The Outlook for 2013 and Beyond for the Economy and Housing Markets

Transcription

1 The Outlook for 2013 and Beyond for the Economy and Housing Markets August 16, 2013 Carlos Garriga Federal Reserve Bank of St. Louis These comments do not necessarily represent the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 1

2 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 2

3 The Economy 2013 and Beyond 3

4 Unemployment Remains High in Southwest and Eastern Half of Nation Low Very low Very high Very high High Very high High High Low Low Very high High 4 Source: Bureau of Labor Statistics and GeoFRED,

5 Midwest Microcosm of the Nation: From Sunbelt (KC) to Rustbelt (CHI) St. Louis MSA Unemployment Rate Kansas City MSA Unemployment Rate Chicago MSA Unemployment Rate U.S. Unemployment Rate Percent Chicago 9 8 United States 8 7 St. Louis 7 6 Kansas City Sources: BLS /Haver Quarterly data through Q

6 ob Growth Looks Worse than Unemployment Rate Index level equals 0 in 2005 St. Louis MSA Nonfarm Employment (average level in 2005 equals 0) Kansas City MSA Nonfarm Employment (average level in 2005 equals 0) Chicago MSA Nonfarm Employment (average level in 2005 equals 0) Total U.S. Nonfarm Employment (average level in 2005 equals 0) Kansas City United States St. Louis Chicago Sources: BLS, BLS, BLSILDES /Haver Quarterly through Q

7 Income Growth Has Collapsed Five-Year Trailing Average Growth of Real Disposable Personal Income Per Capita Annualized percent change Percent Annual Change in Real Disposable Personal Income per Capita Annual percent change year moving average of real DPI growth 3 2 Gray shading indicates period of national economic recession as defined by the National Bureau of Economic Research Sources: Bureau of Economic Analysis /Haver Analytics Annual data through 2012

8 Potential GDP Is Lower Now Logarithm of real GDP in trillions of chained 2005 dollars Conventional view Linear trend extrapolated from actual data, St. Louis Fed view Non-linear trend estimated from actual data with the Hodrick- Prescott (HP) filter, Actual level of real GDP Actual level of real GDP 8

9 What s Wrong with Households? Too Much Debt! Ratio of Household Debt to Personal Income Percent Percent 120 Household debt-to-income ratio Source: Haver Analytics Source: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q

10 Our Biggest Short-Term Problem: Too Much HH Debt Built Up During Bubbles Inflation-Adjusted Per-Capita Household Liabilities Chained 2009 dollars Chained 2009 dollars Inflation-Adjusted Disposable Per-Capita Personal Income Chained 2009 dollars Per-capita household debt Per-capita disposable income Source: Haver Analytics 00 Sources: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q

11 Most Affected By Mortgage Debt Overhang: Young Homeowners 11

12 Stock-Market Wealth Has Recovered More Rapidly Than Homeowners Equity Inflation-Adjusted Per-Capita Equity-Market Holdings Thousands of 2005 dollars Thousands of 2005 dollars Inflation-Adjusted Per-Capita Value of Homeowners' Equity Thousands of 2005 dollars Equity holdings Est. Feb Homeowners equity Est. Feb Source: Haver Analytics Sources: Federal Reserve Board; Bureau of Economic Analysis Quarterly through Q3.2012

13 Negative Equity Likely to Linger For Years, Driving Millions of Additional Foreclosures Source: CoreLogic Q

14 The New Normal: Deleveraging Hampers Growth Banking-crisis period Deleveraging period Average annual growth of real GDP during 8 years preceding banking-crisis period Average annualized growth of real GDP during deleveraging period (to date in U.S.) Sweden apan United States 2.6% 1.6% Difference -1.0% Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis 14

15 The New Normal: Deleveraging Hampers Growth Sweden apan United States Banking-crisis period Deleveraging period Average annual growth of real GDP during 8 years preceding banking-crisis period Average annualized growth of real GDP during deleveraging period (to date in U.S.) 2.6% 4.9% 1.6% 1.5% Difference -1.0% -3.4% Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis 15

16 The New Normal: Deleveraging Hampers Growth Sweden apan United States Banking-crisis period Deleveraging period ?? Average annual growth of real GDP during 8 years preceding banking-crisis period Average annualized growth of real GDP during deleveraging period (to date in U.S.) 2.6% 4.9% 2.6% (8 years through Q2.2007) 1.6% 1.5% 0.6% (4.75 years from Q through Q4.2012) Difference -1.0% -3.4% -2.0% Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis 16

