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from Peter Radford

Yes it’s hard to focus at this time of year under the best of circumstances. This year is even worse. The background noise provided by the lack of active negotiation over the so-called fiscal cliff, and the Treasury Department’s sudden discovery that we will hit the debt ceiling at year’s end, drown out any day to day news. So in the spirit of giving here’s a look at that humdrum stuff:

House Prices

We learned yesterday, from the Case-Shiller index, that home prices fell in October. Since the index is not seasonally adjusted most people seem to think that this simply reflects the early fall slow down in activity rather than the onset of a prolonged decline. The biggest declines were registered in Chicago – down 1.5% for the month and 1.3% for the last twelve months, and in Boston – down 1.4% for the month, but up 1.4% over the past year. That twelve month decline in Chicago was only one of two city declines: New York was the other where prices dropped 1.3% over the last year.

In general the numbers support the notion of a slow recovery in real estate from a very low level. I doubt prices will accelerate much in 2013, with a lot riding on how income tax rates and deductions are sorted out as part of the current sort-of negotiations in Washington. 

Consumer Confidence

Today’s news is not good. Consumers report that the fiscal cliff shenanigans is getting them down. The Conference Board measure of consumer confidence, as of early December, sank to 65.1 from 71.5 in early November. This is the lowest confidence has been for four months. Within the overall index there were some interesting data in the sub-indices. For instance, the index of expectations plummeted from 80.9 in NOvember to 66.5 in December. Obviously consumers are deeply affected by the nonsense in Washington. We went through an almost identical shift back during the 2011 debt limit debacle, and we should expect to follow a similar trajectory this time. This implies confidence will perk up almost the minute a deal is cut and will, most likely, return to its slow and steady improvement. Of course there are a whole string of ifs in that forecast, beginning with the existence of a deal at all.

New Home Sales

New home sales jumped up by 4.4% in November, bringing levels to 15.3% higher than a year ago. The rate of sales, 377,000 annually, is still very low compared with the fantasy levels of the bubble years, but represents a very solid recovery from the depths of a year or two ago. The strongest region was the South, where sales leapt 21.1% in the month, followed by the Northeast where sales rose 12.5%. Other regions fared less well: sales out West dropped 17.8%, and the Midwest saw a decline of 12.5%.

Persistently low mortgage rates appear to be the key factor driving sales. Any boost provided by rising incomes is very modest due to the lack of much increase in wages. The broader availability of jobs is adding some demand, although I doubt it is a key driver. Another possible source of growth in demand is simply the backlog of households who postponed buying during the early crisis years and who are now more comfortable going ahead. Once this backlog is worked off, and in the absence of better incomes growth, I expect sales to suffer a slight stagnation in 2013 – not necessarily an outright decline, but a period of less dynamic growth.

Meanwhile the median price of a new home rose to $246,200 in November, up 3.7% from October, and about 15% higher than a year ago.

Jobless Claims

New claims for unemployment assistance dropped 12,000 to 350,000 last week. This number may be skewed by the closure this week of key data gathering offices around the country and so is potentially unreliable. The key information in that data is that claims appear to have fallen back below their pre-hurricane Sandy levels. Also, the four week moving average of claims dropped by 11,250 to 356,750, its lowest level in four years. Setting aside the caveats due to the odd seasonality of the numbers, I think we can draw a general conclusion that the jobs market is lumbering along slowly at a pace that is neither good nor bad.

So what does this slew of data mean?

Not a heck of a lot. The economy is almost exactly where we left it before the holidays. Growth is clearly slower than it was in the summer, but is hasn’t stalled.

And, unfortunately, the outcome of the fiscal cliff discussions will have more bearing on 2013 than anything else.

Given both the content of the negotiations and the players involved that is not a happy thought.

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Categories: The Economy
  1. Bruce E. Woych
    December 29, 2012 at 3:09 pm

    Hump, pump, dump and bump;… fiscal cliff…make ‘em jump; The Great Game is churning out a domestic economy of scale…, and the false flags of Obama-caring is simply an intelligence operation on the American People and the greater part of the world. A year of extremes…rationalizations, justifications, legitimation, and insidiously orchestrated financial domination…led by broken dreams and false paradigms.

