Mish's Global Economic Trend Analysis

Japan GDP Plunges 6.8%, Consumption Down 19.2%, Private Investment Down 9.7%

Posted: 12 Aug 2014 09:22 PM PDT

In the wake of an inane sales tax hike Japan's GDP Shrinks 6.8%, Most Since 2011

Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent.

"The probability is high that the July-September quarter will see a rebound," said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. "But the fall in real incomes and weakness in production could weigh on the recovery."

The contraction followed a surge in growth in the three months through March when consumers and companies rushed to make purchases before the tax rose. Abe is striving to sustain a recovery after initial success in fighting off two decades of economic stagnation.

Household consumption plummeted at an annualized pace of 19.2 percent from the previous quarter, while private investment sank 9.7 percent, highlighting the damage to demand by the 3 percentage point increase in the levy.

The higher sales tax hit consumers who've seen little growth in incomes and rising costs of living as the Bank of Japan stokes inflation with unprecedented easing. Consumer prices rose 3.6 percent in June from a year earlier -- nine times the increase in total cash earnings -- with food prices climbing 5.1 percent.

Imports tumbled an annualized 20.5 percent while exports fell 1.8 percent. That's sapping the manufacturing sector and shows the yen's 16 percent drop against the dollar over Abe's term has yet to drive outbound shipments.

The windfall in corporate profits that the weaker yen delivered to many Japanese manufacturers last year also shows signs of fading.

"Price increases are spreading," said Koya Miyamae, senior economist at SMBC Nikko Securities Inc. in Tokyo. "It's highly likely the government will declare Japan is out of deflation this year before making a decision on the next sales-tax hike."

Hooray!

Prices are up 3.6% (nine times earnings), spending is down, exports are down, corporate profits fading, food prices up 5.1%. but other than that, Abenomics is a glowing success.

Please look on the bright side: Japanese consumers have to pay more for goods than their salaries have gone up.

As idiotic as that sounds, it is exactly what Japan wants, until this blows up in Japan's face.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

First-Time Home Buyer Dilemma: Overpay or Be Shut Out; Home "Ownership" Slavery

Posted: 12 Aug 2014 11:57 AM PDT

Supply of homes at the bottom-third of the market is down 17 percent from a year ago.

Meanwhile the top-third home supply is up 15 percent while the middle is up a modest 3 percent according to Redfin.

The bottom third is anything priced below $198,000.

But $150,000 or $200,000 does not buy in terms of size and location what it did just a few years ago.

Overpay or Be Shut Out

So once again, first-time buyers face the question "overpay or be shut out?" And once again it appears many make a very poor choice.

Bloomberg has some examples in First-Time Buyers Shut Out of Expanding U.S. Home Supply.

The four-bedroom house that Ilia Nielsen-Dembe purchased in west Denver earlier this year wasn't her top choice. The first-time buyer had to settle on a home in a neighborhood with a high crime rate after losing out on bids for five properties in more desirable areas.

"I definitely sacrificed in terms of location," said Nielsen-Dembe, 33, who lives with her husband and two daughters in the house she bought in April for $184,500. "I had to cross streets that were not ideal in order to get a house."

In Denver, entry-level listings in June were down 51 percent from a year earlier, while the upper-end supply was up 4 percent, according to Redfin. Austin, Texas, inventory jumped 14 percent in the top third of the market and fell 34 percent at the bottom. In Atlanta, where Wall Street-backed investors descended to buy homes to turn into rentals, low-end supply declined 13 percent. Top-third listings rose 18 percent.

Sharlene Hensrud, a Realtor with Re/Max Results in Plymouth, Minnesota, said buyers of cheaper homes have had to adjust expectations because the bargains have been picked over.

She recently took a couple on a tour of homes for about $140,000 and said they were quickly discouraged that a one-bedroom, one-bath house with no garage was all they could afford. A few years ago, a three-bedroom property would have been in their range, Hensrud said.

Some properties aren't available because homebuyers are taking advantage of the strong rental market and leasing out their previous homes.

Others who want to list their houses can't. Owners of inexpensive houses are three times more likely than those with costly homes to owe more than their property is worth, according to Zillow (Z) Inc. About a third of mortgaged homes in the bottom price tier were in negative equity in the first quarter, compared with 18 percent in the middle and 11 percent at the top, Zillow data show.

New Homes

First-time purchasers accounted for 28 percent of all sales of previously owned homes in June, down from about 40 percent historically, according to NAR.

The contrast is starker in the new-housing market, where homebuilders are focusing on move-up buyers. In May, homebuilders reported that only 16 percent of new-home purchases were made by first-time buyers, the lowest in 15 years of data, according to David Crowe, chief economist for the Washington-based National Association of Homebuilders. That's further limiting supply as builders shift away from constructing entry-level homes.

Tight credit has made it more difficult for young buyers, who have relatively high unemployment, weak wage growth and lower credit scores, Crowe said.

Nielsen-Dembe, a nursing assistant who took on two full-time jobs to qualify for her mortgage, said she wanted to buy because she was tired of the relatively high costs of renting. She expected getting financing to be her biggest challenge.

Instead, she struggled with finding a single-family home in her price range. It took six months because of heated competition. Three of the houses she bid on went instead to cash buyers.

Sleep Math

Nielsen-Dembe took on two full-time jobs to buy a home in a high-crime neighborhood, admitting "I had to cross streets that were not ideal in order to get a house."

If those are 8-hours-a-day jobs, assuming a half-hour commute each way to one of the jobs, no commute to the other job, and a 1 hour lunch break for each job, on many days, she will get to spend a mere 5 hours a day in the house, to sleep. If those are 7-hours-a-day jobs, she will get 7 hours of sleep.

Is this owning a home or being slave to the home?

Questions

What happens if you lose one of those two jobs? What happens if prices tumble again? Will you be able to sell and move? Or will you be stuck in a bad neighborhood like others who are underwater, hoping to one day list their house for what they paid? Is free time worth nothing?

Unfortunately, such questions are far too late for Nielsen-Dembe. They are not too late for others facing the dilemma "Overpay or Be Shut Out?"

It's Already Too Late

If you face the overpay question, especially for homes in undesirable neighborhoods, please consider "It's Too Late" before you act.

There really is no dilemma, is there? Rather, we see the same "act now before it's too late" mentality taking hold.

For many, I suspect this will end similar to how it ended the last time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Tuesday, August 12, 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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