by Calculated Risk on 2/22/2010 01:10:00 PM

Via the MSN Money, from Moody's:

US commercial real estate prices as measured by Moody's/REAL Commercial Property Price Indices (CPPI) increased for the second month in a row in December, rising 4.1%.
...
"Although we are unable to conclude that the bottom to the commercial real estate market is here, we do believe that the period of large price declines is over," says Moody's Managing Director Nick Levidy. "We will need to see data from the first few months of 2010 to develop a better picture of where things stand."

Here is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.

Notes: Beware of the "Real" in the title - this index is not inflation adjusted. Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales - and that can impact prices.

Click on graph for larger image in new window.

CRE prices only go back to December 2000.

The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

CRE prices peaked in late 2007 and are now 40.8% below the peak in October 2007. Prices are at about the same level as early 2003.

More from Bloomberg: U.S. Commercial Property Index Rises 4.1% in December

by Calculated Risk on 2/22/2010 11:04:00 AM

From San Francisco Fed President Janet Yellen: The Outlook for the Economy and Monetary Policy. Excerpts:

... I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the economy. Much of it was due to a slowdown in the pace at which businesses were drawing down inventory stocks compared with earlier in the year. Less than half of the fourth-quarter growth reflected higher sales to customers. Those sales did grow, but at a lackluster 2.2 percent. It appears that businesses are getting their inventories closer in line with sales, which is a good thing. But such inventory adjustments can be a potent source of growth only for a few quarters. I’d feel much more confident about the prospect for a sustained robust recovery if I saw evidence of more vigorous growth in actual sales.

... my business contacts tell me the consumer mindset is still in a fragile state. Clearly, the big weight hanging over everyone’s heads is jobs. ...

The housing sector appears to have stabilized, but here too I don’t see any signs of a sharp turnaround. New home sales and construction finally stopped falling last year and have been reasonably stable, albeit at very low levels, for several months. Existing home sales surged late last year in response to the homebuyer tax credit. But, the credit expires this spring, so this source of support won’t be around much longer. The housing sector has also been benefiting from the Fed’s policy of buying mortgage-backed securities. These purchases appear to have helped keep home finance rates low. But, the Fed is now in the process of tapering off these purchases and plans to stop them at the end of March. As support from Federal Reserve and other government programs phases out, there is a risk that the housing market could weaken again.
...
Put it all together and you have a recipe for a moderate rate of economic growth, well below the spritely pace set in the fourth quarter. The current quarter appears on course to post growth of around 3 percent. I see the economy gradually picking up steam over the remainder of this year as households and businesses regain confidence, financial conditions improve, and banks increase the supply of credit. I expect growth of about 3½ percent for the year as a whole, picking up to about 4½ percent next year, with private demand coming on line to pick up the slack as government stimulus programs fade away.
...
This brings us to a subject that is of paramount concern to all of us—the job situation. This recession has been very severe, indeed. The U.S. economy has shed 8.4 million jobs since December 2007. That’s more than a 6 percent drop in payrolls, the largest percentage point decline since the demobilization following World War II. The unemployment rate, which was 5 percent at the start of the recession, rose to around 10 percent in late 2009. The rates of job openings and hiring are also stuck at very low levels. These statistics represent a tragedy for our country, our communities, and each of the families and individuals who have had to cope with a loss of livelihood.

There is a glimmer of good news on the employment front. The pace of job losses has slowed dramatically and some indicators, such as gains in temporary jobs, suggest that we may be close to a turnaround in the labor market. I was encouraged to see the unemployment rate drop from 10 percent to 9.7 percent in January. Nonetheless, given my forecast of moderate growth and a shrinking, but still sizable, output gap, I expect unemployment to remain painfully high for years. The rate should edge down from its current level to about 9¼ percent by the end of this year and still be about 8 percent by the end of 2011, a far cry from full employment.

I should warn that there is a great deal of uncertainty surrounding this forecast.

There is much more in the speech. Dr. Yellen's outlook is a little more optimistic than me (I think growth will be more sluggish in 2010).

by Calculated Risk on 2/22/2010 08:33:00 AM

Note: This is a composite index based on a number of economic releases.

