the US, and both home building and home buying influenced by the weather, one would have expected these reports to be better than average; for the most part, however, that was not the case...the first report we’ll look at is new housing starts from the Census Bureau (pdf), which also includes home completions & building permits for the month...with census reporting a significant margin of error for all numbers in this report, housing starts for February were at a seasonally adjusted annual rate of 698,000, 1.1% below the revised January estimate of 706,000, but still 34.7% above the rate of 518,000 from february of last year; all of the decline was in single-family starts, which declined 9.9% to a 457,000 annual rate, while there was a sharp increase from 181,000 units started to 233,000 units started in apartments of 5 or more units..on an unadjusted basis, 48,100 homes were started in february, up from the 46,500 actually started in january...building permits issued during the month were at a seasonally adjusted annual rate of 717,000, 5.1% over january's rate, indicating a likely improvement in starts for march, over and above the normal seasonal increase...the adjacent seasonally adjusted 45 year chart from calculated risk shows how depressed housing starts have been since the start of the recession; we're now well into the 4th year of total starts (the red line) well below those of any year previously, even though the population has continued to increase; note also that the housing bubble only elevated construction of single family homes (blue), whereas the total units tended to trend between one and two million over that historical record...  

  the census bureau also reported on new home sales for february this week; they came in at a seasonally adjusted annual rate of 313,000, down from a revised 318,000 in January (revised down from 321,000); that’s a 1.6% decline, where analysts had expected an increase of a similar magnitude; but its still an increase of 11.4% over february 2011’s total of 281,000, which was the weakest on record...the median sales price for new homes in february was $233,700; the average sales price was $267,700...this report also includes inventory stats for three stages of unsold new homes (p4 pdf); the seasonally adjusted estimate of new houses for sale at the end of february was 150,000, a supply of 5.8 months at the current sales rate...the existing home sales report came from the NAR (National Association of Realtors), and they also report a seasonally adjusted annual rate; by that metric, sales for february were reported to have slipped to an annual rate of 4.59 million from an upwardly revised 4.63 million in january (first reported as 4.57 million); still, this year’s february sales topped last year’s by 8.8%, and the three month total made it the best winter in 5 years; the median sales price for all housing types was $156,600; distressed homes accounted for 34% of sales, first time buyers were 32% of the sales, down from 34% last february, with investors buying 23%, and all-cash transactions accounting for one-third of the totalnational inventory of unsold homes on the market increased to 2.43 million in february from 2.33 million in january, resulting in a supply that would take 6.4 months to sell at the current sales rate; this inventory is considerably improved over last year’s; however, the shadow inventory, which includes homes in foreclosure, owned by the banks or a GSE, and those seriously delinquent and likely to default, hides a problem that will be with us for some time; figures for this vary widely; CoreLogic reports a shadow inventory of 1.6 million units; while LPS reports 2,065,000 in foreclosure and another 1,722,000 over 90 days delinquent; the last time we addressed this housing problem we mentioned a number of reasons young people were unable to obtain a mortgage; as it turns out, a lot of them cant even afford rent; the adjacent map from The National Low Income Housing Coalition shows how many hours one would need to work at minimum wage to afford a 2 bedroom apartment at fair market rent in each state; you can see that in the dark blue states, it would require over 88 hours of minimum wage work to afford rent, in other words, even a young couple living together would be hard pressed to make ends meet…and there is no state in the US where its possible to work a 40 hour per week minimum wage job and afford a two-bedroom unit at fair market rate

we shouldnt leave the news of this week without at least a mention of the exceptionally hot spring weather being experienced in a large part of of the northern US and canada...meteorologist Dr Jeff Masters of the popular wunderblog, writing from michigan, probably expressed it best; "this March started with 12 days of April weather, followed by 10 days of June and July weather, with 9 days of May weather predicted to round out the month"; holland michigan, planning a tulip festival for may, saw their blooms this week...of course, it wasnt just michigan; temps in the 80s were reached in every border state from north dakota to maine, as well as from manitoba to nova scotia in canada, and a reading of 94°F was reported at Winner, S.Dakota on March 18th, a date more commonly associated with blizzards in that part of the country; over the two week period ended march 24th, 2023 record-breaking high temperatures were set in the US, while a low was breached only 58 times...the highlights include 4 locations (one ea in NH, MI & 2 in MN) where the overnight low in a location eclipsed the previous daytime record high (in locations with 100 years of records), several locations where the previous record high temperature for the date was exceeded by more than 30°F, several locations in the US and Canada which also eclipsed previous high temperatures for April, ten record high days in a row at International Falls, MN, the most consecutive records ever set anywhere, and many cities where a new record was set 9 days in a row, including chicago, when observing 7 consecutive record temps at a location is a once in a meteorological blue moon experience…the scale on the adjacent map should be obvious, but just to clarify; those locations shading from yellows to dark reds were above normal by up to 15°F for the 30 day period; the two shades of green in the west represent temps up to 3°F or 6°F below normal, and a map such as this is typically an average of temps taken hourly over 30 days, and it is extremely rare for any temperature anomaly in the range of 15 degrees to persist over a 30 day period...
       while most everyone experiencing this heat wave probably preferred it to the normal frigid and windy march in this part of the country, there are a few caveats; first, fruit crops are at least a month ahead of schedule over most of the area noted, and damaging frosts are still likely into may; secondly, a lot of the western areas that would normally have a snow cover are already starting to dry out, raising the potential for drought during the growing season, & lastly, anecdotal reports from the region indicated that with the entire winter being mild, the ground did not freeze deeply, so the normal winter kill of damaging insects didnt occur; so we can expect a bad year for plant pests and ticks, & the mosquitoes are already flying...

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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