Monday, February 8, 2016

Job growth flatlines in Pueblo and Grand Junction

Although job growth has slowed in Colorado, the year-over-year change is still positive. That is, new jobs are still being created, according to the Establishment survey. The situation is a bit different in Grand Junction and Pueblo, however, where the latest Establishment employment survey shows that in December, total payroll employment actually went down, year over year.

Practically speaking, though, jobs were simply flat in both cases. In Grand Junction, for example, payroll employment was flat at 62,000 jobs with no change to speak of from December 2014 to December 2015. We do see a general trend of decline since early 2014:



In Grand Junction, payroll employment growth hit 3.2 percent (a gain of nearly 2,000 jobs) back in March of 2014, but it's been declining since, and has been flat over the past four months. In fact, total employment in Grand Junction hasn't much budged from the 62,000 jobs mark for the past six months. 

In Pueblo, payroll employment was also essentially flat at 61,000 jobs in December. Employment growth had reached 3.9 percent (a gain of more than 2,000 jobs) in February of 2015, but has been falling since (this is YOY change):


The employment situation in GJ and Pueblo reminds us that the happy economic data we've been hearing about Colorado for the past couple of years has largely been driven by developments in northern Colorado and the metro Denver area. Oil employment in northern Colorado, has helped push up overall job growth in the state, but southern and western Colorado have different experiences.

Historically, at least over the past 30 years, Pueblo has tended to have weaker  job growth than metro Denver and the state overall.

It's harder to generalize about Grand Junction, however, as GJ experienced enormous booms in the late 70s/early 80s, and also again from 2006 to 2008. GJ has seen lackluster growth ever since the 2080 financial crisis, however, and has in some ways not shared in the benefits of the expansion that has occurred in Colorado and the US since 2010.

(All data from the "Establishment Survey" which measures payroll employment for larger employers. This measure counts, jobs, not employed persons.)

Colorado in top ten of states in well being index

Every year, Gallup releases its "Well Being Index" which measures the following


  • Purpose: liking what you do each day and being motivated to achieve your goals
  • Social: having supportive relationships and love in your life
  • Financial: managing your economic life to reduce stress and increase security
  • Community: liking where you live, feeling safe and having pride in your community
  • Physical: having good health and enough energy to get things done daily
Out of all US states, Colorado comes in fourth, behind first place Hawaii, then Alaska and Montana. Wyoming rounds out the top five for fifth place. 

Colorado is in the top ten list, yet again. In fact, according to Gallup, "Hawaii and Colorado are the only two states that have made the list of the 10 highest well-being states each year since 2008."

The Western US in general is notable for having high well being scores: 



Why does the West do so well? Well, the stereotypes about Colorado and west are often true. There is a lot of entrepreneurship, physical fitness activity, and community involvement among Westerners. Moreover, homicide rates are low in Colorado (and also in Wyoming, Utah, and Montana) adding to the "community" measure contained within the index for those states.

Climate may be a factor as well. For example, New Mexico, in terms of statistical data, is nearly as unhealthy and low-income as Mississippi. So why does New Mexico rank so much higher by this measure? It may have something to do with perceptions of how much control one  has over one's economic life and physical well being. 

See here for more on this from Gallup.

Wednesday, February 3, 2016

Home prices: Denver Case-Shiller index still near 15-year highs

Employment growth in metro Denver may be tapering off, but as of November, home prices certainly weren't.

According to Case-Shiller's report for November, released last week, the Denver home price index was up 10.8 percent, year over year. That's down slightly from September's 10.9 percent YOY increase, which was the largest increase seen in the Denver index since 2001 at the end of the dot-com boom.

While the highest YOY increase recorded in the past 20 years was 14 percent in 2001, November's growth rate of 10.8 percent is nevertheless a very large increase.


Denver's home price growth is outpacing the nation overall as measured in Case Shiller's 20-city index, which showed a year-over-year increase of 5.8 percent for November.

In thsi graph, I've compared Denver to the 20-city index, and you can see Denver's been outpacing the larger index for a while:

As Colorado has had stronger job growth than the nation overall, it is not shocking that home price growth has also exceeded the nation overall. A better job market has brought more demand both from people who were already here, and from new residents relocating for work.

