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e-Edge Newsletter v.19 n. 08– Released February 20, 2015

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v.19 n. 08 – Released February 20, 2015

This Week’s Headlines:

SoCal Home Sales and Median Prices in January

Southern California home sales fell by 6.3% over the year in January to 13,560 units (new and resale houses and condominiums). Home sales have now posted year-over-year declines in 14 of the past 16 months.

Home sales also fell over the month, down by 29.4%. Although it is normal for sales to decline between December and January, the drop last month was slightly higher than trend. Since 1988 when this data series began, the December to January decline has averaged 27.6%.

The median price across Southern California increased by 7.6% to $409,000 over the year. The median price has risen on a year-over-year basis for 34 consecutive months, but the increase was less than half the 18.4% gain recorded a year ago January. The median peak for all of 2014 was $420,000 reached last August and the median price has not changed significantly since September 2014 when it was $413,000. In most years, the median price typically reaches its highest level during the peak season in the summer months and flattens out or edges down through February of the following year.

As of January, median prices in the Southland were 19.0% below the peak price of $505,000 reached in mid-2007. Unless supported by market fundamentals (job and income growth, sound lending practices), pre-crash prices are not necessarily the bench marks to shoot for. Much of the activity running up to 2007 was fueled by an overly lax lending market that gave loans to a large number of buyers who were not able to handle the debt load.

January and February generally are not very helpful at signaling the future direction of the housing market. A lot of buyers and sellers drop out of the market during the winter months, waiting out the holidays, preferring to buy in the spring and summer months so that moves occur after the end of the school year. The big question on everyone’s mind during this waiting period is whether price appreciation and other factors will finally release the pent-up supply of homes that this market needs in order to realize a full recovery. As prices continue to climb, more homeowners will gain sufficient equity to sell their home and trade up. Job gains and income growth along with low mortgage interest rates will continue to put upward pressure on prices unless the market sees a significant influx of inventory. (Kimberly Ritter-Martinez)

Housing

Source: DQ News

Retail Sales Disappoint Again in January

Retail sales in January were weaker than expected. Spending on U.S. retail and food services fell by 0.8% last month following a decline of 0.9% in December.

In January, six of the thirteen major sales categories posted a decline in sales over the month. Once again, the largest drop occurred at gasoline stations where sales fell by 9.3% because of lower fuel prices. If gasoline sales are excluded from the total January figure, retail sales were up by 0.2%.

However, it was not only gasoline sales that were weak in January. Sporting goods, hobby, book and music stores saw sales fall by 2.6%; sales at apparel and accessory retailers were off by 0.8%; furniture and home furnishings sales fell by 0.7%; sales at motor vehicles and parts dealers declined by 0.5%; and sales at food and beverage stores dipped by 0.3%.

Sectors that recorded an increase in January were miscellaneous store retailers (2.6%); restaurants and bars (0.8%); building material and garden supply centers (0.6%); nonstore retailers (0.5%); electronics and appliance stores (0.3%); health and personal care stores (0.2%); and general merchandise stores (0.1%).

On a year-over-year basis, total retail sales in January were up by 3.3%. Every major sector posted a gain over the last 12 months except for gasoline stations, which saw sales plummet by 23.5%. Again, if we were to remove gasoline sales from the mix, the year-over gain would have been 5.2%, the strongest year-over-year growth rate in nearly three years. The largest year-over gains were posted by restaurants and bars (11.3%); motor vehicles and parts (10.0%); and non-store (mostly e-commerce) retailers (8.3%).

Retail

So far, lower gasoline prices do not appear to be translating into increased spending in other retail sectors. One reason for this may be that consumers are diverting a greater share of their earnings into savings, paying off holiday credit card balances, or spending more on things like housing or health care. Still, prospects for the retail sector look good. Buoyed by a strong job market and lower gasoline prices, we can expect to see stronger retail sales winter fades and spring approaches. (Kimberly Ritter-Martinez)

Source: US Census Bureau

Consumers Back Off on Auto and Student Loans

Total consumer credit outstanding (all non-mortgage debt) increased by 5.4% ($14.7 billion) over the month in December to $3.3 trillion (seasonally adjusted annualized rate). November consumer credit was revised down from a gain of $14.1 billion to $13.5 billion. Over the 12 months ending in December, total consumer credit was up by 6.9%.

