Calculated Risk

Policy Updates: Mortgage Settlement Reached, Greek politicians agree on Debt Deal

2012-02-09T10:28:00.017-05:00

Back in January I listed several policies and agreements that were expected soon.

There were several key announcements today:

• From the WSJ: U.S., Banks Agree on Foreclosure Pact

The agreement covers five banks: Ally Financial Inc., Bank of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans ...

The agreement will include at least 49 states, and officials were finalizing a separate accord with one remaining holdout, Oklahoma.

Following this agreement, I expect the lenders to start reducing the foreclosure backlog. This will be a combination of more modifications (with principal reductions) and more foreclosures. In some states - especially judicial states like New York and Florida - this will probably lead to more REO sales (lender Real Estate Owned), but overall I don't think there will be a large flood of REOs on the market.

Here is the press release from the Dept of Justice: Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses

• From the WSJ: Greek Political Leaders Reach Austerity Deal

Leaders of political parties backing Greece's caretaker government agreed Thursday on an austerity package to comply with demands set by international creditors for another bailout deal ... Euro-zone finance ministers were set to meet here late Thursday to take stock of the latest political talks in Athens to decide whether to push ahead with new aid for Greece.

It seems likely that Greece will receive another round of financing.

• And on the ECB's 3 year Long Term Refinancing Operation (LTRO) from the Financial Times Alphaville: Here be Draghi, on ECB collateral

RTRS-DRAGHI-NEW COLLATERAL RULES WILL BE MORE RISKY

RTRS-DRAGHI=BUT RISK IS BEING MANAGED VERY WELL

RTRS-ECB’S DRAGHI – HAIRCUTS WILL REDUCE NEW COLLATERAL BY TWO-THIRDS

RTRS-ECB’s DRAGHI – EXPECT SUBSTANTIAL TAKEUP IN SECOND 3-YR TENDER, AROUND SAME AS DEC ONE

This means more collateral will be acceptable for the second LTRO on Feb 29th. The first 3 year LTRO was for €489 billion, and the second one could be over €1 trillion.

A few other policies to come:

• A surge in refinance activity in March. Not a new policy - this was announced last October when the FHFA made changes to Home Affordable Refinance Program (HARP) to allow more homeowners with GSE loans and with negative or near negative equity - and who are current on their mortgages - to refinance into lower interest rate loans. But as I mentioned in the January post, the elimination of Reps and warrants for the original loans applies to Desktop Underwriter® (DU) and that will not be updated until March.

• Extension of payroll tax cut and extended unemployment benefits: The two month extension expires Feb 29th, and I expect these two programs will be extended through the end of the year.

Weekly Initial Unemployment Claims decline to 358,000

2012-02-09T08:30:00.016-05:00

The DOL reports:

In the week ending February 4, the advance figure for seasonally adjusted initial claims was 358,000, a decrease of 15,000 from the previous week's revised figure of 373,000. The 4-week moving average was 366,250, a decrease of 11,000 from the previous week's revised average of 377,250.

The previous week was revised up to 373,000 from 367,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 366,250.

The 4-week moving average is at the lowest level since May 2008.

And here is a long term graph of weekly claims:

The 4-week average of weekly claims is still moving down and is now well below 400 thousand.

All current Employment Graphs

Zillow: House prices declined 4.7% in 2011, Forecasts 3.7% decline in 2012

2012-02-09T00:01:00.023-05:00

Another view on house prices from Zillow: Home Value Declines Pick Up in Fourth Quarter, But Zillow Forecasts Smaller Declines in 2012

The Zillow Real Estate Market Reports, released today, show home values decreased 1.1 percent from the third to the fourth quarter of 2011 to $146,900. On an annual basis, this represents a 4.7 percent decline. December’s data show that sequential improvements in year-over-year numbers have stopped, and the pace of monthly depreciation has once again picked up, with December’s monthly depreciation rate at 0.6 percent.
...
[W] believe 2012 will be a transitional year for real estate. Positive developments will include markets showing organic growth, and home sales increasing as the year proceeds. However, we maintain our forecast that home values will continue to fall in 2012, with the Zillow Home Value Forecast showing a 3.7 percent decline through December 2012.
...
Based on these forecasts, we expect more home value declines nationally in 2012. However, most markets will see improved trends over the course of the year.