Based on median income data, though, it's safe to say that home prices have indeed been outpacing incomes, which creates an affordability issue, and a question as to how sustainable the home price growth can be.

Tuesday, February 2, 2016

Payroll employment growth in Metro Denver hits 4-year low

According to the Establishment employment survey, total year-over-year payroll employment growth fell to 1.7 percent during December 2015. This was the lowest growth level seen since October 2011, when the growth rate was 1.6 percent.

Growth rates in payroll employment have been generally falling over the past 11 months, and the growth rate had been 4.1 percent during February 2015:



Growth rates have not fallen off this quickly since 2008, although the growth rate itself remains at relatively robust levels compared to the last economic expansion between 2003 and 2008.

In terms of employment totals, there were 1,398,000 payroll jobs in December 2015, compared to 1,374,000 payroll jobs one year earlier. That's an increase of 24,000 jobs over the year.

So, we're still looking at increases, but the rate of increase in each month has been falling.

Unless this trend reverses itself, of course, we will be facing negative job growth by the end of 2016.

(This data is for the Establishment survey which measures total payroll jobs, and not the number of persons. A person with two or more jobs could potentially show up as three jobs in this survey.)

The measure I'm using here is total nonfarm employment for the Denver-Aurora-Lakewood MSA, not seasonally adjusted.

Statewide Colorado

The metro Denver numbers show a bit more of a downward trend although the overall percentage increases are pretty similar at this point. As of December 2015, the YOY growth rate was at 1.8 percent, which translates to a gain of about 47,000 jobs from December 2014 to December 2015. In total, there were about 2,559,000 payroll jobs in December.

To compare to Denver, we might say that metro Denver was humming along with more growth than the state overall for much of 2014 and 2015, but both are now seeing growth around a little under 2 percent. Denver's growth rate has come down to match the state's rate.

Employment growth for the state is also down near 4-year lows:

Statewide, growth is being helped along by Northern Colorado economies while it's being dragged down by sluggish job growth in Grand Junction and Pueblo.

(This is the nonfarm payroll employment data for Colorado, not seasonally adjusted.)

All data used in this article is from the BLS.

Sunday, January 31, 2016

Colorado continued to outperform nationwide job market in late 2015

Colorado's unemployment rate has been below the national rate since 2012. As the Colorado economy has begun to outpace the national economy in recent years, this gap has grown.

As of December 2015, the national unemployment rate was 4.8 percent, while it was 3.3 percent in Colorado.

Indeed, unlike the US unemployment rate, the Colorado rate has returned to its pre-crisis levels last seen in 2007.

Oil extraction activity has certainly been a factor here, and we have not yet seen any effects of closing oil operations as the price of oil has fallen. We may know more after we've seen February's employment data.

How Colorado performs compared to the nation overall, and to other states will also continue to affect the decision of out-of-state residents to migrate to Colorado. As I noted here, Colorado has outpaced most states in in-migration in the past year.


With job trends like these, it's not surprising that many have elected to recently move to Colorado from other states:



Home loan payoffs in Colorado up 40 percent through third quarter of 2015

The number of mortgage loans paid off in Colorado was up 37.7 percent during 2015’s third quarter compared to the same period of 2014. Payoffs also rose rose 13.6 percent from the second quarter of 2015 to the third quarter of the same year. 

Public trustees in Colorado released a total of 89,618 deeds of trust during the third quarter of 2015, up from 2014's third-quarter total of 65,094.  

Typically, a "release of a deed of trust" occurs when a real estate loan is paid off whether through refinance, sale of property, or because the owner has made the final payment on the loan. Release activity generally rises as refinance and home-sale activity increases, and thus can be viewed as an indicator of real estate loan activity, including home refinance activity. 

Release activity rose to a nine-quarter high during the third quarter, and was the third quarter in a row during which release activity increased. 




Comparing the first three quarters of each year combined, we find there were 166,205 releases during the first three quarters of 2014, compared to 233,135. That's a year-over-year increase of 40.3 percent. 