Credit Outstanding

Non-revolving debt, which is primarily composed of credit for new automobiles and student loans, rose by 4.5% (or $8.9 billion), the slowest rate of growth almost three years. The average for this category over the previous 11 months was $15.9 billion so the December figure was somewhat below trend.

Revolving debt (mainly credit cards) increased by 7.9% (or $4.8 billion) and was the fastest rate of growth in 8 months. In November, revolving debt contracted by 1.3%. The acceleration of revolving debt relative to non-revolving debt in December stands in stark contrast to the pattern that has dominated consumer credit growth since the end of the recession. Overall, demand for auto loans and student loans has increased at a much faster pace than credit card balances. The level of revolving debt is still 2.5% below where it was in January 2010, whereas the level of non-revolving debt is 48.5% higher than in January 2010. As of December, non-revolving debt comprised over 73% of all nonmortgage consumer debt.

Looking ahead, strong job gains, rising wages and low inflation should boost consumer confidence and translate into greater buying power. The big question is whether or not consumers will choose to exercise that newfound power. Onesign that consumers are becoming more comfortable with increasing debt is the rising debt-to-disposable income ratio. In December, that ratio stood at 25.1%, above the long-run average ratio (since 1995) of 22.9%. (Kimberly Ritter-Martinez)

Credit Share Dis Inc

Source: Federal Reserve

Fed Survey Reports Anemic Mortgage Demand

The Federal Reserve recently released results for the January 2015 Senior Loan Officer Survey on Bank Lending Practices. This survey addresses changes in the supply of, and demand for, bank loans to businesses and households during the past three months.

Recent data from the January survey painted a fairly positive picture of the nation’s loan markets. On balance, banks reported very little change in their standards for business and commercial real estate (CRE) loans while indicating demand for such loans increased only modestly over the last three months.

  • Regarding C&I loans, banks continued to report having eased spreads, interest rate floors and the cost of credit lines. However, the number of banks that had eased price terms was noticeably lower than in prior surveys.
  • The reasons given for easing standards or terms on C&I loans include more aggressive competition from other lenders, a more favorable economic outlook, increased tolerance for risk or improvements in specific industries.
  • In contrast, some survey respondents noted their concerns about the oil and gas sector resulting from the sharp decline in the price of oil as a reason they had tightened their lending practices.
  • Regarding CRE loans and changes in demand, a modest number of banks indicated they experienced stronger demand for construction and land development loans, and loans secured by nonfarm nonresidential properties. A somewhat larger fraction of banks reported increased demand for loans secured by multifamily residential properties.

Asked about loans to households, several large banks reported having eased lending standards for a number of categories of residential mortgages including those eligible for purchase by government-sponsored enterprises. Most banks reported no change in standards and terms on other kinds of consumer loans (autos, credit cards). On the demand side, a modest number of banks reported weaker demand across most categories of home-purchase loans. In contrast, a modest fraction of large banks experienced stronger demand for auto and credit card loans.

Survey respondents were also asked about their expectations for loan delinquency and charge-off rates in 2015. Banks generally anticipate improvements in the performance of most kinds of loans this year but about one-third of the banks that make subprime auto loans expect delinquencies and charge-off rates to increase this year.

Changes in borrowing by businesses and consumers to finance investment and consumption are an indication of confidence levels and the relative strength of the economy. Banks in general have been easing lending standards for several years and demand has mostly trended upward since the end of the recession. Although the overall pace of improvement in the credit markets slowed during recent quarters, the trend on both the business and consumer sides remained positive. (Kimberly Ritter-Martinez)

Source: Federal Reserve

Events of Interest

SAVE THE DATE!

February 26, 2015: LAEDC Open-House with Dr. Christine Cooper, LAEDC Institute for Applied Economics

Location: LAEDC Offices at 444 South Flower Street Suite 3700
Time: 11:45am-1:00pm

Learn more about the latest reports completed by Dr. Cooper and her team. The LAEDC Institute for Applied Economics provides in-depth market intelligence and independent analysis on the key industry clusters that propel our regional economy. In addition, the Institute performs custom research as commissioned by clients, including economic impact analyses, policy analysis, workforce development analyses, and more. This analysis helps guide workforce development initiatives and effective public policy, and quantifies economic impacts. Public and private organizations seek customized, objective studies from the Institute to inform their decisions.

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