17 Our Biggest Medium-Term Problem: Too Much Govt. Debt Built Up Since 2001 Inflation-Adjusted Per-Capita Gross Federal-Government Debt Chained 2009 dollars Chained 2009 dollars Inflation-Adjusted Disposable Per-Capita Personal Income Chained 2009 dollars Average annual growth rate of real per-capita federal-government debt vs. disposable income: Reagan 8.9% 2.8% Bush I 6.7% 1.0% Clinton 0.4% 2.5% Bush II 6.0% 1.5% Obama 7.0% 0.5% Q2.2008: $31,154 Q2.2013: $49,5 Per-capita federalgovernment debt Per-capita disposable income Q2.2001: $23, Source: Haver Analytics 00 Sources: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q

18 We re on the Verge of A Demographic Tsunami: Retirement of Baby Boomers Working-Age Population (18-64) as Share of Total Population Percent Percent Where we are right now Working-age population as share of total population Source: Haver Analytics History Forecast Source: Census Bureau Annual data through 2012; projections through

19 The Demographics of the Midwest Will Resemble apan Projected U.S. Working-Age Population (18-64): 2012 Level = 0 Projected Missouri Working-Age Population (18-64): 2012 Level = 0 Projected Illinois Working-Age Population (18-64): 2012 Level = 0 Index levels equal 0 in Where we are right now Working-age population: U.S History Forecast 15 Source: Haver Analytics Source: Census Bureau Annual data through 2012; projections through Working-age population: Missouri Working-age population: Illinois

20 The Demographics of the Sunbelt Will Resemble An Emerging Market Projected Texas Working-Age Population (18-64): 2012 level = 0 Projected Georgia Working-Age Population (18-64): 2012 level = 0 Projected U.S. Working-Age Population (18-64): 2012 level = 0 Index levels equal 0 in Where we are right now Working-age population: Texas Working-age population: Georgia Working-age population: U.S History Forecast 15 Source: Haver Analytics Source: Census Bureau Annual data through 2012; projections through

21 Housing Markets in the Area (MO, KS, IL) 21

22 Consumer Confidence Tracks House Prices With a Lag Year-over-Year Percent Change in FHFA Expanded Data House-Price Index Percent (left scale) Conference Board's Consumer-Confidence Index: Present Situation Average level in 1985 equals 0 (right scale) Year-over-year change in U.S. house prices Consumerconfidence index Sources: FHFA, CB /Haver

23 House Prices 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) San Francisco Los Angeles Dallas 0000 Atlanta Sources: ZILLOW /Haver

24 Employment Dallas Nonfarm Employment (index equals 0 in 1995) Atlanta Nonfarm Employment (index equals 0 in 1995) San Francisco Nonfarm Employment (index equals 0 in 1995) Los Angeles Nonfarm Employment (index equals 0 in 1995) Dallas Atlanta San Francisco 1 0 Los Angeles Sources: BLS /Haver

25 House Prices Chicago Metro Home-Value Index Dollars St. Louis Metro Home-Value Index Dollars Chicago St. Louis Sources: Zillow.com /Haver Analytics

26 St. Louis Economy is Improving St. Louis MSA Unemployment Rate Kansas City MSA Unemployment Rate Chicago MSA Unemployment Rate U.S. Unemployment Rate Percent Chicago 9 8 United States 8 7 St. Louis 7 6 Kansas City Sources: BLS /Haver Quarterly data through Q

27 St. Louis Share of Negative-Equity Homeowners Close to U.S. Average 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 (%) Chicago United States 30 St. Louis Sources: Zillow.com /Haver Analytics

28 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

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 29

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 30

31 March 2009: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2009 Source: Lender Processing Services 31

32 March 20: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 20 Source: Lender Processing Services 32

33 March 2011: Mortgage Distress Remains Elevated Despite Economic Stabilization Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2011 Source: Lender Processing Services 33

34 March 2012: Mortgage Distress Remains Elevated Despite Economic Stabilization Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2012 Source: Lender Processing Services 34

35 35 December 2012: Double-Digit Rates of Delinquency Are Common in udicial States Source: Lender Processing Services Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County December 2012

36 Audrain Pike Lincoln Mortgage Conditions by ZIP Code: Dec Percent of mortgages delinquent or in foreclosure Boone Montgomery Calloway Warren St. Charles St. Louis City of St. Louis Cole Osage Gasconade Franklin efferson Maries Source: Lender Processing Services Washington 36