Looking at annual totals, we find that 2015, as of the third quarter, is on pace to exceed 2014's totals by a comfortable margin:





Trends in release activity varied by county, however. For the first three quarters of 2015, compared to the same period of 2014, percent changes in release totals ranged from a 92 percent increase in Douglas County to a drop of 4.5 percent in Alamosa County:


Although there are exceptions, the counties with the highest-income households and the most expensive real estate have traditionally experienced some of the highest levels of growth in release activity since those areas contain more households and real estate that will qualify for refinance deals. 

The significant increases in release totals in 2015 point to continued increases in home refi activity and, to a lesser extent, home sales activity as well. Moreover, release activity tends to increase as mortgage rates fall.  In 2013, we saw release activity surge following a period in which mortgage rates fell below 4 percent. We are now seeing a similar surge in the wake of mortgage rates again falling below 4 percent in late 2014:



Some other issues of note: 


The third quarter of 2015 showed the largest total for the third quarter since I began collecting this data in 2008.  I break it out this way to identify any seasonal issues:


County comparisons: 



Saturday, January 30, 2016

Colorado foreclosures fell 8.4 percent in 3rd quarter

During the third quarter of 2015, Colorado public trustees reported 2,058 foreclosure filings and 1,089 sales at auction (completed foreclosures).  During the third quarter of 2014, there were 2,246 filings and 1,433 sales. Comparing year-over-year for the third quarter, foreclosure filings fell 8.4 percent and completed foreclosures fell 24.0 percent.

Comparing the third quarter of 2015 to the second quarter of 2015, foreclosure filings fell 9.8 percent from 2,282 to 2,058. Foreclosure sales rose 2.4 percent from 1,063 to 1,089 during the same period.

During the first nine months of 2015, there were 6,212 filings and 3,297 sales. For the same period of 2014, there were 8,505 filings and 4,760 sales. Comparing year over year, filings fell 27 percent and sales fell 30.7 percent.

Below is a time series showing quarterly totals in foreclosure filings and sales. The large dip in sales shown during the second quarter of 2008 can be attributed to a change in the foreclosure time line that took effect on January 1, 2008 and led to a large temporary dip in the number of foreclosure sales during March, April, and May of that year.


There are not large seasonal changes in foreclosure activity in Colorado, although the third quarter tends to be the most active quarter for foreclosure sales in Colorado.




Statewide, there was approximately 1 completed foreclosure (foreclosure sale) per 1,897 households for the third quarter of 2015. The map shows that there are few hot spots for foreclosure left in Colorado, and those that remain, such as San Juan County, are very small markets where a single foreclosure can move foreclosure rates up quickly.

No metropolitan county was found among the top ten counties for foreclosure sales rates. Most of the counties in the top ten were mountain and rural counties including Delta, Las Animas, and Fremont counties.

Pueblo and Mesa counties reported the highest foreclosure rates of the metropolitan counties. Pueblo County reported a foreclosure rate of one foreclosure per 665 households while Mesa County reported a rate of 1 foreclosure per 654 households. See Table 3 for full listing.

Boulder County reported the lowest foreclosure rate among metropolitan counties with 1 completed foreclosure per 10,435 households.

For a detailed list of each county, see the full report:  

Denver-area multifamily housing permits peaked back in 2014

Measured in new building permit activity, multifamily building in the Denver-aurora metropolitan area appears to have peaked in 2014, and has been slowly declining since.

Using the Census Bureau's residential building permit data for this metro, we can look at how many permits were for buildings with more than one housing unit. In other words, this data is NOT for single-family houses, although townhouses are included. (This also includes for-purchase condos, so we're not talking only of apartments here.)

Since month-to-month swings are so large for these types of units, I've put it together looking at three-month moving averages (includes data up through December 2015). All the graphs in this article are for the Denver-Aurora metro area:



What we see here is that the 3-month average through December 2015 was 500 units which was down from the 3-mo average for November 2015, which was 713. This is all down from the peak of 983 units reached during October of 2014. Overall, we do appear to be seeing a slow downward trend that's been in place since the fall of 2014.