And from a press release:

“While it may be disconcerting for homeowners to see values nationally fell at a fairly rapid clip at the end of last year, that trend won’t last through 2012,” said Zillow Chief Economist Dr. Stan Humphries. “The fourth quarter’s weak performance proves that pronouncements of a bottom in home values have been premature, but the good news is that 2012 will prove to be a better year than 2011. In fact, many markets show signs of a bottom this year, although a bottom may continue to elude the nation as a whole in 2012. Fortunately, against a backdrop of modest further declines in home values, we expect that home sales will pick up briskly this year as affordable prices bring more buyers to the table – especially investors and second-home buyers.”

WSJ: Mortgage Settlement could be announced Thursday, to include Florida, California, New York

2012-02-08T19:20:00.000-05:00

From the WSJ: Banks Near $25 Billion Pact on Foreclosure Probe

Government officials are on the verge of an agreement worth as much as $25 billion with five major banks ... Federal officials were planning to announce the accord Thursday morning, but the timing could yet be pushed back as some details had yet to be ironed out. Among them: the precise size of the agreement and the number and identity of participating states.
...
The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York.

All three overcame misgivings about the plan in recent days, people familiar with the situation said.

Las Vegas House sales up 12% YoY in January, Inventory off sharply

2012-02-08T16:24:00.009-05:00

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the November report, were off 61.6% from the peak according to Case-Shiller, and off 9.2% over the last year. Prices just keep falling. Sales in 2011 were at record levels, more than during the bubble, and it looks like 2012 will be an even stronger year.

From the LVGAR: GLVAR January 2012 Housing Statistics

GLVAR reported that 48,186 local properties were sold in 2011, including 38,153 single-family homes and 10,033 condominiums and townhomes. That broke GLVAR’s all-time sales record set in 2009, when it reported 46,879 total sales. In 2010, GLVAR reported 43,877 total sales.

“At the rate we’re going, 2012 has the potential to be another record sales year,” she said.

According to GLVAR, the total number of local homes, condominiums and townhomes sold in the traditionally slow sales month of January was 3,591. That’s down from 4,250 in December 2011, but up from 3,214 total sales in January 2011.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service decreased from December to January, with a total of 19,160 single-family homes listed for sale at the end of the month. That’s down 0.4 percent from 19,230 single-family homes listed for sale at the end of December and down 12.9 percent from one year ago. GLVAR reported a total of 4,133 condos and townhomes listed for sale on its MLS at the end of January. That’s up 1.8 percent from 4,061 condos and townhomes listed in December, but down 25.6 percent from one year ago.
...
In January, GLVAR reported that 52.5 percent of all existing homes sold in Southern Nevada were purchased with cash. That’s up from 50.8 percent in December. Meanwhile, 28.1 percent of all existing local homes sold during January were short sales ... Bank-owned homes accounted for 45.5 percent of all existing home sales in January, down from 46.0 percent in December 2011.

So 73.6% of the sales were distressed, and over half were purchased with cash.

One of the keys is the decline in inventory. Note that the GLVAR reports both total inventory, and inventory excluding "contingent" listings (usually short sales). Total single family inventory was down 12.9% from a year ago, and excluding contingent listings, inventory was down 35.8%!

The impact of changes in the participation rate on the unemployment rate

2012-02-08T11:27:00.026-05:00

Yesterday Goldman Goldman Sachs economist Sven Jari Stehn argued that the labor force participation rate would remain "broadly flat at 63.7% through the end of 2013". He argued there would be a cyclical boost to the participation rate this year from the recovering economy, but a structural decline in the participation rate due to demographics. (Note: some decline in the participation rate has been expected over the next couple of decades).

The updated population controls from the 2010 Census showed a higher percentage of younger and older workers compared to the prime working age group (25 to 54), and also more women (participation rate is lower for women) than originally estimated - so the aggregate participation rate is now at 63.7%. Stehn argues that structural factors alone could push the aggregate participation rate down further to 63.1% by the end of 2012, but that this will probably be offset by more people returning to the labor force as the economy recovers.

The participation rate plays a key role in calculating to unemployment rate. First a few definitions from the BLS Glossary:

• Civilian noninstitutional population: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

• Labor force: The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

• Labor force participation rate: The labor force as a percent of the civilian noninstitutional population.

• Unemployment rate: The unemployment rate represents the number unemployed as a percent of the labor force.

So a lower participation rate - with the same level of employment - would mean a lower unemployment rate.