37 Calhoun ersey Macoupin Montgomery Mortgage Conditions by ZIP Code: Dec Percent of mortgages delinquent or in foreclosure Madison Bond Fayette Marion Clinton St. Clair Monroe Washington efferson Source: Lender Processing Services Randolph Perry 37

38 innebago Boone McHenry Lake Mortgage Conditions by ZIP Code: Dec Percent of mortgages delinquent or in foreclosure Cook Dekalb Kane DuPage Kendall LaSalle Source: Lender Processing Services Grundy Will 38

39 Share of Mortgages 30+ Days Delinquent or in Foreclosure udicial foreclosures are slowing recovery in about half of all states. Recession Dec to une 2009 Illinois (judicial) Total U.S. Missouri (non-judicial) Source: Lender processing Services Monthly data through Oct

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 40

41 Questions? 41

42 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: Housing California Great Lakes New England Most regions are now or always were reasonably valued Signs of froth re-emerging in Sand States 43

44 Weak Recovery: No Net ob Gains in CA in 12½ Years PAC CA MTN Employment in Mountain Census Division Employment in Pacific Census Division excluding California Employment in California Index levels equal 0 in MTN: AZ, CO, ID, MT, NV, NM, UT, WY PAC ex CA: AK, HI, OR, WA CA Source: Haver Analytics Source: Bureau of Labor Statistics Quarterly data through Q2.2013

45 Employment is Stronger West of the Mississippi WNC ENC ESC WSC Index levels equal 0 in Employment in West South Central Census Division Employment in West North Central Census Division Employment in East South Central Census Division Employment in East North Central Census Division WSC: AR, LA, OK, TX WNC: IA, KS, MN, MO, NE, ND, SD ESC: AL, KY, MS, TN ENC: IL, IN, MI, OH, WI Sources: BLS/H /Haver Source: Bureau of Labor Statistics Quarterly data through Q2.2013

46 Southeast Tracks National Recovery; Northeast Lags MAT SAT NEW Employment in South Atlantic Census Division Employment in Middle Atlantic Census Division Employment in New England Census Division Index levels equal 0 in SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV MAT: N, NY, PA NEW: CT, ME, MA, NH, RI, VT Sources: Bureau of Labor Statistics/Haver Analytics Source: Bureau of Labor Statistics Quarterly data through Q2.2013

47 On Average, U.S. House Prices Appear Moderately Undervalued Total U.S. House-Price-to-Income Ratio Average level in 2000 equals 0 Index levels equal 0 in Fair-Value Line Based on House-Price-to-Income Ratio in 2000 Constant at 0 Average house prices are overvalued if their ratio to per-capita income is > Maximum overvaluation of 27.2% in Q USA Source: Haver Analytics Maximum undervaluation of 15.0% in Q Average house prices are undervalued if their ratio to per-capita income is < Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013

48 Western House Prices Rising Sharply Again CA MTN California House-Price-to-Income Ratio Mountain Census Division House-Price-to-Income Ratio Total U.S. House-Price-to-Income Ratio Index levels equal 0 in CA USA MTN: AZ, CO, ID, MT, NV, NM, UT, WY Source: Haver Analytics Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013

49 Houses Are Fairly Valued in Dixie and Always Were WSC ESC West South Central Census Division House-Price-to-Income Ratio East South Central Census Division House-Price-to-Income Ratio Total U.S. House-Price-to-Income Ratio Index levels equal 0 in USA WSC: AR, LA, OK, TX ESC: AL, KY, MS, TN Source: Haver Analytics Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013

50 Upper-Midwest Houses Still Cheap WNC ENC West North Central Census Division House-Price-to-Income Ratio East North Central Census Division House-Price-to-Income Ratio Total U.S. House-Price-to-Income Ratio Index levels equal 0 in USA ENC: IL, IN, MI, OH, WI WNC: IA, KS, MN, MO, NE, ND, SD Source: Haver Analytics Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013

51 Florida and Southeast House Values Rising Again SAT FL Florida House-Price-to-Income Ratio South Atlantic Census Division House-Price-to-Income Ratio Total U.S. House-Price-to-Income Ratio Index levels equal 0 in FL USA SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV Source: Haver Analytics Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013

52 Northeast Houses Still Expensive MAT NEW Middle Atlantic Census Division House-Price-to-Income Ratio New England Census Division House-Price-to-Income Ratio Total U.S. House-Price-to-Income Ratio Index levels equal 0 in USA MAT: N, NY, PA NEW: CT, ME, MA, NH, RI, VT Source: Haver Analytics Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013