Tuesday, August 23, 2011

Misc: Richmond Fed, FDIC Problem Banks, Home Sales Distressing Gap

by Calculated Risk on 8/23/2011 12:15:00 PM

Richmond Fed: Manufacturing Activity Pulled Back Markedly in August; Shipments and New Orders Declined

In August, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — declined nine points to −10 from July's reading of −1.
Hiring activity at District plants slowed in August. The manufacturing employment index subtracted three points to 1 and the average workweek index moved down five points to −5. Moreover, wage growth eased, losing eight points to finish at 2.
Another weak regional manufacturing survey.

• From the FDIC: Quarterly Banking Profile
The number of institutions on the FDIC's "Problem List" fell for the first time in 15 quarters. The number of "problem" institutions declined from 888 to 865. This is the first time since the third quarter of 2006 that the number of "problem" banks fell. Total assets of "problem" institutions declined from $397 billion to $372 billion. Twenty-two insured institutions failed during the second quarter, four fewer than in the previous quarter, and the fewest since the first quarter of 2009. This is the fourth quarter in a row that the number of failures has declined. Through the first six months of 2011, there have been 48 insured institution failures, compared to 86 failures in the same period of 2010.
• Distressing Gap: The following graph shows existing home sales (left axis) and new home sales (right axis) through July. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

Distressing Gap Click on graph for larger image in graph gallery.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

On July Home Sales:
New Home Sales in July at 298,000 Annual Rate
• Last week: Existing Home Sales in July: 4.67 million SAAR, 9.4 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales