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." 

Wednesday, January 27, 2016

Bankruptcy cases hit nine-year low in Colorado in December 2015

According to the US Bankruptcy court in Colorado, Bankruptcy filings in Colorado fell to a nine-year low in December 2015,  the lowest level recorded since January of 2007. During December 2015 there were 844 bankruptcy filings in Colorado.  During January 2007, there were 807.

Bankruptcies in Colorado have been generally declining since 2010:

The year-over-year declines have ranged from negative 10 percent to negative 20 percent in most months. Over the past year, changes have remained within this range suggesting little change to the current trend at the moment. during December 2015, bankruptcy filings were down 23.8 percent from December 2014.

It is also notable that December 2015 showed the lowest December total in ten years, coming in below December 2006's total of 874:

With such low interest rates in recent years, and thus, debt so very cheap, it has been easier for both businesses and consumers to stay ahead on their debt service and avoid bankruptcy. debt so very cheap.  We see t his reflected here, and, of course, continued improvement in the job market has helped keep bankruptcies down as well. 

Thursday, January 14, 2016

How important is Cattle Ranching in the West?

As I am smart enough to not express any opinion here about the current protests being staged by cattle ranchers in Oregon, I thought it might nevertheless be helpful, or at least interesting, to look at how much of the cattle industry is located in Western states (including Colorado) and how central it is to the local economies. 

After a little examination, it seems that beef cattle are really a quite small part of the Colorado economy, and the Rocky Mountain economy overall. In Colorado, for example, agriculture overall "comprises only 1 percent of production and less than 2 percent of jobs." Of that one percent, ranching comprises around 60 percent. This means that cattle ranching is well under one percent of Colorado's economy. Ranching could completely disappear from Colorado and our economy would certainly not collapse. Among Western states, Montana, by far, has the largest agriculture sector at 5.7 percent of GDP, according to the Bureau of Economic Analysis. All other Western states come in around 2 percent or less. Contrary to the mythology, the economy of the American West is centered on the cities. 

Also notable, however, is the fact that, in spite of the stories we're told of how "the West" is the home of the cowboy, there are relatively few beef cattle West of Kansas.

If we include states like Texas, Nebraska, and Kansas in our definition of "the West," though, yes, there are a lot of beef cattle in the West. But, if we limit our view of the West to the West Coast and the Rocky Mountain region, things are rather different.

This distinction is also important due to the debate over the use of federal lands. Only the states west of Kansas have large amounts of federal land:

This map, provided by, gives us a sense of the where the cows are in the United States:

This map, however, somewhat misses the mark for what we want. It includes all cattle and calves. We want to know about beef cattle, which excludes dairy cows that do not forage the way beef cows do. If we take the data from the 2012 USDA Census and look only at beef cattle, here are the states ranked by totals:

Among the top states, only Montana makes it into the top ten, and that is largely a function of Montana's immense size — it's the fourth largest state by area. 

But, the cattle ranching heartland is most certainly not in the states with large amounts of federal land. The industry is centered around Texas, Nebraska, and Oklahoma. In fact, those three states alone contain 26 percent of all beef cows in the US. Texas alone contains 15 percent of all beef cattle. 

If we look at the number of beef cows per square mile, we see that the West is even less important. Here, I've looked at total beef cows per state compared to total land area: 

In this case, Montana comes in at 19th, well behind numerous prairie states, and even some southern states. In fact, if you want to see a cowboy rounding up cows, you'd be better off visiting Kentucky, Missouri or Iowa, than Colorado or Oregon. 

The vast majority of beef cattle production (i.e., 80 percent) in the United States occurs nowhere near federal grazing lands, and even the beef production that does occur in those states is not necessarily dependent on federal grazing. 

Now, if we think about it, this distribution should not surprise us at all. Cows are not well suited to the high-altitude and arid lands of the West, and it makes more sense to raise beef in areas where water and pasture are more readily available. 

Wednesday, January 6, 2016

Colorado among states with largest population growth and in-migration from other states

Last week, the Census Bureau released new numbers on state population growth. If we map the year-over-year population growth rates, it looks like this:

Here, we note that population growth is weak in the Northeast and much of the Midwest, while it is stronger in the South and the non-California West.

Driven by a flight to oil jobs in North Dakota, the growth in ND topped the list with 2.2 percent growth, or 16,800 new residents, which is a lot for a state with fewer than a million people. Colorado gained 100,900 new residents to add to its 5.3 million people in 2014. Meanwhile, New Mexico, Mississippi, Maine, Connecticut, Vermont, Illinois, and West Virginia all lost residents. New York was 16th from the bottom and added only 46,900 residents to its population of more than 19 million.