Below is a table showing the sensitivity of the unemployment rate to three levels of the participation rate (centered around Goldman's forecast) and three rates of job creation for 2012. (note: this is mixing two different surveys - the household survey for the participation rate and unemployment rate, and the establishment survey for payroll jobs. Over time these two surveys move together, but there can be significant variability in the short run).

December 2012 Unemployment Rate based on Jobs added and Participation Rate
		Participation Rate
		63.4%	63.7%	64.0%
Jobs added per month (000s)	150	7.6%	8.0%	8.5%
	200	7.2%	7.7%	8.1%
	250	6.9%	7.3%	7.8%

If the January pace of payroll employment growth continues (around 250 thousand jobs per month), and the participation rate stays at 63.7%, then the unemployment rate could fall to 7.3% in December 2012. But even at a slower pace of payroll growth, the unemployment rate could be at or below 8% by the end of the year - unless the participation rate rises or the economy slows sharply.

The recent FOMC projections (see below) are for the unemployment rate to be in the 8.2% to 8.5% range by Q4 2012, and perhaps the FOMC was expecting the participation rate to increase this year.

If the participation rate doesn't increase, and payroll growth continues (even at 150 thousand per month), then the FOMC projections are too high. But even if the FOMC revises down their unemployment rate forecast, they will still view a 7.5% to 8% unemployment rate at the end of 2012 as unacceptably high.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate¹	2012	2013	2014
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

¹ Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

MBA: Refinance activity increases as mortgage rates fall to record low

2012-02-08T08:33:00.013-05:00

From the MBA: Refinance Activity Increases as Rates Hit Survey Lows

The Refinance Index increased 9.4 percent from the previous week. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05 percent, the lowest rate in the history of the survey, from 4.09 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500)decreased to 4.29 percent, the lowest rate in the history of the survey, from 4.33 percent ...

The purchase index is still moving sideways at a very low level, but I expect the changes to HARP to lead to a surge in refinance activity in March.

Greece Update: ECB to make a contribution

2012-02-07T20:38:00.000-05:00

From the WSJ: Concession Smooths Way Toward a Greek Debt Deal

The European Central Bank has made key concessions over its holdings of Greek government bonds ... The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value ...

The idea is for the ECB, in effect, to exchange its Greek bonds for bonds of the European Financial Stability Facility ... The EFSF ... will return the bonds to Greece, and Greece will then agree to repay the EFSF for the price at which the fund bought the bonds from the ECB ... officials said the ECB's concessions could contribute a maximum €11 billion to fill a gap estimated at some €15 billion

The ECB would break even, or might even make a small profit on the transaction. A similar plan would probably help Portugal and Ireland too.

From the Financial Times: Greece misses bail-out deadline

Greece missed another deadline ... on Tuesday night ... [Prime Minister] Lucas Papademos ... would hold the talks on Wednesday morning and expected a deal to be presented for approval at a meeting of eurozone finance ministers later in the week.
excerpt with permission

I still think a deal is likely.

NY AG cancels statement on Mortgage Settlement

2012-02-07T18:08:00.000-05:00

From MarketWatch: New York AG cancels bank settlement statement

New York Attorney General Eric Schneiderman late Tuesday postponed a much anticipated conference call with reporters that was set up to announce whether the state would participate in broad a settlement with five big banks over foreclosure practices.

Uh, never mind.

Mortgage Settlement: NY AG to make statement at 6 PM ET

2012-02-07T15:52:00.002-05:00

From Diana Olick at CNBC (video at 4:30): New York state Attorney General Eric Schneiderman will make a statement at 6 PM ET.

Olick speculates that if Schneiderman announces New York is joining the settlement that that might mean he has to drop the suit against MERS that was recently filed.

Update: From Bloomberg: States With Highest Foreclosure Rates Among Bank Deal Holdouts

California, New York, Nevada, Florida and Massachusetts are among the handful of states that haven’t signed a deal with banks over foreclosure abuses ... California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been some of the most outspoken in pushing for changes to the deal, were among those who hadn’t joined as of yesterday’s deadline.
...
Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last-minute demand that New York drop claims filed against them Feb. 3 as a condition of the foreclosure settlement ... The push by the three banks raised an obstacle in getting Schneiderman’s support for the deal, said the person.

Goldman: No Labor Force Participation Rebound in Sight

2012-02-07T13:24:00.000-05:00

In a research note released last night, Goldman Sachs economist Sven Jari Stehn looked at the population revisions from the 2010 Census and argued that there is "No Labor Force Participation Rebound in Sight".

