Daily Archives: April 24, 2013 @ 5:50 pm (Wednesday)

Housing Rebound in U.S. Hampered by Success as Costs Soar

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I still don’t see used home prices anywhere near ‘replacement cost?’

So prices have to go up quite a bit (and affordability go down) for a serious building boom to start?

Even as U.S. housing rebounds from its worst downturn since the 1930s, production bottlenecks are pushing up building-materials costs, land prices are rising and skilled labor ready to begin work is hard to find.

Housing Rebound in U.S. Hampered by Success as Costs Soar

By Shobhana Chandra & John Gittelsohn

April 24 (Bloomberg) — Even as U.S. housing rebounds from its worst downturn since the 1930s, production bottlenecks are pushing up building-materials costs, land prices are rising and skilled labor ready to begin work is hard to find.

Suppliers of glass, drywall and wood products, who reduced output during the slump, are testing the vigor of the rebound by boosting prices before committing to restore capacity. Builders, including Lennar Corp. (LEN), Toll Brothers Inc. (TOL) and KB Home, are asking homebuyers for more money as a result or are delaying sales, posing a temporary hurdle for the industry that has become one of the pillars of the economic expansion.

Building-material manufacturers are raising prices dramatically, and once theyre convinced that these prices are going to stick, theyll start reinvesting in those plants, helping ease supply constraints, said John Burns, chairman of Irvine, California-based John Burns Real Estate Consulting, which provides research to developers, construction-product manufacturers and investors. Those can take a year to get up and running.

In a sign demand remains strong, a report yesterday showed sales of new houses advanced in March, capping the best quarter for the industry since 2008. Purchases of new single-family properties climbed 1.5 percent to a 417,000 annual pace, the Commerce Department said.

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Low FF rate and down shift of Labor Particpation

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Maybe they are beginning to confirm my ‘suspicion’ the mainstream has the rate thing backwards? Not that I agree with all their reasons, of course!

Subject: For The Economist in Us – Low FF rate and down shift of Labor Particpation

A short and interesting piece can be found on the St Louis Fed web site (and attached). Good chart on the second page showing the Federal Funds Rate and the Employment-to-Population Ratio. Towards the end of the report there is an interesting point about the current near zero rate and how it lifted, it could have have people re-enter the work force because it would increase the return to saving(s). I guess the labor force drop-outs view they’re not “leaving much on the table” . -Peter
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It is titled “Low Interest Rates Have Yet to Spur Job Growth”.

The study says that “low interest rates , of late, do not seem to be having much of the intended effect either on spending or on job growth.”

A serious concern in labor market has been the down shift of the labor participation rate which may be hiding the true level of unemployment as people drop out of the labor force.

The paper states “”Interest rates represent the return we get for waiting to consume. Low interest rates encourage more spending today, which the Fed intends, and more leisure today, which the Fed does not intend. Labor participation rates decline for many reasons, but low interest rates work in the direction of discouraging labor market participation.”

Apparently, the Fed has been chasing its own tail and the more it has lowered rates in order to produce higher demand for labor, it has generated lower participation rates.

The paper concludes, with great understatement, “After four years of low interest rates and stagnating growth around the world, a better understanding of low interest rate policies is needed.”

Maybe Chair Bernanke agrees and this explains his announced absence from Jackson Hole.

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Germany’s Ifo Drops in April, Raising Odds of ECB Cut

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And a rate cut only makes it worse, as per the interest income channels:

Germany’s Ifo Drops in April, Raising Odds of ECB Cut

April 24 (Bloomberg) — Germany’s Ifo index dropped in April, in a further sign that Europe’s largest economy is slowing.

The business climate reading came in at 104.4 down from 106.7 in March and expectations of 106.2.

The weak data follows Tuesday’s weaker-than-expected purchasing managers index (PMI) data.

That sparked speculation that the European Central Bank will cut interest rates at its meeting next week on Thursday.

European shares shrugged off the weak Ifo reading, in a sign the market is cheering a possible ECB rate cut.

The euro fell against the dollar after the Ifo data was released.

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