Tuesday, May 19, 2015

Colorado and "Greater Texas"

Back in 1992, Carl Abbott published a nice little book called The Metropolitan Frontier: Cities in the Modern American West. It covers the development of cities in the American west since the 1940s. One of the interesting concepts Abbott discusses (on page 160) is "greater Texas."

It's always been true that the United States has been a collection of economic regions rather than a single economy. If Colorado's economy were cut off from Mexico and Canada, it would probably suffer more than if it were cut off from New England. This is because the transportation lines and metropolitan economic system on which we rely point more west and south than they do north and east. Moreover, there is an economic affinity between metros in Colorado and the financial and oil-economy centers of Texas.

In the map below -from Abbott's book- we find this metropolitan network which works it's way up from Houston, through Dallas-Ft Worth, and up to Denver. We encounter this every time we deal with a real estate developer or oil company from Texas. According to Abbot (and according to Nash and Etulain also) this is a well-developed economic habit. 

Friday, May 15, 2015

Was the 2009 jobs bust worse than the 1980s bust in Colorado?

Many people are familiar with this graph from Calculated Risk:

Basically, it shows the number of months it took the job market to return to its previous peak.

I couldn't find a similar one for Colorado, so I created a couple myself. See below.

The first graph uses the Household Survey which measures employment by asking a sample of people if they want to be employed and if they are employed. So, this is a measure of the number of employed persons. I've simply indexed total employed persons as measured from peak to peak. Also, we only have data going back to 1976, so there are fewer recessions to measure here:

We can see that by this measure, the 1991 and 2001 recessions were over quickly, in terms of jobs. In fact, one could argue that the 1991 job losses were cyclical and show no recession at all.

On the other hand, the 1984 to 1988 job losses were very bad, and we find there a full 60 months needed for recovery. That's five years of lost jobs. Everyone who knows Colorado economics history knows the second half of the 80s were not good economically, so this probably won't come as a big surprise. Foreclosures were rampant, and the state actually had zero net population growth in 1990, as a result.

Interestingly, job losses that followed the 2008 financial crises were similar, and also took 60 months to recover. But, given that some of the troughs reached during the 1980s bust were deeper than the most jobs recession, one could argue that the 1980s were worse.

There are two measures of unemployment, however. The Establishment Survey shows different results since it measures the number of payroll jobs at larger employers, and not the number of persons employed.

In this case, the 1991 recession was so tiny as to not even be worth plotting on the graph. With payroll jobs, the 1980s bust was over (in terms of payroll jobs) in three years, instead of five. In this case, the 2001 recession was much worse than in the Household survey, and it took about 55 months for jobs to return to peak levels. The 2008-2013 jobs recession was the worst in this measure, and it took 58 months for jobs to return to peak in that case.

Why such a big difference in the 2001 recession? The data here tells us that the number of people employed returned quickly to peak levels and payroll employment struggled. This suggests that people during that period were employed somewhere, but not at major employers, and they were likely taking pay cuts and working fewer hours (i.e., they became part-time workers). But they were employed.

In the 1980s, we see the opposite, where payroll employment recovered faster than in the Household survey. In this case, we might guess that some people were taking on extra work at multiple employers (thus driving up total payroll employment) while many other people were still unable to find employment at all.

In both cases, however, the jobs situation after 2008 was pretty grim, with both payroll employment and persons employed taking at least 58 months to recover.

To answer the question in the title of this article, we could look at many other things, such as the total number of persons who were unemployed, versus the depth of wage cuts, and the other variables. Naturally, the definition of "worse" could vary as well.

But, speaking casually, we might be able to say seriously that the jobs situation of the 1980s was not worse than the post 2008 situation. If felt worse according to many people, and this may be due to a variety of factors including the fact that the rest of the country was doing well during the period of 1984-1988, so Colorado lost a lot of its population to other states where jobs could be more easily had. After 2008, Colorado looked no worse than most other states, so population even continued to grow during the period, making the state seem less beleaguered.

Thursday, May 14, 2015

Chart of the Day: Colorado unemployment vs. US unemployment

The unemployment rate is good for basically one thing: comparing employment conditions in different markets at the same time. The unemployment rate isn't very good for comparing to the past because overall employment conditions have shifted significantly since the last expansion. The number of discouraged workers is much higher now than in, say, 2004, and the rates of under employment are higher as well. Neither of those things are really picked up in the unemployment rate, so it makes it hard to compare the present with the past.

