Let’s begin with some good news…from the housing market, no less.
- Housing starts increased in both May and June from the previous month.
- The house price index published by the Federal Housing Finance Agency showed an increase in house prices in both California and Florida in the first quarter of this year.
- Months in inventory in the U.S. declined in both May and June to 9.8 and 9.4, respectively, compared to a rate of 11.1 months in June 2008.
- From May to June, sales prices of existing home increased across the country (data not seasonally adjusted), but compared to June 2008, they are still down 15.4%.
- Houston actually experienced an increase in the median sales price of existing homes in June compared to June of last year (i.e., that market is actually showing some appreciation by this measure), and the other major metro areas, while still experiencing lower home prices compared to last year, are seeing those differences get smaller for the most part.
- According to the S&P Case-Shiller home-price indices, without seasonal adjustments, U.S. home prices increased from month-to-month in May for the first time in about three years. With seasonal adjustments, the home prices declined. However, this is another data point showing that the collapse in prices compared to last year seems to be slowing. As they report, “after 16 consecutive months of record annual declines, beginning in October 2007 and ending in January 2009, the indices have now shown four consecutive months of improvement in annual returns.”
- According to the U.S. Commerce Department, new home sales increased 11% in June compared to May, the third consecutive month-to-month increase. However, compared to June of last year, sales were down 21.3%.
- Existing home sales were also up across the country in June relative to May. They were down in San Antonio. Compared to June of last year, they were down, and in San Antonio they were down 14.24%, which is actually a good number. Sales of existing homes have been declining at a rate in the neighborhood of 20% or greater for the past several months in San Antonio.
Obviously, these numbers are very relative and cyclical to some extent. I do not think these numbers indicate that the housing market has hit bottom, but they do indicate to me that the freefall may be slowing and the market is looking to turn the corner. The little local anecdotal evidence I have been able to gather also indicates that the market is starting to show some improvement.
The earnings reports from many companies added some good news, as well, especially in the banking industry. While I certainly hope the banks continue to report strong profits in future quarters, I still have some concerns. It seems to me that much of their profits were derived from mortgage refinancings, increased investment banking activity, and sales of some assets. For the most part, loan portfolios are still shrinking and delinquencies are still rising. I am not a banking expert, but it seems the two may be related as the banks hoard cash in order to manage the delinquencies. In fact, credit card loan delinquencies are over a percentage point higher in the first quarter of this year than their previous high point going back to 1991 (as far back as I can get data). I have been beating the drum of concern about the credit card debt and possible defaults with other types of debt for quite a while, but it is important because, as previously mentioned, it seems that the banks may not resume expanding their loan portfolios until they are comfortable that this potential wave of trouble has passed. This lack of new lending activity is a bottleneck to the recovery (see the quote in the Economic Tidbits section).
The gains in the stock market, somewhat driven by these strong earnings reports, have also been positive news. The severe declines in wealth caused by the collapse of the housing market and large fall in the stock market are a big reason why consumers have reduced their spending and in large part, why we are in this recession. Thus, solid improvements in these two markets are necessary to fuel the economic recovery.
I wish I could just stop there with the good news, but unfortunately, while the economy is showing some relatively positive signs, it is still in a recession. Unemployment increased to 9.5% in June, and I expect it to continue to increase in the near future. It is almost a certainty at this point that it will breach the 10% level. Even if we do see a technical end to the recession defined by positive growth in GDP, we are most likely going to see unemployment continue to increase. I am not ready to say that this will be a jobless recovery, but I do believe that it is not going to lead to big gains in employment as we technically come out of the recession.
Poor employment prospects are also feeding a decline in consumer confidence as reported today by The Conference Board. This does not bode well for consumer spending.
The San Antonio economy, along with the Texas and other major metropolitan economies, continue on the same track of wrestling with the recession but faring much better than the national economy and other metropolitan economies throughout the nation. The unemployment rate in San Antonio jumped to 6.9% not seasonally adjusted, but much of this increase was due to seasonal factors, as evidenced by the seasonally adjusted unemployment rate only increasing to 6.3% in June. Compared to the 9.5% national unemployment rate, our economy is doing pretty well. Additionally, the San Antonio compares very favorably to the other major metro economies in the state, as well as the rate for Texas at 7.5%. However, our employment levels shrank by 1.7% in May, while Austin and Dallas were the only major metros to show growth in May. As already indicated, the San Antonio housing market continues to weaken, but like the national market, it appears to be weakening at a less rapid clip.
Overall, I still think we will not begin to see an economic recovery nationally until the beginning of 2010 (maybe the end of this year), and I don’t mean a technical end to the recession. I am talking about a sincere recovery. I also still see no reason why San Antonio’s economic recovery won’t coincide with the national recovery.