From the Chicago Fed: Index shows economic activity increased sharply in January

The Chicago Fed National Activity Index was +0.02 in January, up from –0.58 in December. ...

The index’s three-month moving average, CFNAI-MA3, increased to –0.16 in January from –0.47 in December, reaching its highest level since July 2007. January’s CFNAI-MA3 suggests that, consistent with the early stages of a recovery following a recession, growth in national economic activity is beginning to near its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates subdued inflationary pressure from economic activity over the coming year.

Production-related indicators made a positive contribution to the index for the seventh consecutive month. As a group, they contributed +0.45 in January, up from +0.14 in December. ...

Click on table for larger image in new window.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:

A CFNAI-MA3 value below –0.70 following a period of economic expansion indicates an increasing likelihood that a recession has begun. A CFNAI-MA3 value above –0.70 following a period of economic contraction indicates an increasing likelihood that a recession has ended. A CFNAI-MA3 value above +0.20 following a period of economic contraction indicates a significant likelihood that a recession has ended.

Although the CFNAI-MA3 improved in January, the index is still negative. According to Chicago Fed, it is still too early to call the official recession over - although the likelihood that a recession has ended is increasing.

by Calculated Risk on 2/21/2010 11:59:00 PM

The U.S. futures are up a little tonight:

Futures from CNBC show the S&P 500 up a couple of points.

Here are the futures from barchart.com

Most of the Asian markets are up tonight, with the Nikkei and Hang Seng up over 2.5%.

From Bloomberg: Asian Stocks, Oil Advance as U.S. Interest Rate Concern Eases

Asian stocks jumped the most since November, oil rose and the yen fell on speculation Federal Reserve Chairman Ben S. Bernanke will signal that U.S. interests rates will be kept near a record low.

The article suggests some investors misunderstood the increase in the discount rate. Bernanke testifies on Wednesday (see Weekly Summary and a Look Ahead), and he will definitely say that the Fed will hold rates low for an extended period.

Best to all.

by Calculated Risk on 2/21/2010 08:49:00 PM

The Bank of Clark County was the 2nd bank to fail in 2009. It had assets of $440 million and is estimated to have cost the Deposit Insurance Fund between $120 and $145 million.

From Courtney Sherwood at the Portland Business Journal: Former Bank of Clark County executive pleads guilty to felony charge (ht Jason)

[A] plea agreement filed Friday in U.S. District Court ... outlines former Chief Lending Officer David Kennelly’s guilty plea on a count of “scheme to conceal material facts.”
...
The bank ordered new appraisals on 23 real estate-backed loans to prepare for [a November 2008 safety and soundness examination by the FDIC and Washington state bank examiners].

Before regulators arrived, Kennelly told a vice president identified as “K.B.” that there were several appraisals that Kennelly “did not want to see the light of day,” ...

These were appraisals related to C&D (Construction & Development) loans and obviously showed huge losses for the bank. Hiding material information from examiners is pretty stunning ...

by Calculated Risk on 2/21/2010 05:00:00 PM

A combination of significant resource slack, and a policy of pushing down rents (an unintended consequence of the first time homebuyer tax credit), pushed core inflation (CPI minus food and energy) negative in January for the first time since 1982. This was no surprise.

Professor Krugman has more and suggests focusing on the Cleveland Fed measures of inflation:

[C]ore CPI has been behaving erratically lately, making me doubt whether it’s still a good guide to underlying inflation (by which I mean the trend in prices that, unlike commodity prices, have a lot of inertia).

What I find myself looking at these days are the Cleveland Fed “trimmed” inflation measures, which exclude outlying large price movements; the ultimate trim is the median, the rise in the price of the median category. And these indicators tell a story of dramatic disinflation in the face of a weak economy ... We may have to start calling the Fed chairman Bernanke-san, after all.

That inspired me to put all three measures on one graph:

Click on graph for larger image in new window.

This graph shows the year-over-year change in core CPI, and the two Clevelend Fed measures of inflation (median and trimmed mean). All three measures are moving down.

If we just look at the last three months, Core CPI is essentially unchanged and the Median is only up at about a 0.5% annual rate.

