The financial world is gradually relaxing from immediate fears of Japan and the Middle East. As stocks recover some of their fright losses, bonds are as usual the reverse: the 10-year Treasury note is back up to 3.4 percent (from 3.55 percent pre-panic, and 3.15 percent in panic mode); mortgages didn’t move much and are still hanging in just below 5 percent.
The failure of these markets to snap all the way back is a reasonable reflection of new economic data. February orders for durable goods surprised on the far downside: Expected to rise 1.1 percent, they fell 0.9 percent, and there was no distortion by volatile sectors.
Housing data are numbing. Sales of existing homes were forecast to fall 4.5 percent in February, but dumped 9.6 percent, the median sales price down to the $156,100 last seen in 2002.
The guesstimate for sales of new homes was a rise of 1 percent, and instead they collapsed 16.9 percent from January, falling 15 percent year-over-year to an annual rate of 250,000 units, the lowest since records began.
The usual idiots found the new-home crash good news — a reduction in supply — but fail to see that their price/absorption fantasy model does not correspond to a real-world housing market in a lot of trouble.
New census data helps to fill in the actual housing picture. Based on the most recent three taken — 1990, 2000 and 2010 — U.S. population grew at remarkably steady rates in the ’90s and ’00s, a little more than 30 million souls each decade.
Total housing units, as all would expect, grew disproportionately in the first decade of the new millennium, 15.8 million units versus 13.7 million in the 1990s, but not extreme versus the population gain.
The most striking numbers: vacant homes. The 1990 census found 10.3 million vacant, and 10.4 million in 2000; in 2010, 15 million were empty.
We are clumping together into fewer but larger households to ride out hard times, and the increased vacancy rate is roughly equal to an entire year’s sales of existing homes.
This week has brought a pause in a string of global market/economic/political adventures, each one damned-if-we-do, damned-if-we-don’t, and all unstable. Their resumed movement — soon — will say a lot about the rest of the year:
- Europe is pulling farther away from resolution of debt among "Club Med" nations: Germany, Finland and Holland are turning inward, and Club Med is past the limits of austerity.
- Europe’s rich states want the others to repair themselves, no matter how long or great the sacrifice, but Club Med holds hostage the banks of the rich that hold their debt. The next crisis could produce a real fix, or blow it up altogether, but they’ve run out of shin plaster.
- China is fighting its first big inflation since its "great opening" 30 years ago. The fight is by traditional means, the People’s Bank of China tightening credit: No modern nation has defeated a true wage-price spiral except by creating recession and unemployment. Whether the central bank has the political support to inflict the pain, we’ll see; and see the consequences of even a minor "growth recession" rippling far outside China.
- Emerging economies will be the first to learn how things go in China. Hyperbolic growth there has sucked every imaginable resource from the emerging world, making all a tad overconfident. As China’s curve inevitably flattens, a healthy thing, we and the "emergings" will learn their true baseline economic strength.
- The Middle East for the first time in a century or more has begun to exercise control of its own affairs. The internal politics of its states and peoples moving faster than the West can intervene, even if it had the wisdom and power to do so. The North African revolutions are relatively benign, but the farther east that instability rolls, the more it will feed on itself in most unpredictable ways.
- The brave United Kingdom, simultaneously devaluing the pound, slashing spending, and maintaining monetary ease, now must suffer rising prices. It’s not inflation, as incomes are relatively flat. Prices rising vs. fixed incomes: the self-inflicted fall in standard of living necessary to dig out after a big party. Just as across the pond …
- The U.S. faces exactly the same issues as the U.K., plus one. The U.K. has understood that recovery is impossible without credit. We are still stuck in a circle of flagellation: Credit got us into this, therefore is bad; better to pretend to recover than restore credit.
Source: Calculated Risk Blog.