The Wall Street Journal examined these trends in light of future likely changes to the electoral college. These trends will help states like Texas, Florida, and the Western US gain in influence in national politics.

However, when it comes to looking at whether or not people are moving from other states to these places, this map can be misleading.

In-Migration from Foreign Countries 

Many states with some of the largest population gains over the past year have been gaining population from foreign areas. Among people who were already American residents last year, the first map actually overstates the extent to which people have migrated from other states. Indeed, California, New York, Texas, Massachusetts, and Florida are all being propped up in population growth via foreign in-migration.  If we check the Census Bureau's new data from September 2015 on in-migration from foreign areas, the map looks quite different:

In terms of new residents from foreign countries, Massachusetts tops the list with nearly one in one hundred Massachusetts residents having lived in a foreign country just one year ago. Washington State is close behind, and we can note that Texas, California, Florida, and Virginia growth rates are all fairly dependent on in-migration from outside the US.

Will new immigrants from foreign countries stay put in their initial state of residence? This map suggests that, at least for first generation immigrants, they will. There are many reasons for this, including the fact that the foreign born often like to stay near communities that include other foreign born residents. By the second generation, however, the incentives to stay near immigrant enclaves gives way to incentives to migrate to states with freer economies and more economic opportunities.

State-to-State Migration

If we look just at in-migration from other states (again, from September 2015), we find that California, New York, Texas, New Jersey, Pennsylvania, Illinois, and the Great Lakes area in general have attracted relatively few migrants from other states.

The most attractive areas have been the more rural areas of New England, the Carolinas, and the West, not including California or Texas. If it weren't for foreign migration, much of the North would have flat or negative growth rates:

In some areas, much of this has been driven by a boom in oil jobs, and workers have relocated to states that offer the relatively-high wages that oil-extraction jobs offer.

In North Dakota, for example, more than 5.3 percent of the population lived in a different state a year earlier. Alaska was similar with a rate of 5.2 percent coming from out of state over the past year. Idaho, Hawaii, Nevada, Wyoming, and Colorado all also showed more than 4 percent of their populations coming from other states over the past year. In California and New York, however, only 1.3 percent of residents had recently arrived from out of state. In Texas, 2.0 percent had recently arrived.

This also follows a longer trend in which Americans have been moving from the old population core of the Midwest and Northwest, and been moving South and West.

Monday, January 4, 2016

In terms of homicide, Colorado among the safest places in North America

As I explained here, I think it's useless to speak of indicators like poverty or homicide in terms of a huge place like the US or Mexico. Regional differences are so large, and so many demographic variables are different form place to place, that it's useless and even dishonest to make such comparisons.

So, I prefer to look at things at the state level, or preferably at the metropolitan-area level, if the data is available.

People often speak of the US homicide rate as being unusually high, but that really relies on a couple of mistakes in examining the data. First, those who say such things usually make the arbitrary choice of excluding any country in the analysis except the so-called "developed countries" by which they really mean Western Europe. To do this, of course, excludes a huge portion of humanity, and there's no reason why a country not currently at war, like Brazil or Russia, for example, should be excluded from the analysis. (Both have much higher homicide rates than "the US," by the way) The other mistake is to compare a country the size of Finland (with 5 millions people in essentially one metropolitan area) to the United States with 320 millions people and dozens of large metro areas.

So, if we drill down a bit more, we see quickly that high homicide rates are really a regional issue in the United States, and not a nationwide issue. Let's look at both the US and Canada together:

We quickly find that the Northern US is quite comparable to Canada, which has a reputation for being remarkably safe. . And we also see that Colorado is in the second-to-lowest —low being good— category for homicide rates.

According to 2014 FBI homicide data, Colorado has a rate of 2.8 per 100,000. That puts it about equal with Alberta at 2.52 per 100,000 and Wyoming at 2.7 per 100,000. The lowest homicide rates in the nation was in New Hampshire with a rate of 0.9, and the highest was in Louisiana at 10.3. In Canada, there was a much smaller spread with the lowest rate found in Quebec at 0.86, and the highest was in the far north where homicide rates among the small populations there exceeded 10 per 100,000 in Nunavut and 8 per 100,000 in the Yukon.

The chart shows a more exact comparison among the states and provinces (Canadian provinces in red):

Moreover, we might note that Colorado is also among the safest places in the Western Hemisphere since homicide rates in the Caribbean and South America tend to be much higher than even the American South.