Generally, permit activity remains above what it has been over the past decade, although not equaling the huge multifamily housing boom that occurred at the very end of the dot-com boom back in 2001-2002.

Measuring the percent change year over year, we find that December's three-month average was down 37 percent, year over year. That's the largest drop recorded since August 2010, or 65 months ago:


In fact, 8 of the past months have shown negative growth by this measure, suggesting multifamily builders are definitely pulling back from the big-growth period that lasted from 2010 to 2013.

Building permits can be seasonal as well, although multifamily tends to be less season than single-family. However, let's look at the totals separated out by month so we can better take seasonal factors into account.

Looking at the 3-month average for December 2015 we see that the month's total of 500 was the lowest December total in 4 years, coming in behind the December total for 2012, 2013, and 2014. We find a similar trend with September and August, which were both also at a 4-year low. October 2015 was at a 3-year low for that month, and November was at a 2-year low for that month.  Overall, we can say that the second half of 2015 shows real declines in overall multifamily permitting activity.


The most recent vacancy and rent data for the metro area suggested that demand is softening, with the vacancy rate hitting a six-year high. There were questions about whether or not the industry had overbuilt. It's possible, although, even with condos included in this data, it seems that the industry has already been in the process of winding down from peak levels for more than a year. 

Metro Denver Rents and Vacancies: Vacancy hits 5-year high, rents flat

The apartment vacancy rate in metro Denver surged to a five-year high during the fourth quarter of 2015. According to the latest vacancy survey from the Metro Denver Apartment Association, the metro-wide vacancy rate during the fourth quarter of 2015 was 6.8 percent, which was the highest vacancy rate recorded since the fourth quarter of 2009 (measured in %):


Much of the increase in vacancy stemmed from vacancy rates over ten percent in Downtown Denver where an enormous amount of multifamily building has occurred in recent years. The vacancy rate was 5 percent during the third quarter of last year, and 4.7 percent during the fourth quarter of 2014.

Meanwhile, the average rent in metro Denver flattened off with a metro-wide average rent of $1,292 during the fourth quarter of 2015. The average rent was 1,291 during the third quarter of 2015 and 1,168 during the fourth quarter of 2014 (measured in $). 


Although the average rent was essentially unchanged from the third quarter to the fourth quarter of 2015, it remained up significantly, year over year. From the fourth quarter of 2014 to the fourth quarter of 2015, the average rent in metro Denver was up 10.6 percent. Yes, that's a drop off from the previous four quarters — all of which had YOY increases over over 12 percent — but a YOY change of over 10 percent still shows very strong growth (measured in %): 


And for those interested in the median rent, we don't see much of a difference in the trend here. The median rent did actually fall, however, from the third quarter to the fourth quarter, unlike the average rent. This fact does suggest, though, that what's driving the fall in rents is not just drops in the newest and most expensive units. Rents were falling in median-priced  units as well. If falling rents were being driven only in the most expensive units, we'd see more of a fall in average rents that was more comparative to the change in median rents (measured in $). 


Here are the two measures compared (in $): 


While the industry will likely scoff at the idea that there's any real softening in the market, the fact is it's too early to know how global trends will affect local markets. With collapsing oil prices affecting northern Colorado, and weakening economies in most of the US's biggest trading partners, including Canada, Japan, and China, there are reasons to be cautious. 

Real estate markets have continued to benefit from demographic changes, however, as population growth, and growth among the educated and employed have helped demand for real estate. 




Friday, January 29, 2016

Bank of Canada Holds Overnight Rate at 0.5%, Following Multiple Cuts in 2015

Last week, the Bank of Canada announced it would stay at 0.5 percent for its target overnight rate (the equivalent of the Federal Funds Rate in the US).

Many had believed that the BOC was leaning toward another rate cut, but those seeking an additional cut to stimulate Canada's troubled economy were disappointed. The dropping oil price has heavily impacted Canada's economy, just as it has been taking its toll on oil-industry-heavy Western states in the US.

