by Calculated Risk on 7/23/2010 09:57:00 AM

Tech Ticker quotes Euro Pacific Capital's Peter Schiff:

"I don't know where anyone thinks prices are falling," Schiff says, citing rising prices for food, healthcare and energy. "I don't know where most people do their shopping but I don't see falling prices. To me, prices are rising."

And from Reuters:

Safeway executives said the strength of that push on pricing caught them by surprise.

"Deflation continues in price per item and is not expected to significantly improve until the fourth quarter," said Chief Executive Steve Burd, who oversees supermarkets including Safeway, Vons and Dominick's.

Burd acknowledged that retail deflation was much greater than expected in the second quarter and drove a decline in identical-store sales.

Maybe Schiff should shop at Safeway.

More seriously there is little deflation so far, but general deflation would be a bad bad thing.

by Calculated Risk on 7/23/2010 08:42:00 AM

From Bloomberg: Hungary Credit Rating May Be Cut to Junk After IMF Talks Fail

Standard & Poor’s said it is reviewing Hungary’s credit rating for possible downgrade after the collapse of negotiations with the International Monetary Fund and European Union. A cut would give Hungary’s debt a junk rating.

From Reuters: Ratings agencies threaten Hungary with downgrade

Moody's placed Hungary's Baa1 local and foreign currency government bond ratings on review, citing increased fiscal risks after the International Monetary Fund and the European Union suspended talks over their 20 billion euro ($25 billion) financing deal at the weekend.

by Calculated Risk on 7/22/2010 09:47:00 PM

Click on graph for larger image in new window.

This graph shows the Notices of Default (NOD) by year through 2009, and for the first half of 2010, in California from DataQuick.

Although the pace of filings has slowed, it is still very high by historical standards.

From DataQuick: California Mortgage Defaults Hit Three-Year Low; Foreclosures Rise

The number of California homes pushed into the formal foreclosure process between April and June dropped for the fifth consecutive quarter to the lowest level in three years. The declines were greatest in the most affordable areas, where foreclosure activity continues to fall from extremely high levels over the past two years, a real estate information service reported.

A total of 70,051 Notices of Default ("NODs") were filed at county recorder offices during the April-to-June period. That was down 13.6 percent from 81,054 for the prior quarter, and down 43.8 percent from 124,562 in second-quarter 2009, according to San Diego-based MDA DataQuick.

Last quarter's total was the lowest since second-quarter 2007, when 53,943 NODs were recorded. The peak was in first-quarter 2009 when 135,431 homeowners received foreclosure notices.

"Obviously, motivated sellers and accommodating lenders have played a part in bringing the default filings down, especially when it comes to short sales. Public policy has also been a factor. We also need to remember that prices have come up off bottom over the past year. If they continue to rise, fewer homeowners will find themselves under water, which is a significant factor in letting a home go," said John Walsh, DataQuick president.
...
The number of Trustees Deeds (TDs) recorded, which reflect the number of houses or condo units lost at the end of the foreclosure process, totaled 47,669 during the second quarter. That was up 11.2 percent from 42,857 for the prior quarter, and up 4.4 percent from 45,667 for second-quarter 2009. The all-time peak was 79,511 in third- quarter 2008.

As I've noted before, in terms of new NOD filings the peak was probably in 2009. A few key points:

Because of the number of homes in the foreclosure pipeline, the number of distressed sales (foreclosures and short sales) will probably increase throughout 2010 - even as NODs decline.

As prices fall later this year, we might see another pick up in NODs.

Although NODs will decline in 2010 from 2009, the number will still be very high. The number of filings in the first half alone is at the peak of the previous housing bust.

by Calculated Risk on 7/22/2010 06:04:00 PM

Tomorrow the Committee of European Banking Supervisors (CEBS) will release the stress test results for 91 European Banks.

The results will be released at 6:00 PM CEST (Central European Summer Time). That would be noon ET, although a few reports have suggested earlier release times (perhaps time conversion problems - something I'm familiar with).

Here is the press release on timing:

The results of the stress test will be released, both on an aggregated and on a bank-by-bank basis, on 23 July 2010, starting at 18.00 hrs CEST.