This is a key point. Some of the recent decline in the participation rate was expected due to demographics (mostly aging of the population), but most analysts expected some rebound in the participation rate this year as the economy (hopefully) improves. Goldman is now expecting the participation rate to stay flat through 2013.

From Stehn:

The demographic structure of the population matters because participation follows a distinct life cycle: it rises with age as teens enter the labor force, reaches a plateau between ages 25 and 55, and falls sharply thereafter due to retirement. Moreover, participation is higher for prime-age men than women, mostly due to child bearing. This life-cycle pattern can be seen by splitting the working-age population into four groups: young individuals (aged 16-24 years), prime-age men (25-54), prime-age women (25-54), and older individuals (55+). Specifically, in 2011 prime-aged individuals had much higher participation rates (89% for men, 75% for women) than young (at 55%) or older individuals (at 40%). The updated population controls from the 2010 Census revealed an increase in young and older workers relative to prime-age ones, pushing down the estimate for the aggregate participation rate.
...
[O]ur model suggests that the participation rate will remain broadly flat at 63.7% through the end of 2013

This is very important. Although I expect the participation rate to decline over the next couple of decades as the population ages, I thought the participation rate would rise a little in 2012. If the participation rate stays steady at 63.7%, then the unemployment rate would fall quicker than I had expected (and possibly quicker than the Fed expected too). I'll add some calculations later.

This is a reminder that we can't just look at the participation rate and the overall employment-population ratio (the ratio of employed to over 16 population).

Click on graph for larger image.

During this period of a significant shift in demographics, it helps to look at the employment-population ratio for the prime working age group (25 to 54 years old). This leaves out most changes in demographics, although there are more women than originally thought, so that impacts this ratio too.

For this key demographic, it appears the employment situation for men is improving a little, but the employment situation for women is still lagging behind.

BLS: Job Openings increased in December

2012-02-07T10:12:00.000-05:00

From the BLS: Job Openings and Labor Turnover Summary

There were 3.4 million job openings on the last business day of December, up from 3.1 million in November, the U.S. Bureau of Labor Statistics reported today.
...
Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the number of job openings has increased 39 percent since the end of the recession in June 2009.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December, the most recent employment report was for January.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in December, and the number of job openings (yellow) has generally been trending up, and are up about 15% year-over-year compared to December 2010.

Quits declined slightly in December, but have mostly been trending up - quits are now up about 5% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs

Short Sales: $35 Thousand Cash-for-keys

2012-02-07T08:51:00.000-05:00

Here is a serious incentive to do a short sale ... from Bloomberg: Banks Paying U.S. Homeowners to Avoid Foreclosures(ht Mike in Long Island)

Banks ... are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.
...
Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.
...
Farley ... said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 -- about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home. Farley, who is also approved for an additional $3,000 through a federal incentive program, is scheduled to close the deal Feb. 10.
...
JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Unfortunately it seems there are still many suspicious short sales. It is common to see a home initially listed as "contingent" or "pending" at a price well below market - meaning the agent or seller already had a buyer lined up. If the banks are paying an incentive for those deals, they are losing twice!

Mortgage Settlement: More than 40 states have agreed

2012-02-06T22:12:00.000-05:00

But none of the key holdout states have signed on yet ...

From Bloomberg: Mortgage Accord Has More Than 40 States Signed On, Iowa Says

More than 40 states have signed on to a settlement over mortgage-servicing practices ... This enables us to move forward into the very final stages of remaining work,” Iowa Attorney General Tom Miller said in a statement today ...

Nevada Attorney General Catherine Cortez Masto said today she wouldn’t decide whether to sign in time for the deadline, which was extended by the parties from Feb. 3. ... Masto said in a statement she was reviewing the settlement and “advocating for improvements to address Nevada’s needs.”

Makes me wonder: Will the Greek debt deal or the mortgage servicer settlement be announced first (or collapse first)?

Existing Home Inventory declines 21% year-over-year in early February

2012-02-06T16:58:00.000-05:00

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for monthly inventory (54 metro areas), listed inventory is probably back to early 2005 levels. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through December (left axis) and the HousingTracker data for the 54 metro areas through February.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

Seasonally housing inventory usually bottoms in December and January and then starts to increase again in February. So inventory should increase over the next 6 months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the February listings - for the 54 metro areas - declined 21% from the same month last year. The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels. Also if there is an increase in foreclosures (as expected), this will give some boost to listed inventory.

