House Price Bubbles And Buyer Overconfidence

An Extrapolative Model of House Price Dynamics:

A modest approximation by homebuyers leads house prices to display three features that are present in the data but usually missing from perfectly rational models: momentum at one-year horizons, mean reversion at five-year horizons, and excess longer-term volatility relative to fundamentals. Valuing a house involves forecasting the current and future demand to live in the surrounding area. Buyers forecast using past transaction prices. Approximating buyers do not adjust for the expectations of past buyers, and instead assume that past prices reflect only contemporaneous demand, as with a capitalization rate formula. Consistent with survey evidence, this approximation leads buyers to expect increases in the market value of their homes after recent house price increases, to fail to anticipate the price busts that follow booms, and to be overconfident in their assessments of the housing market.

U.S. State Unemployment Rates In February 2015

In February, the unemployment rate decreased in 26 U.S. states, increased in 6 states, and was unchanged in 18 states.

The unemployment rate is higher than a year ago in 4 states: Louisiana (6.7% vs 5.4%), South Carolina (6.6% vs 6.1%), Tennessee (6.6% vs 6.5%), and North Dakota (2.9% vs 2.7%).

Recall that the national jobless rate in February was 5.5%.

State Unemployment Rates

U.S. Q4 2014 GDP Revisions Keep Growth At 2.2%

Real gross domestic product increased at a seasonally adjusted annual rate of 2.2% in the fourth quarter of 2014, the U.S. BEA published this morning. This was the third estimate for Q4, and the headline figure is essentially unchanged from the prior estimate. The GDP growth rate in Q3 was 5.0% annualized.

Components of GDP by their contributions to GDP growth in Q4:

  • Personal consumption expenditures: +2.98%
  • Private investment: +0.61%
  • Net Exports: -1.03%
  • Government Consumption: -0.35%

GDP Components

Nominal GDP was at an annualized $17.7037 trillion in Q4, while real (inflation adjusted, 2009 chained) GDP was $16.2947 trillion.

Nominal GDP

Real GDP was up 2.4% from Q4 2013.

GDP Annual

Weekly Initial Jobless Claims At 282k

U.S. initial jobless claims for the week ending March 21 were a seasonally adjusted 282k, down from the prior week’s revised reading of 291k. Not seasonally adjusted, jobless claims for the week were 247k.

Jobless Claims

Individual states that had changes in claims of more than 1k (not seasonally adjusted):


The 4-week moving average of initial jobless claims was 297k.

Jobless Claims 4W

The number of unemployment insurance recipients, or continuing claims, for regular state programs was 2.416 million, down from the previous week’s revised reading of 2.422 million.

UI Recipients

The insured unemployment rate, which is the number of unemployment insurance recipients as a share of covered employment, was 1.81%, down from 1.82% the week prior.

Insured Unemployment Rate

89.95% of all U.S. jobs are covered by state unemployment insurance programs.

Covered Employment

Of the 8.705 million Americans currently unemployed, 27.75% receive unemployment insurance.

UI Recipients Share

Jobless claims and the unemployment rate:

Labor Market

U.S. Vehicle Miles Driven Surge In January

Total distance traveled by vehicles on all U.S. roads and streets were an estimated 237.3 billion miles in January, the Department of Transportation reports. This is a 4.9% increase from the 226.3 billion miles traveled in January 2014.

Miles Driven Change

The rolling 12 month total of vehicle miles driven was 3.049 trillion miles. This is a milestone, as it is the first month that the figure was greater than the prior peak of 3.039 trillion miles driven in November of 2007.

Miles Driven Peak

Miles Driven

The rolling 12 month total of vehicle miles driven per capita was 12.21 thousand. That is down 7.6% from the June 2005 high of 13.22 thousand miles per capita.

Miles Driven per Capita

The map from the release shows that, year over year, travel increased in all 5 U.S. regions in January.

Miles Map

U.S. Consumer Price Index Ticks Up In February After 3 Months Of Decline

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in February on a seasonally adjusted basis, as reported by the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index has decreased 0.1%.

The core CPI, which excludes food and energy, was up 0.2% in February and is up 1.7% year over year.

CPI Monthly

CPI Annual

The All Food index was up 0.2% in February and is up 3.0% from a year ago. The All Energy index increased 1.0% and is down 18.9% from a year ago.

CPI Table

CPI Historical

The Producer Price Index for final demand decreased 0.5% in February, seasonally adjusted. The index for final demand decreased 0.7% for the 12 months ended in February.

The core PPI, which excludes food and energy, decreased 0.5% and is up 1.0% from a year ago.

PPI Monthly

PPI Annual

U.S. New Home Sales At Annual Rate Of 539k In February

U.S. new home sales in February were at a seasonally adjusted annual rate of 539k. That is up 7.8% from January’s revised rate of 500k. The national rate of new home sales in February was up 24.8% from a year ago.

New Home Sales Change

New Home Sales

New home sales by region, seasonally adjusted annual rate, in February:

  • Northeast: 43k from 17k last month.
  • Midwest: 54k from 62k last month.
  • South: 316k from 287k last month.
  • West: 126k from 134k last month.

New Home Sales Regions

The median sales price of new houses sold in February was $275.5k, down from $289.4k in January.

New Home Sales Price Change

New Home Sales Price

The seasonally adjusted estimate of new houses for sale at the end of February was 210k. This represents a supply of 4.7 months at the current sales rate.

New Home Sales Months Supply

New and existing home sales:

US Home Sales