Nevertheless, we can get a sense of how Colorado compares to the nation right now by having a look at the two rates. So here they are, and I've thrown in the past twenty years:

During March 2015, the unemployment rate in Colorado was 4.5 percent, down from 6.1 percent the previous March. Nationally, in March, the unemployment rate was 5.6 percent, down from 6.8 percent the previous March. The national rate fell further to 5.1 percent in April, but the Colorado rate is not yet available for April.

As if often the case, we see that Colorado's unemployment rate is below that of the nation, and in 2014, the Colorado rate dipped well below the US rate. This may have reflected the acceleration of the oil economy before it finally softened , and we began to see the Colorado rate inch back up. Certainly, the energy-related industries (most active in only a handful of states) have been out-performing the overall economy, and northern Colorado's oil jobs certainly are a part of that. Indeed, it was in August that the oil price really started to slip, which over time led to fewer hires in the industry and less production. And sure enough, the unemployment rate began to tick back up in December 2014.

Here's a graph of the WTI oil price:

We can also guess that a lower unemployment rate might also be impacting the larger economy. For example, the fact that metro Denver outpaced all other cities measured in the most recent Case-Shiller home price report may be partially explained by the fact that employment is relatively robust in Colorado. It also helps keep in-migration steady.

Wednesday, May 13, 2015

Chart of the Day: Case-Shiller Home Price Index surges in metro Denver in early 2015

There is reason to suspect that nationwide, home prices may be leveling out. But that certainly doesn't appear to be the case for metro Denver. In the February Case-Shiller index, released in late April, Denver showed the highest year-over-year change in the index (10%), beating out even San Francisco (9.8%). The first graph show's Denver index compared to the 20-city composite index:

It is apparent that the metro Denver index has already well-exceeded its old peak reached during 2007. In fact, the Denver index is now up 14 percent from its former peak. The 20-city index, on the other hand, is still down 16 percent from the 2006 peak.

Fluctuations in the index has generally been less severe in the Denver index than in the composite index, as can be seen in the second graph. In recent months, we see that as the composite index has moderated, the Denver index has shown an acceleration in home prices, and has even reached the largest rate of increase seen in more than a decade.

If we isolate the Denver index a little more and zoom in, we see just how much the index surged in February. The Denver index had been moderating a little, but then increased substantially from January to February.

But why is this? As mentioned in my post on single-family units, home construction in Colorado (and also metro Denver if we look at that separately (new permitting is at 1992 levels), so the continued demand of new residents and new households continues to drive the price up. Obviously, the typical household did not see a 10 percent increase in wages to match the 10 percent increase in home prices, so concerns about affordability (and bubbles) endure.

Tuesday, May 12, 2015

Chart of the Day: Rent growth hits record highs in Metro Denver

The Metro Denver Apartment Association released first quarter 2015 vacancy and rent data late last  month, and we find that year-over-year rent growth hits exceptionally high levels for the second quarter in a row. The average rent during the 1st Q 2015 was $1,203, compared to $1,073 one year earlier. During the 4th Q of 2014, the avg rent was $1,168

The first graph shows the average rent for all quarters recorded since the survey was initiated in teh early 1980s by Gordon Von Stroh. Obviously, rent growth since 2012 has been significant. If we just eyeball the graph, we can see that the rate of growth in recent years has outpaced most other periods. Even during the late 1990s during the tech boom, rent growth was not as strong as it is now. These numbers are not adjusted for inflation, and during the period from 2003 to 2009, rent barely exceeded the CPI growth rate during many periods. But, rent growth is now well in excess of CPI growth.

If we want to really quantify just how strong rent growth has been, we can look at the year-over-year change for each quarter. The next graph shows this, and we see that for the 4th Q of 2014 and the 1st Q of 2015, rent growth is the highest is has been in 30 years. During the 4th Q 2014, the YOY change was 12.19 percent, which is now the highest YOY increase ever recorded. During the 1st Q 2015, the growth rate came down slightly to 12.11 percent. But, it's a little silly to talk about these estimates out to the hundredths place, so to be more realistic, we can just say that for the past two quarters, rent growth has been tied at a record high of 12.1 percent.