This is just inventory listed for sale, sometimes referred to as "visible inventory". There is also a large "shadow inventory" that is currently not on the market, but is expected to be listed in the next few years.

However listed inventory has clearly declined in many areas. And it is the listed months-of-supply (6.2 months as of December) combined with the number of distressed sales that mostly impacts prices.
All current existing home sales graphs

Housing: The Two Bottoms

2012-02-06T14:47:00.040-05:00

After my post this morning, The Housing Bottom is Here I was asked to update two graphs from 2009.

It is worth repeating: There are usually two bottoms for housing, the first for new home sales, housing starts and residential investment. The second bottom will be for house prices.

For the first bottom, we have several possible measures - the following graph shows three of the most commonly used: Starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011.

We could use any of these three measures to determine the first bottom, and then use the other two to confirm the bottom. But this says nothing about prices.

The second graph compares RI as a percent of GDP with the real Case-Shiller National house price index through Q3 2011. Prices continued to fall in Q4 and probably into 2012 too.

Although the Case-Shiller data only goes back to 1987, look at what happened following the early '90s housing bust. RI as a percent of GDP bottomed in Q1 1991, but real house prices didn't bottom until Q4 1996 - more than 5 years later!

Something similar will most likely happen again. But note this is REAL prices (adjusted for inflation). If the current price pattern follows the previous bust, real prices will gradually decline for a few years - however most homeowners care about nominal prices, and there is a good chance nominal Not Seasonally Adjusted (NSA) national prices will bottom in March - and then start moving mostly sideways.

No one has a crystal ball, and I provided the reasons for this forecast in the previous post.

The Housing Bottom is Here

2012-02-06T12:13:00.035-05:00

There have been some recent articles arguing the “housing bottom is nowhere in sight”. That isn’t my view.

First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.

For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a “bottom” for housing, we need to be clear on what we mean.

Click on graph for larger image.

For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.

As the first graph shows, housing starts, both total and single family, bottomed in 2009 and have mostly moved sideways since then - with some distortions due to the ill-conceived housing tax credit.

New Home sales probably bottomed in mid-2010 and have flat lined since then.

Back in 2009, when I first wrote about the two bottoms, I thought we were close on housing starts and new home sales - but that it was "way too early to try to call the bottom in prices." In real terms, house prices have fallen another 10% to 15% since I wrote that post according to the CoreLogic and Case-Shiller house price indexes.

And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.

The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November - so it is a report for several months ago. The CoreLogic index is a little more current - the recent release was for December, and CoreLogic uses a weighted average for prices (December weighted the most) - but that is still quite a lag.

Both of those indexes will bottom seasonally around March, and then start increasing again.

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).

Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties - especially some states with a judicial foreclosure process - will probably see further price declines.

And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.

But most homeowners and home buyers focus on nominal prices and there is reasonable chance that the bottom is here.

CRE: Another Half Off Sale

2012-02-06T08:52:00.000-05:00

Just a reminder that there are still quite a few commercial real estate (CRE) properties that are deep underwater:

From Bloomberg: Atlanta BofA Tower Auction Highlights Foreclosures (ht Mike In Long Island)

Atlanta’s 55-story Bank of America Plaza, the tallest tower in the Southeast, is set to be sold at an open outcry auction on the steps of the Fulton County Courthouse tomorrow after landlord BentleyForbes missed mortgage payments. It bought the skyscraper in 2006 for $436 million ... the 1.25 million-square-foot building has lost 54 percent of its value ...

The $363 million Bank of America Plaza loan became delinquent in December ... was appraised in March at $202 million

“We’re hitting a tremendous amount of that debt coming due,” William Yowell, a vice chairman with CBRE Group Inc. in Atlanta, said in a telephone interview. That will cause “more distressed assets that come to market this year” and may lower the price per square foot on buildings, he said.

NY Times: California might join mortgage settlement

2012-02-05T23:01:00.000-05:00

From the NY Times: Deal Is Closer for a U.S. Plan on Mortgage Relief

With a deadline looming on Monday for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from crucial states that would significantly expand the breadth of the deal.

The biggest remaining holdout, California, has returned to the negotiating table ... in the last few days, differences have narrowed in negotiations that one participant described as round the clock, with California officials in direct communication with bank representatives for the first time in months. ... Officials involved in the negotiations cautioned that broader state support could still be days away.

I expect most states (if not all) to join the settlement.