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=33&Itemid=74&jumival=795

  2. December 29, 2012 at 3:47 pm

    Mortgage loan investors and existing property owners may welcome a rise in residential property prices, but this is the last thing the economy needs to experience. Rising property (really, land) prices make their way through the economy. The Fed has drained savers of interest income, pushing millions of seniors into lower income brackets and even into poverty, in an attempt to prop up property prices. There has been no discussion among economists, generally, or policy analysts about way to tame and stabilize land markets, which are the main driver of what are mistakenly labeled “business cycles.” Until we change the way government raises its revenue in the direction of rent in all its forms and lift the burden of taxation on income flows earned producing goods or providing services, we are doomed to repeat the boom-to-bust property market cycle. And, of course, the millions of people who become permanently unemployed as a consequence are not just statistics. How many ruined lives can be endure and still call ourselves civilized?

    • December 29, 2012 at 4:58 pm

      Please challenge: “The Solution” by Justaluckyfool
      “QE 4 The People”
      The Fed can purchase ALL residential and commercial real estate loans using its power to mandate 100% reserve.
      Or it needs only to change its direction of QE 3 (Infinity) by BUYING THE LOANS instead of the MBSs. Switch from serving the PFPB (private for profit banks) to servung “the people”

      • December 29, 2012 at 8:09 pm

        I am not sure how to comment on what you have written. The one banking reform I endorse (early on proposed by economics professor Mason Gaffney, U. of California) is to prohibit any financial institution that accepts government insured deposits from extending credit for the purchase of land or acceptance of land as collateral for other borrowing. This would go a long way toward protecting bankers from their imprudence and the taxpayers from the bankers. It would remove at least some of the credit-fueled speculation in land and real estate that created by most recent property market crash. By keeping land prices low, the amount of savings required to purchase a residential property would be reasonable; mortgage loans would once again (as they were de facto when a 20% down payment was the norm) finance the purchase of housing units and not land.

        Also, there was nothing wrong with the underwriting standards utilized by the GSEs for conventional mortgage financing. Private investors will return to the MBS market when the underlying mortgage loans have income, credit and employment fully documented and where the weighted average loan-to-value ratios are more conservative (e.g., no greater than 90% and with private mortgage insurance coverage).

        However, with interest rates on 30-year fixed rate mortgage loans so low, investors risk negative yields, which is why the Fed continues to serve as the main investors for MBS.

        The larger risk to market stability is the continued extension of credit to the U.S. government by means of quantitative easing (i.e., creating government dollar balances out of thin air). Government must raise revenue to service this debt, which requires significant increases in taxation. And, the wrong type of tax increases could push the economy back into recession.

      • December 31, 2012 at 12:34 am

        Edward J Dodson, “This would go a long way toward protecting bankers from their imprudence and the taxpayers from the bankers.”
        The “Private For Profit Banks” have shown and made public the reason for their creation;”to maximize profits for the owners” Cold and simple.
        No matter how you spin it-The American Dream is a banker’s vision to one day own the world. Their weapon is “compound interest” (the most powerful force in the universe.
        When a person acquires a “dream” regardless of down payment , that portion that is a “note”
        almost TRIPLES in money needed to become owned. The lender makes more profit than the land seller, the builder, etc.,combined . A home valued at $120,000 with $20K
        down at 6% for 30 years requires a payment of $7,200 per year for a total of $216,000
        What is the ROI when the bank needs only 10% reserve ($10,000) to make that loan.
        “We the people” have made this legal, and the PFPB have proven that their greed for profits should no longer allow them “to use our own money to make profits for themselves while we guarantee their loses.
        As Keynes, Minsky, Desoto, Soddy (my favorite )and many others, all agreed -We must separate banks from government.
        Google-JUSTALUCKYFOOL also read more “The Role of Money” by Frederick Soddy.

