Just a few random observations based on some indicators that caught my eye.
—The monthly trade balance improved in June enough to suggest that the first print of second quarter GDP may be revised up (note smaller bars in Q2 in Trade Balance figure below). These monthly numbers bounce around and are themselves subject to revisions, but as Moody’s.com reports: “Instead of subtracting close to one-third of a percentage point from growth last quarter, net exports appear to have added that much.”
That could help explain that 163K pop in July payrolls. It may turn out that real GDP didn’t decelerate in Q2 as much as we thought. (From MarketWatch: “Barclays Capital on Thursday raised its forecast of U.S. second quarter gross domestic product to a 2.2% annual rate versus the initial government estimate of 1.5% rate as a result of the positive June trade data.”—(snark alert: Of course, this being Barclays, one doesn’t know if one should add or subtract a few basis points…)
—Home prices continue to firm up but a bunch of foreclosures remain in the pipeline. The first figure below shows the upturn in three different home price indices. You see a bit of that in 2010 but not nearly so consistent.
CoreLogic subnational data also show some of the hardest hit markets posting double digit gains: single family homes in the Phoenix area, e.g., are up 17% year/year. Home prices in Riverside CA, on the other hand, down by over 50% from their peak, were flat over the past year, but of course, flat is actually good news in that market.
But for all that, we’re not out of the housing woods. Distressed home loans are still rolling over into longer-term delinquency brackets (e.g., 60 days to 90 days), implying that the foreclosure pipeline is by no means cleared.
Also, while mortgage rates are low, credit is still pretty tight. As the second figure below shows, you’ve got to have a pretty kickin’ FICO score to originate a mortgage now compared to a few years ago (these are for Fan/Fred/FHA backed home loans).
Bigger picture, there was a time when housing tanked the economy. That appears to be behind us. Then came a time when the economy was making it tougher for housing to recover—even with such low rates, the housing overhang and weak job market meant that the housing channel was less effective in providing the recovery with much lift.
We’re still in that latter phase, but we’re growing out of it. The overhang is being drawn down and with prices firming, there’s a bit more home equity out there too. But the wounds are not nearly fully healed.
Source: GS Research