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

Greek talks end without agreement, will meet again on Monday

2012-02-05T15:06:00.000-05:00

From the Athens News: Lengthy and difficult negotiations

A five-hour meeting between prime minister Lucas Papademos and the leaders of the three parties supporting the government ended without agreement on Sunday.

Pasok leader George Papandreou, main opposition New Democracy party leader Antonis Samaras and Popular Orthodox Rally (Laos) party leader George Karatzaferis failed to reach agreement with Papademos concerning the demands of the EU-IMF troika for private-sector wage cuts, further pension cuts, large-scale firing of public-sector staff and major downsizing of the public sector.
...
Main opposition New Democracy leader Antonis Samaras made no statements as he left the meeting but indicated the deadlock reached during the meeting during a brief statement to television cameras when he returned to ND's headquarters.

"For the first time, a negotiation is taking place. The country cannot stand more recession. I am fighting with every means to prevent this," he said, confirming that the negotiations will continue on Monday.

More from the Financial Times: Deadlock for Greek austerity talks

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

Recovery Measures

2012-02-05T10:13:00.000-05:00

By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that several major indicators are still significantly below the pre-recession peaks.

Click on graph for larger image.

This graph is for real GDP through Q4 2011. Real GDP returned to the pre-recession in Q3 2011, and Gross Domestic Income (not shown) returned to the pre-recession peak in Q2 - GDI for Q4 will be released with the 2nd estimate of GDP. (For a discussion of GDI, see here).

At the worst point, real GDP was off 5.1% from the 2007 peak. Real GDI was off 5.7% at the trough.

Real GDP has performed better than other indicators ...

This graph shows real personal income less transfer payments as a percent of the previous peak through December.

This measure was off 10.7% at the trough.

Real personal income less transfer payments is still 4.8% below the previous peak.

This graph is for industrial production through December.

Industrial production was off over 17% at the trough, and has been one of the stronger performing sectors during the recovery.

However industrial production is still 5.4% below the pre-recession peak, and it will probably be some time before industrial production returns to pre-recession levels.

The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 4.1% below the pre-recession peak.

If the economy adds 243 thousand payroll jobs per month on average (the January report), it will take another 2 years to get back to the pre-recession employment peak. And that doesn't count growth of the working age population over the last 4+ years.

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

Greece: Key meeting on Sunday

2012-02-04T21:56:00.000-05:00

From the Athens News: Crucial meeting of coalition partners

The crucial negotiation of the coalition political party leaders over the EC-ECB-IMF troika's ultimatums and shock measures has been set for 13:00 on Sunday.

In this new meeting of the leaders of three parties backing the interim government led by Lucas Papademos which will take place on Sunday, the prime minister is expected to present them with a document detailing the rigid positions of the troika. ... [reports are] the prime minister is thinking of resigning if the three do not manage to come to an agreement.

From Reuters: Euro zone loses patience with Greece

Euro zone finance ministers told Greece on Saturday it could not go ahead with an agreed deal to restructure privately-held debt until it guaranteed it would implement reforms needed to secure a second financing package from the euro zone and the IMF.

From the NY Times: Greek Talks at a Delicate Point, Official Says

The Greek finance minister, Evangelos Venizelos, said on Saturday that talks between the government and its foreign creditors on a second rescue deal were “on a razor’s edge,” adding that though progress had been made on some levels, crucial issues were unresolved.

“Two major, interrelated issues remain unresolved — labor relations and wages in the private sector, and the fiscal measures that must be taken to ensure we are within the target for 2012,” Mr. Venizelos said after a two-hour conference call with euro zone officials. Despite the barriers, a deal must be reached in bailout talks by Sunday night, he said.

Earlier:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

AAR: Rail Traffic increased 0.1 percent YoY in January

2012-02-04T17:47:00.000-05:00

Earlier:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

From the Association of American Railroads (AAR): AAR Reports Gains for January Rail Traffic

The Association of American Railroads (AAR) reported that total U.S. rail carloads originated in January 2012 totaled 1,144,800, an average of 286,200 per week and up 0.1 percent over January 2011. Intermodal volume in January 2012 was 877,637 containers and trailers, up 1.7 percent over January 2011. January’s average of 219,409 intermodal units per week was the third highest ever for a January for U.S. railroads.
...
“Total rail carload traffic in January was flat compared with last year, due largely to sharp declines in coal and grain traffic,” said AAR Senior Vice President John T. Gray. “However, a number of other commodity categories — including many that have historically been much more highly correlated with GDP growth than coal and grain—saw large increases in January. That’s a sign that the underlying economy is probably stronger than you would think if you just looked at the rail traffic totals.”

