August 16, 2013 Carlos Garriga Federal Reserve Bank of St. Louis [email protected]These comments do not necessarily represent the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. The Outlook for 2013 and Beyond for the Economy and Housing Markets 1
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The Outlook for 2013 and Beyond for the Economy and Housing Markets
The economy in 2013 and beyond
Still struggling to overcome the legacy of the housing bubble Short-term outlook: Deleverage and labor market conditions Long-term outlook: A “new normal” is emerging
Housing outlook Many housing markets may have hit bottom in 2012 The return of “location, location, location”
The Economy 2013 and Beyond
3
4
Unemployment Remains High in Southwest and Eastern Half of Nation
Source: Bureau of Labor Statistics and GeoFRED, http://geofred.stlouisfed.org/
Very low
Low
High
High
Low High
Very high
High
Low
Very high
Very high
Very high
St. Louis MSA Unemployment RateKansas City MSA Unemployment Rate
Chicago MSA Unemployment RateU.S. Unemployment Rate
15100500Sources: BLS /Haver
12
11
10
9
8
7
6
5
4
3
2
12
11
10
9
8
7
6
5
4
3
2
Midwest Microcosm of the Nation: From Sunbelt (KC) to Rustbelt (CHI)
5
Percent
Quarterly data through Q4.2012
St. Louis
Kansas City
Chicago
United States
St. Louis MSA Nonfarm Employment (average level in 2005 equals 100)Kansas City MSA Nonfarm Employment (average level in 2005 equals 100)
Chicago MSA Nonfarm Employment (average level in 2005 equals 100)Total U.S. Nonfarm Employment (average level in 2005 equals 100)
Consumer Confidence Tracks House Prices With a Lag
Year-over-year change in U.S. house prices
Consumer-confidence index
San Francisco Metro Home-Value Index (dollars)Los Angeles Metro Home-Value Index (dollars)
Atlanta Metro Home-Value Index (dollars)Dallas Metro Home-Value Index (dollars)
1510050095Sources: ZILLOW /Haver
800000
600000
400000
200000
100000
70000
800000
600000
400000
200000
100000
70000 23
House Prices
San Francisco
Los Angeles
Dallas
Atlanta
Dallas Nonfarm Employment (index equals 100 in 1995)Atlanta Nonfarm Employment (index equals 100 in 1995)
San Francisco Nonfarm Employment (index equals 100 in 1995)Los Angeles Nonfarm Employment (index equals 100 in 1995)
1510050095Sources: BLS /Haver
140
130
120
110
100
90
140
130
120
110
100
90 24
Employment
San Francisco
Los Angeles
Dallas
Atlanta
Chicago Metro Home-Value IndexDollars
St. Louis Metro Home-Value IndexDollars
1510050095Sources: Zillow.com /Haver Analytics
300000
250000
200000
150000
100000
50000
300000
250000
200000
150000
100000
50000 25
House Prices
Chicago
St. Louis
St. Louis MSA Unemployment RateKansas City MSA Unemployment Rate
Chicago MSA Unemployment RateU.S. Unemployment Rate
15100500Sources: BLS /Haver
12
11
10
9
8
7
6
5
4
3
2
12
11
10
9
8
7
6
5
4
3
2
St. Louis Economy is Improving
26
Percent
Quarterly data through Q4.2012
St. Louis
Kansas City
Chicago
United States
St. Louis Share of Mortgaged Single-Family Homeowners in Negative Equity (%)Chicago Share of Mortgaged Single-Family Homeowners in Negative Equity (%)
U.S. Share of Mortgaged Single-Family Homeowners in Negative Equity (%)
141312111009Sources: Zillow.com /Haver Analytics
50
40
30
20
10
0
50
40
30
20
10
027
St. Louis Share of Negative-Equity Homeowners Close to U.S. Average
St. Louis
Chicago
United States
28
March 2006: At the Peak of the Housing Boom, Mortgage Conditions Were Pristine
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2006
Source: Lender Processing Services
J
J
J J J
J J
J
J
J J
J
J
J
J
J
J
J
J
J J J
J
J
29
March 2007: Falling House Prices, Slowing Economy Begin to Show
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2007
Source: Lender Processing Services
30
March 2008: Financial Crisis Is Underway, Economy Has Entered Recession
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2008
Source: Lender Processing Services
31
March 2009: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2009
32
March 2010: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2010
33
March 2011: Mortgage Distress Remains Elevated Despite Economic Stabilization
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2011
34
March 2012: Mortgage Distress Remains Elevated Despite Economic Stabilization
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2012
35
December 2012: Double-Digit Rates of Delinquency Are Common in Judicial States
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County December 2012
J
J
J J J
J J
J
J
J J
J
J
J
J
J
J
J
J
J J J
J
J
36
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing Services
St. Charles
St. Louis
Jefferson
Lincoln
Warren
Franklin
Pike
Montgomery
Gasconade
Calloway
Osage
Washington
Audrain
Maries
Cole
Boone
City of St. Louis
37
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing
Services
Montgomery
Bond
Clinton
Macoupin
Madison
Randolph
Jersey
St. Clair
Calhoun
Monroe Washington
Perry
Marion
Jefferson
Fayette
38
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing Services
Lake
Cook
DuPage
McHenry
Kendall
LaSalle
Boone
Grundy
Winnebago
Dekalb
Will
Kane
e
e
39
Share of Mortgages 30+ Days Delinquent or in Foreclosure Recession
Dec. 2007 to June 2009
Illinois (judicial)
Missouri (non-judicial)
Total U.S.