Despite all the talk about the Fed possibly raising the Fed funds rate in the 2nd half of 2010, with high unemployment and low measured inflation, it is very unlikely that the Fed will raise the Fed Funds rate any time soon - probably not until 2011 at the earliest.

by Calculated Risk on 2/21/2010 12:12:00 PM

Update: The FDIC Quarterly Banking Profile (Q4) will probably be released mid-week (ht Greg)

This will be a busy week for economic data highlighted by several key economic releases for both residential and commercial real estate: Case-Shiller house prices, new home sales, existing home sales, the Moodys' commercial property price index and the CRE related Architecture Billings Index will all be released this week.

On Tuesday, the S&P Case-Shiller House Price Index for December (actually three month average of Oct, Nov, and Dec) and the Q4 National Index will be released. The consensus is for the Composite 20 Index to have declined 3.1% from Dec 2008 - or basically flat from November to December (seasonally adjusted).

On Wednesday, the Census Bureau will report on New Home Sales for January. The consensus is for an increase to about 360 thousand (SAAR), from 342 thousand in December. Also the February AIA Architecture Billings Index will be released, and this will probably show a continued contraction in commercial real estate architectural billings (a leading indicator for non-residential construction). Also on Wednesday, Fed Chairman Ben Bernanke will provide the Semiannual Monetary Policy Report to the House Committee on Financial Services.

On Thursday, the Durable Goods report will be released, and the closely watched weekly report on initial unemployment claims. I also expect the Moodys/REAL Commercial Property Price Index for December will be released.

On Friday, the first revision to the Q4 GDP report will be released (consensus is for unchanged from the initial report of 5.7% GDP growth annualized in Q4), the Chicago Purchasing Managers' Index for February (consensus is for continued expansion, but a decline to 60 from 61.5 last month), and Existing Home Sales for January. Consensus is for a 1% increase in existing home sale to 5.5 million (SAAR) from 5.45 million in December (I'll take the under).

There will be several Fed speeches during the week, and probably more bank failures announced on Friday.

And a summary of last week ...

Housing Starts increased Slightly in January

Click on graph for larger image in new window.

Total housing starts were at 591 thousand (SAAR) in January, up 2.8% from the revised December rate, and up 24% from the all time record low in April 2009 of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have moved mostly sideways for eight months.

Single-family starts were at 484 thousand (SAAR) in January, up 1.5% from the revised December rate, and 36% above the record low in January and February 2009 (357 thousand). Just like for total starts, single-family starts have been at about this level for eight months.

NAHB Builder Confidence Increased Slightly

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

The housing market index (HMI) was at 17 in February. This is an increase from 15 in January.

The record low was 8 set in January 2009. This is still very low - and this is what I've expected - a long period of builder depression. The HMI has been in the 15 to 19 range since May.

Industrial Production, Capacity Utilization Increased in January

From the Fed: "Industrial production increased 0.9 percent in January following a gain of 0.7 percent in December. ... The capacity utilization rate for total industry rose 0.7 percentage point to 72.6 percent, a rate 8.0 percentage points below its average from 1972 to 2009."

This graph shows Capacity Utilization. Capacity utilization at 72.6% is still far below normal - and far below the pre-recession levels of 80.5% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

Also - this is the highest level for industrial production since Dec 2008, but production is still 10.1% below the pre-recession levels at the end of 2007.

Mortgage Delinquencies by Period

This graph shows mortgage delinquencies by "bucket" (time deliquent).

Loans 30 days delinquent declined in Q4, but are still above the levels in 2007 - and at about the level of early 2008 - when prices were falling sharply.

The 60 day bucket also declined in Q4, but it is still above the levels of 2008.

The 90 day and 'in foreclosure' rates are at record levels. Obviously the lenders have been slow to start foreclosure proceedings and to actually foreclose.

First American CoreLogic: House Prices Declined in December

This graph shows the national LoanPerformance data since 1976. January 2000 = 100.

The national average of home prices declined 1.0 percent in December 2009 compared to November 2009. The index is off 3.7% over the last year, and off 28.2% from the peak.

The index has declined for four consecutive months.

This is the house price indicator used by the Fed.

Other Economic Stories ...