Click on graph for larger image.

This graph shows U.S. average weekly rail carloads (NSA).

On a non-seasonally adjusted basis, total U.S. rail carloads in January 2012 totaled 1,144,800, an average of 286,200 per week and up 0.1% over January 2011.

Rail carload traffic collapsed in November 2008, and now, 2 1/2 years into the recovery, carload traffic is still not half way back to the pre-recession levels.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Graphs reprinted with permission.

Intermodal traffic is close to the peak year in 2006.

U.S. rail intermodal volume in January 2012 was 877,637 containers and trailers, up 1.7% over January 2011. January’s average of 219,409 intermodal units per week was the third highest ever for a January for U.S. railroads.

All Current Transportation graphs

Schedule for Week of February 5th

2012-02-04T13:21:00.077-05:00

Earlier:
• Summary for Week ending February 3rd

This will be a light week for economic releases. The key economic release is the December trade balance report to be released on Friday.

Also on Friday Fed Chairman Ben Bernanke will speak to the National Association of Homebuilders: "Housing Markets in Transition".

Europe will be a focus, especially any announcements about Greece. Also the ECB holds a meeting on Thursday.

The mortgage settlement might be announced this coming week too.

----- Monday, Feb 6th-----
No releases scheduled.

----- Tuesday, Feb 7th -----
10:00 AM ET: Job Openings and Labor Turnover Survey for December from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

In general, the number of job openings (yellow) has been trending up, and were up about 7% year-over-year compared to November 2010.

10:00 AM: Testimony from Fed Chairman Ben Bernanke, "The Economic Outlook and the Federal Budget Situation", Before the Committee on the Budget, U.S. Senate (repeat of House testimony).

3:00 PM: Consumer Credit for December. The consensus is for a $7.0 billion increase in consumer credit.

----- Wednesday, Feb 8th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index was especially weak last year, although this does not include all the cash buyers.

----- Thursday, Feb 9th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 370,000 from 367,000 last week.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for December. The consensus is for a 0.5% increase in inventories.

----- Friday, Feb 10th -----
8:30 AM: Trade Balance report for December from the Census Bureau.

Imports have been mostly moving sideways for the past six months (seasonally adjusted). Exports are well above the pre-recession peak and up 10% compared to November 2010; imports are up about 13% compared to November 2010.

The consensus is for the U.S. trade deficit to increase to $48.5 billion in December, up from from $47.8 billion in November. Export activity to Europe will be closely watched.

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for February.

The final January Reuters / University of Michigan consumer sentiment index increased to 75.0, up from the December reading of 69.9.

The consensus is for a decrease in February to 74.3 from 75.0 in January.

12:30 PM: Speech by Fed Chairman Ben Bernanke, "Housing Markets in Transition", At the 2012 National Association of Homebuilders International Builders' Show, Orlando, Florida

Summary for Week ending February 3rd

2012-02-04T08:09:00.108-05:00

The data released last week was solid, with the exception of house prices. Both the Case-Shiller index for November, and the CoreLogic index for December showed additional house price declines and new post bubble lows.

The employment report was well above expectations. There were 243,000 payroll jobs added in January, with 257,000 private sector jobs added. Government employment declined by 14,000 jobs. The unemployment rate fell to 8.3% from 8.5% in December. U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.1%. This remains very high - U-6 was in the 8% range in 2007.

The annual benchmark revision indicated 165,000 more payroll jobs in March 2011; the first positive benchmark revision since 2006. The BLS also adjusted the population control using the Census 2010 data, and this led to some data distortions – but overall the report was positive.

Unfortunately there are still 12.8 million Americans unemployed, and 5.5 million who have been unemployed for more than 6 months. Those are very grim unemployment numbers.

Other positive data included auto sales, and the ISM manufacturing and service indexes. Also the apartment tightness index indicated that rental markets continued to tighten (good for multifamily construction and spillover to the single family market). Overall a solid week.

Here is a summary in graphs:

• January Employment Report: 243,000 Jobs, 8.3% Unemployment Rate

This graph shows the jobs added or lost per month (excluding temporary Census jobs) since the beginning of 2008.

Click on graph for larger image.

Job growth started picking up early last year, but then the economy was hit by a series of shocks (oil price increase, tsunami in Japan, debt ceiling debate) - and now it appears job growth is picking up again.

The second graph shows the employment population ratio, the participation rate, and the unemployment rate.

