Thursday, November 20, 2014

Not a good sign

While the employment market has been strong, credit has been showing weakness after initially showing strength when QE3 first started tapering.  Part of the problem, in my opinion, is that the Fed didn't commit to a full recovery in household real estate equity, relative to mortgage debt.  That, in addition to pro-cyclical regulatory sentiment, has put a stranglehold on real estate credit markets.  The recent decline in cash buyers may be related to the end of QE monetary accommodation.

So, my question is, is momentum in labor and production strong enough to keep markets growing while real estate markets continue to present a liquidity problem.

The first graph here shows Commercial and Industrial Loans and Closed End Residential Real Estate Loans since before the recession.  We can see here how both seemed to accelerate at the beginning of the QE3 taper.

But, the second graph is a close up view of recent weekly changes.  Closed End Residential Real Estate has not only flattened.  It is clearly declining and is now back to levels not seen since March.  And C&I Loans look like they may be leveling off also.

The FHFA has announced plans to lighten up on some regulations of securitized mortgages.  But the loans shown in the graph are loans owned by the banks.  The path we are seeing here is not a positive scenario.  And, 5 year inflation expectations from TIPS is still down around 1.4%.

On the bright side, inflation seems to have firmed up in the last couple of months.  I have been watching CPI less Food, Energy, and Shelter.  It has rebounded after going into negative territory in July and August.

7 comments:

  1. At the very least, a much needed decline in square footage should help.
    http://blogs.wsj.com/economics/2014/11/19/could-decline-in-median-new-home-size-herald-return-of-entry-level-buyers/?mod=blogmod

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    1. Thanks for the article, Becky. This is interesting. It could be the early signs of a turnaround. Homebuilders seem to have reported a small amount of momentum, home sales are moderately growing, and as you say, the decline in square footage and median new home price might be positive developments. I would expect to see some sign of mortgage growth if entry level buyers are increasing. It will be interesting to watch.

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  2. TravisV here.

    Woo D.R. Horton!

    Two interesting stocks: Wesco Aircraft Holdings and Chicago Bridge & Iron. You might particularly like the Wesco Aircraft analysis below.

    http://seekingalpha.com/article/2705755-wesco-compounding-machine-on-sale-40minus-100-percent-upside

    http://seekingalpha.com/article/2598095-chicago-bridge-and-iron-the-rebound-has-begun

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  3. Excellent blogging. Without robust growth in real estate, the broader economy is held back....

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  4. TravisV here.

    "Easier mortgage standards on the way"

    http://seekingalpha.com/news/2151875-easier-mortgage-standards-on-the-way

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    1. I did a happy dance when I saw that. Let's hope it makes a difference.

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    ReplyDelete