Juncker: Greece has March 16 Deadline to Show Progress

From David Streitfeld at the NY Times: U.S. Housing Aid Winds Down, and Cities Worry

From James Hagerty at the WSJ: Foreclosures Seen Still Hitting Prices

From Diana Olick at CNBC: What Mortgage Modifications Say About the Housing Market

From the Fed: Fed Raises Discount Rate to 0.75% from 0.50%

From the Philadelphia Fed: Philly Fed Index Shows Expansion in February

From the MBA: 14.05 Percent of Mortgage Loans in Foreclosure or Delinquent in Q4

MBA Q4 National Delinquency Survey Conference Call

From the National Employment Law Project: Five Million Workers to Exhaust Unemployment Benefits by June

Fed MBS Purchase Program almost 96% Complete

From Treasury: HAMP: 116,000 Permanent Mods

Unofficial Problem Bank List increases to 617

Best wishes to all.

by Calculated Risk on 2/21/2010 09:00:00 AM

Peter Goodman at the NY Times profiles a few of the long term unemployed: Millions of Unemployed Face Years Without Jobs

Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits.

Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

Call them the new poor: people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives — potentially for years to come.

Yet the social safety net is already showing severe strains. Roughly 2.7 million jobless people will lose their unemployment check before the end of April unless Congress approves the Obama administration’s proposal to extend the payments, according to the Labor Department.

According to a recent National Employment Law Project (NELP) report, 1.2 million people will lose their unemployment benefits in March, and 5 million will be ineligible for federal unemployment benefits by June.

by Calculated Risk on 2/20/2010 09:31:00 PM

This is an unofficial list of Problem Banks compiled only from public sources. Changes and comments from surferdude808:

The Unofficial Problem Bank List increased by a net of 12 institutions this week with 15 additions and 3 removals. However, aggregate assets fell by about $500 million to $329 billion.

Removals include two of the four institutions that failed on Friday -- La Jolla Bank, FSB ($3.8 billion) and Marco Community Bank ($138 million). It appears that the other failures -- George Washington Savings Bank, and The La Coste National Bank were not subject to any formal enforcement action.

The other removal was Hiawatha National Bank ($45 million) as the OCC terminated a Formal Agreement in April 2009 but waited until this month to disclose the termination.

Among the 15 additions are National Bank of Commerce, Superior, WI ($573 million); The Farmers National Bank of Prophetstown, Prophetstown, IL ($410 million); and The Farmers National Bank of Buhl, Buhl, ID ($386 million), which is the first appearance of an Idaho-based institution on the list.

As anticipated in the February 5th commentary, Palm Desert National Bank came back on the list this week as the OCC issued a Consent Order after terminating a Formal Agreement.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)



Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 2/20/2010 06:48:00 PM

Something a little different ...

From Cy Ryan at the Las Vegas Sun: Report: Casinos lost money for second time in history

The state Gaming Control Board today released its “Gaming Abstract” for fiscal year 2009, which ended June 30, showing a net loss of $6.7 billion among the 260 major casinos in Nevada.

Clubs along the Las Vegas Strip, which makes up 53 percent of the gambling revenue in Nevada, registered a $4.1 billion loss.
...
The only other time Nevada gaming companies reported a loss was in 2003, of $33.5 million, said Frank Streshley, chief of tax and licensing for the board.

Total revenues were down from $25.0 billion in fiscal 2008 to $22.0 billion in fiscal 2009. Gambling was off 12.7%, room revenue off 16.6% (hotels are getting crushed everywhere), but beverage sales were flat!

Rooms occupied (number of nights) declined from 42.8 million in 2008 (occupancy rate of 86.8%) to 41.6 million in 2009 or 82.2% occupancy rate. The average daily rate (ADR) declined from $119.46 in 2008 to $102.46 in 2009.

In addition to the $3 billion decrease in revenue, the casinos saw a $4.8 billion increase in Other G&A expenses - probably from write downs of bad investments. Also casino payroll employment was off 12.3% or almost 25,000 employees.

The two pillars of the Las Vegas economy have been gaming and construction. Construction is dead - and will be for some time because of all the excess capacity. And gaming is struggling too.