  3. Bruce E. Woych
    December 29, 2012 at 5:18 pm

    http://michael-hudson.com/2011/06/rolling-back-the-progressive-era/

    Rolling Back the Progressive Era
    June 14, 2011
    By Michael
    How Bankers are using the Debt Crisis to welcome in the Financial Road to Serfdom

    “Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free. The basic model follows the former Soviet Union’s post-1991 neoliberal reforms: privatization of public enterprises, a high flat tax on labor but only nominal taxes on real estate and finance, and deregulation of the economy’s prices, working conditions and credit terms,”.

  4. Bruce E. Woych
    December 29, 2012 at 5:38 pm

    http://www.cidse.org/content/publications/just-food/land-land-grabbing/development_cooperation_and_land_grabbing.html

    Development finance institutions & land grabbing
    Written by Birgit Zimmerle

    17 October 2012

    When Development Cooperation becomes Land Grabbing, The Role of Development Finance Institutions, a study by Fastenopfer and Bread for all, October 2012

    The scope of this study is to look at new developments since the food crisis in 2007/2008 and the subsequent financial crisis, focusing on the role of development finance institutions (DFIs) in land grabbing.
    ———————————————————————————–
    http://en.wikipedia.org/wiki/Land_grabbing (Introduction: Global)
    ———————————————————————————–

    http://occupycorporatism.com/the-feds-us-land-grab-hidden-within-purchase-of-mortgage-backed-securities/

    Susanne Posel
    Occupy Corporatism
    September 24, 2012

    The Fed’s US Land-Grab Hidden Within Purchase of Mortgage-Backed Securities
    Susanne Posel Sep 24th, 2012
    —————————————————————————–

    http://endthelie.com/2012/11/16/fema-sold-off-emergency-shelters-as-the-east-coast-braced-for-sandy/#axzz2GSnJXfSh

    FEMA sold off emergency shelters as the East Coast braced for Sandy

    Those unhappy with the handling of the Sandy aftermath may have just found another reason to be upset with FEMA. In the months and weeks leading up to the colossal frankenstorm that caused tens of billions of dollars in damage along the Atlantic Coast, the federally-managed FEMA agency practically threw away emergency shelters as millions were in grave danger of a storm eventually caused over 100 confirmed deaths. As recently October 22 — the very day that the National Weather Service upgraded the tropical depression to a near-hurricane named Sandy — FEMA was selling disaster trailers to be used in the event of a major emergency.

    According to a report by the Washington Examiner this week, FEMA sold 886 of those prefabricated trailers since 2009, with around a quarter of those sales happening just this year. The Examiner investigation found that 46 of those bunkers were bought by residents of New York State, where Sandy stripped down power lines and made a disaster area out of the Big Apple.

    FEMA may have been offering assistance in the days before Sandy, but at a price. Those trailers, the General Services Administration notes, were purchased by the government for around $25,000 a piece, only to be auctioned off at as low as one-fifth of that.

    “I don’t know what was the driving force behind auctioning off or selling these units at a significantly reduced rate.But I can tell you temporary housing is going to be a critical issue in New Jersey and New York as they try to recover,” Mississippi Emergency Management Agency Executive Director Robert Latham tells the Examiner.

    More at EndtheLie.com – http://EndtheLie.com/2012/11/16/fema-sold-off-emergency-shelters-as-the-east-coast-braced-for-sandy/#ixzz2GSneaSDu

    • Bruce E. Woych
      December 30, 2012 at 6:58 pm

      http://michael-hudson.com/2012/12/americas-deceptive-2012-fiscal-cliff/

      America’s Deceptive 2012 Fiscal Cliff
      December 28, 2012
      by Michael Hudson
      “The road leading into this trap has been baited with billions of dollars of subsidized junk economics to entice voters to act against their interests. The post-classical pro-rentier financial narrative is false – intentionally so. The purpose of its economic model is to make people see the world and act (or invest their money) in a way so that its backers can make money off the people who follow the illusion being subsidized. It remains the task of a new economics to revive the classical distinction between wealth and overhead, earned and unearned income, profit and rentier income – and ultimately between capitalism and feudalism.”

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