Judicial foreclosures are slowing recovery in about half of all states.
Source: Lender processing Services Monthly data through Oct. 2012
40
Can We Expect Economic Lift-Off in 2014?
Yes—but the economy will cruise at a lower altitude than before Significant demographic transition underway Balance-sheet restructuring will continue Midwest will lag
Questions?
41
Appendix: Differences Across U.S. Regions
42
43
Regional Recoveries Vary Widely
Employment Strongest recoveries in:
Texas Northern Great Plains Mountain States Pacific Northwest
Weakest recoveries in: California Great Lakes New England
Housing Most regions are now—or always were—reasonably
valued Signs of “froth” re-emerging in Sand States
Employment in Mountain Census DivisionEmployment in Pacific Census Division excluding California
Employment in California
2015100500Source: Haver Analytics
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 44
Weak Recovery: No Net Job Gains in CA in 12½ Years
MTN: AZ, CO, ID, MT, NV, NM, UT, WY
PAC ex CA: AK, HI, OR, WA
CA
Index levels equal 100 in
2000
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
CA
PAC MTN
Employment in West South Central Census DivisionEmployment in West North Central Census DivisionEmployment in East South Central Census DivisionEmployment in East North Central Census Division
2015100500Sources: BLS/H /Haver
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 45
Employment is Stronger West of the Mississippi
WSC: AR, LA, OK, TX
WNC: IA, KS, MN, MO, NE, ND, SD
ESC: AL, KY, MS, TN
ENC: IL, IN, MI, OH, WI
Index levels equal 100 in
2000
WSC
WNC ENC ESC
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
Employment in South Atlantic Census DivisionEmployment in Middle Atlantic Census DivisionEmployment in New England Census Division
2015100500Sources: Bureau of Labor Statistics/Haver Analytics
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 46
Southeast Tracks National Recovery; Northeast Lags
SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV
MAT: NJ, NY, PA
NEW: CT, ME, MA, NH, RI, VT
Index levels equal 100 in
2000
SAT
MAT NEW
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
Total U.S. House-Price-to-Income RatioAverage level in 2000 equals 100
Fair-Value Line Based on House-Price-to-Income Ratio in 2000Constant at 100
20151005009590Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 47
On Average, U.S. House Prices Appear Moderately Undervalued
Index levels equal 100 in
2000 Average house prices are “overvalued” if their ratio to per-capita income is > 100
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Average house prices are “undervalued” if their ratio to per-capita income is < 100
Maximum overvaluation of 27.2% in Q4.2005
USA Maximum undervaluation of 15.0% in Q1.2012
California House-Price-to-Income RatioMountain Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 48
Western House Prices Rising Sharply Again
Index levels equal 100 in
2000
MTN: AZ, CO, ID, MT, NV, NM, UT, WY
CA
USA
MTN CA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
West South Central Census Division House-Price-to-Income RatioEast South Central Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 49
Houses Are Fairly Valued in Dixie—and Always Were
Index levels equal 100 in
2000
WSC: AR, LA, OK, TX
ESC: AL, KY, MS, TN
WSC ESC
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
West North Central Census Division House-Price-to-Income RatioEast North Central Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 50
Upper-Midwest Houses Still Cheap
Index levels equal 100 in
2000
WNC: IA, KS, MN, MO, NE, ND, SD
ENC: IL, IN, MI, OH, WI
WNC ENC
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Florida House-Price-to-Income RatioSouth Atlantic Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 51
Florida and Southeast House Values Rising Again
Index levels equal 100 in
2000
SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV
FL
SAT FL
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Middle Atlantic Census Division House-Price-to-Income RatioNew England Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 52
Northeast Houses Still Expensive
Index levels equal 100 in
2000
MAT: NJ, NY, PA NEW: CT, ME, MA,
NH, RI, VT
MAT NEW
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013