The unemployment rate declined to 8.3% (red line).

The Labor Force Participation Rate declined to 63.7% in January (blue line). However the decline was related to the change in population control, and not people leaving the work force.

The Employment-Population ratio was unchanged at 58.5% in January (black line). This would have increased 0.3 with the change in population control.

The third graph shows the job losses from the start of the employment recession, in percentage terms. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - much worst than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

This was a relatively strong report and well above consensus expectations.
All current Employment Graphs
• ISM Manufacturing index indicates faster expansion in January

PMI was at 54.1% in January, up from a revised 53.1% in December. The employment index was at 54.3%, down from a revised 54.8%, and new orders index was at 57.6%, up from a revised 54.8%.

From the Institute for Supply Management: January 2012 Manufacturing ISM Report On Business® Here is a long term graph of the ISM manufacturing index.

This was below expectations of 54.5%, but the consensus was before the revisions. This suggests manufacturing expanded at a faster rate in January than in December. It appears manufacturing employment expanded in January with the employment index at 54.3%.

• U.S. Light Vehicle Sales at 14.18 million annual rate in January

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.18 million SAAR in January. That is up 12.1% from January 2011, and up 5.1% from the sales rate last month (13.5 million SAAR in Dec 2011).

The second graph shows light vehicle sales since the BEA started keeping data in 1967. This shows the huge collapse in sales in the 2007 recession. This also shows the impact of the tsunami and supply chain issues on sales, especially in May and June.

This was well above the consensus forecast of 13.6 million SAAR. Note: dashed line is current estimated sales rate.
All current Retail Graphs
• Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)

From S&P: Home Prices Continued to Decline in November 2011 According to the S&P/Case-Shiller Home Price Indices

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 33.5% from the peak, and down 0.7% in November (SA). The Composite 10 is at a new post bubble low (Seasonally adjusted), but still above the low NSA.

The Composite 20 index is off 33.5% from the peak, and down 0.7% in November (SA). The Composite 20 is also at a new post-bubble low.

The next graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 3 of the 20 Case-Shiller cities in November seasonally adjusted (only one city increased NSA). Prices in Las Vegas are off 61.6% from the peak, and prices in Dallas only off 9.2% from the peak.

The NSA indexes are around 1% above the March 2011 lows - and these indexes will hit new lows in the next month or two since prices are falling again. Using the SA data, the Case-Shiller indexes are now at new post-bubble lows.
All House Price Graphs
• CoreLogic: House Price Index declined 1.4% in December to new post-bubble low

From CoreLogic: CoreLogic® Prices fell by 4.7 percent nationally in 2011
This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was down 1.4% in December, and is down 4.7% over the last year.

The index is off 33.7% from the peak - and is now at a new post-bubble low.

Some of this decline was seasonal (the CoreLogic index is NSA) and month-to-month price changes will probably remain negative through March 2012. Last year prices fell about 4% from December 2010 to March 2011, and there will probably be a similar decline this year.
All House Price Graphs
• NMHC Apartment Survey: Market Conditions Tighten in Recent Survey

From the National Multi Housing Council (NMHC): Apartment Industry Continues Recovery, Survey Says

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last eight quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q4 2011 to 5.2%, down from 5.6% in Q3 2011, and 9.0% at the end of 2009.

• ISM Non-Manufacturing Index indicates faster expansion in January

The January ISM Non-manufacturing index was at 56.8%, up sharply from 53.0% in December. The employment index increased in January to 57.4%, up from 49.8% in December. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: December 2011 Non-Manufacturing ISM Report On Business®

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was well above the consensus forecast of 53.3% and indicates faster expansion in January than in December.

• Weekly Initial Unemployment Claims decline to 367,000

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 375,750.

Weekly claims have been bouncing around lately - January is a period with large seasonal adjustments and that can lead to some large swings. The 4-week average of weekly claims has been moving sideways this year after trending down over the last few months of 2011.

• Other Economic Stories ...
• Restaurant Performance Index highest in almost six years in December
• A few policies I expect soon
• Fed Senior Loan Officer Survey: Lending standards "little changed", "somewhat stronger loan demand"
• From the Dallas Fed: Texas Manufacturing Activity Picks Up
• Personal Income increased 0.5% in December, Spending decreased slightly
• Fannie Mae Serious Delinquency rate declines, Freddie Mac rate increases
• Q4 2011 GDP Details: Investment in Office, Mall, and Lodging, Residential Components