And why so much rent growth? Demand is high. The vacancy rate for metro Denver during the 1st Q 2015 was 4.9 percent. That's up from the fourth quarter (which tends to be a high-vacancy quarter) but year over year, the 1st Q's vacancy rate was below 2014's 1st Q rate of 5.1 percent. For the past four quarters, the vacancy rate has been below five percent, which is quite low for this market. Looking at the past thirty years, we see that vacancy rates are near very low levels, although not where it was during the very tight late 1990s.

But if the vacancy rate is not at record low levels, why is rent growth at record high levels? Part of it is due to the fact that most of the new product is luxury or fairly high end product. (This is average rent and not median rent, so the number are skewed up slightly by very expensive new product. Median rents, however, show similar trends.) Also, with so few homes for sale due to fairly lackluster rates of new home construction and low inventory, there are few options renters have outside renting. Thus, rents continue to move upward rapidly.

Monday, May 11, 2015

Chart of the Day: Is the multifamily construction boom in Colorado tapering off?

The March totals for multifamily permits in Colorado are now available from the Dept. of Commerce.. In March 2015, there were 1,196 new multifamily units permitted. During the same month of last year, there were 1,608 units permitted, which means multifamily units were down, year over year, by 25 percent. As we can see in the first chart, multifamily construction is up considerably from where it was in 2009, and is now at about mid-90s levels, which is a pretty robust pace.

Although they has been talk of immense amounts of building, total construction may be flattening out. If we look at year over year percentage growth, we see that the change in multifamily units was either negative or at zero for eight of the last 12 months. Over the past five months, it's all been flat or downhill. 

I've reduced the time frame for a better look at the last few years in the third graph. The trend here suggests a plateau in multifam construction. Why this should be the case is not immediately obvious. Rent growth continues to be strong with first quarter rent growth some of the strongest ever recorded. On the other hand, with the market so frothy, developers may be encountering supply-side issues such as continued increases in costs and the availability of labor and material. In any case, the enormous increases in new construction seen from 2011 to 2013 appear to be over. 

Friday, May 8, 2015

Chart of the Day: Colorado bankruptcy filings down 23 percent in April

According to the Colorado District bankruptcy court, bankruptcy filings were down 22.9 percent in Colorado in April, compared to April of last year. April was the 52st month in a row during which bankruptcy filings fell year over year.

Bankruptcy filings have been generally declining since late 2009 following sharp  increases in bankruptcies from 2005 to 2009. The first graph shows trends since 2006.

The downward trend has continued into April of this year, with year over year declines still well in place. The last four months suggest that declines have moderated a little bit, but year-over-year declines are still sizable.

Comparing month to month, we also see that April 2015's total for filings is the second-lowest in nine years. So, at this point, we see no change in the filings trend.

Thursday, May 7, 2015

Chart of the Day: Singlefamily unit growth holding steady, but at fairly low levels

March 2015 data for private housing units show that, overall, housing unit production continues to climb in both singlefamily and multifamily industries. At this time, however, there is no danger of new construction reaching anything like the levels seen during the housing bubble of 2003-2007. The first graph shows the last two economic cycles in terms of new units permitted. We can see that, while numbers are up considerably since the trough in 2009, they remain at levels more comparable to the early 1990s. Of course, if we account for population size, new construction is then lower than the early 1990s in practical terms.

What do we see in terms of percentage growth? Singlefamily permit activity has largely flattened out. In January, the YOY change was negative at -4 percent, and over the past five months, growth has been under ten percent. Of course, this is still growth, so we shouldn't speak of singlefamily construction as if it has disappeared, but in a long term view, growth is fairly flat right now, and certainly, if we consider the high rates of home price growth, we can guess that the market could easily bear more home construction. So why is there so little? Uncertainty in the marketplace and among wage earners could be a factor, as might be the fact that the multifamily market is employing many of the resources that might have gone to singlefamily in a different type of market.

And speaking of multifamily units, have a look back at the first graph and note that the gap between singlefamily and multifamily units has disappeared. If you saw this and though, "gee, it looks like there are far more multifamily units — proportionally — being produced than usual," then you would be right. The last graph shows that over the past 25 years, multifamily construction has rarely been much more than 30 percent of all units. But if we look at the market since 2011, we find that this proportion is commonly over 40 percent, with even a few months reaching over 50 percent. This is a change in the general habit of the local market, and reflect nationwide changes in trends in which home ownership is falling and many households are opting for rentals for a variety of reasons.