The overnight rate was cut twice in 2015. From 1.0 to 0.75 in January 2015 and again to 0.5 in July. While the recent hold-steady policy provides a respite from 2015's cuts, the overnight rate has been at very low levels since 2009. the BOC has been relatively hawkish compared to the Fed, although not by much:



Now, unless you count the EU as a whole, Canada remains the US's largest trading partner. (And Canada is one of Colorado's largest trading partners.) So what happens to the Canadian economy does indeed matter to American investors and consumers.

Fortunately for Canadians, and for Americans who are adept at investing in Canada, Canada's economy has been relatively stable in recent years. Canada avoided the a collapse in housing markets, and in the wake of the 2008 financial crisis, Canada was said to have "gotten things right."

Indeed, Canada's central bank had pursued easy money less aggressively than the US in the early years of what would become the US housing bubble, possibly lessening the effects of malinvestment into the housing sector.

And the BOC has generally been more stable in terms of its overnight rate:



Nowadays, however, there are genuine concerns about the Canadian economy "headed off a cliff." Given that the US exported more than 260 billion dollars worth of goods to Canada last year, that's not great news for the USA, either.

Fed Leaves Interest Rates Unchanged, Markets Head Down

The Fed announced today that, as expected, it will not change the target Federal Funds Rate. This follow's last month's rate change when the Fed increased its target rate from 0-0.25 up to 0.25-0.50, which was the first increase in seven years.

Today's lack of action thus leaves the target rate near what are historic lows:


Given that the markets expected no change, there was little reason to expect any big movements in the markets, but according to observers in the financial media, the Fed's statement is being interpreted as pessimistic, which drove down markets further. 

We've known for years that the Fed has been ill-at-ease with the overall state of the economy, of course. If the Fed had thought the economy was doing well, it would have raised rates long ago. December's rate hike came in many ways as an attempt to send the message that, yes, the economy is strong enough to warrant a rate hike. 

But the Fed knows that even with a 0.25 percent hike, it's pressing its luck given the extensive reliance of the current global economy on easy money. 

Indeed, even when markets began to suspect that the Fed might raise rates, the Dow Jones headed down. As early as August, when it seemed that the Fed might raise rates at its September meeting, the DJIA began to fall. The Fed chickened out in September, but eventually followed through in December. The market subsequently had one of its worst New-Year openings in decades:

Where does the Fed go from here? It seems plausible that any additional rate cut would be seen as a sign that the economy is weakening. Which could itself cause deflation. On the other hand, an additional rate hike would cause deflation as well, for other reasons.

Bank of Japan Goes Negative, "Strong Dollar" Surges

In a surprise move, the Bank of Japan announced last night that it would employ negative interest rate policy for the first time in its history.

The formula for this is rather complex. It's based on interest for bank reserves held with the central bank, and it seems that only new deposits will be charged the negative rate.
We're not talking about a straightforward single rate on overnight lending, as is the case for say, the federal funds rate in the US, or the overnight rate in Canada.

Naturally, the dollar has surged compared to the yen, and the dollar continues to look like a safe haven by comparison. But only by comparison, of course, since central banks, partly due to collaboration, and partly due to internal politics, are engaged in a race to the bottom.

Japan has long been leading the race to the bottom, however, since its overnight rate (the Mutan rate) has been under one percent since about 1996:


It's been pretty close to zero most of the time since 1999. (Since I can't find a good source for historical targets, this graph is not of target rates. Its of observed rates, which nevertheless reflect the target rates.)

The observed rate over the past five years has been around 0.06% to 0.09%.  (Not to be confused with 0.6% to 0.9%).

The target rate has been at 0.1% since 2009, and thus less than half of the US target rate (0.25) during that time. The sheer length of time that the rate has remained near zero is what's especially notable, however. (Graph from this source.)


Following the gospel that 2% price inflation will solve one's economic problems, the BOJ has been desperate to get price inflation up above zero, where it has usually been for the past decade, except for a surge in late 2014 and early 2015 as Abenomics intensified

The Japanese economy has continued to weaken, and apparently things have been bad enough to cause the BOJ to follow in the footsteps of the European Central Bank, and do "whatever it takes."