At 18.00 hrs CEST, CEBS will publish on its website the results of the exercise on an aggregated basis, in the form of a summary report, accompanied by a press release presenting the main conclusions as regards the resilience of the EU banking sector.

From 18.00 hrs CEST, the banks' individual results of the exercise will be published by banks and/or their national supervisory authorities, on their respective websites.

A summary of the 91 bank-by-bank results, sorted by country, will be republished on CEBS’s website with links to the websites of the participating national authorities, foreseen around 18.30 hrs CET.

A restricted press conference will be held at CEBS’s premises in London at 19:00 hrs CEST. Invitations will be sent separately. A broadcast of the press conference will be available via CEBS’s website.

In advance, here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of July 21st):

Click on graph for larger image in new window.

From the Atlanta Fed:

Peripheral European bond spreads (over German bonds) have declined from recent highs but remain extremely elevated.

Since the June FOMC meeting, the 10-year Greece-to-German bond spread has narrowed by nearly 40 basis points (bps) (from 8.01% to 7.62%) through July 20. Other European peripherals’ spreads have also narrowed, with Portugal lower by 25 bps over the period and Spain 24 bps lower.

Note: The Atlanta Fed data is a couple days old. Nemo has links to the current data on the sidebar of his site.

Here are the spreads for the 10-year relative to the German bonds:

Country	Spreads July 22nd	Spreads July 7th	Spreads June 16th	Spreads June 2nd
Greece	7.75%	7.64%	6.40%	5.03%
Portugal	2.88%	2.75%	2.74%	1.95%
Ireland	2.77%	2.62%	2.83%	2.19%
Spain	1.7%	2.06%	2.09%	1.62%

With the exception of Spain, the spreads have widened a little over the last couple of weeks.

by Calculated Risk on 7/22/2010 03:27:00 PM

Note: on Existing Home sales, please see:Existing Home Sales decline in June and Existing Home Inventory increases 4.7% Year-over-Year

The Department of Transportation (DOT) reported that vehicle miles driven in May were up just 0.1% compared to May 2009:

Travel on all roads and streets changed by +0.1% (0.3 billion vehicle miles) for May 2010 as compared with May 2009.
...
Cumulative Travel for 2010 changed by -0.1% (-1.6 billion vehicle miles).

Click on graph for larger image in new window.

This graph shows the rolling 12 month total vehicle miles driven.

On a rolling 12 month basis, vehicle miles driven are mostly moving sideways. Miles driven are still 2.0% below the peak - and only 0.6% above the recent low.

Back in 2008, vehicle miles turned strongly negative on a "month over the same month of the prior year" basis, and that was one of the pieces of data that helped me correctly predict oil prices would decline sharply in the 2nd half of 2008. So far we haven't seen a sharp decline in vehicle miles - and also not a strong increase.

by Calculated Risk on 7/22/2010 01:35:00 PM

Hotel occupancy is one of several industry specific indicators I follow ...

From HotelNewsNow.com: STR: US hotel results for week ending 17 July

In year-over-year measurements, the industry’s occupancy increased 7.3 percent to 71.0 percent. Average daily rate rose 1.6 percent to US$99.07 Revenue per available room went up 9.0 percent to US$70.30.

The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).

Click on graph for larger image in new window.

Notes: the scale doesn't start at zero to better show the change. The graph shows the 4-week average, not the weekly occupancy rate.

On a 4-week basis, occupancy is up 6.8% compared to last year (the worst year since the Great Depression) and 4.7% below the median for 2000 through 2007.

On a weekly basis this is the first week since summer 2008 with the occupancy rate above 70%. In 2009, the occupancy rate peaked at 67% in mid-July.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/22/2010 11:19:00 AM

Earlier the NAR released the existing home sales data for June; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in new window.

Inventory increased 4.7% YoY in June. This is the third consecutive month of a year-over-year increases in inventory, and this is the largest YoY increase since early 2008.

This increase in inventory is especially bad news because the reported inventory is already historically very high, and the 8.9 months of supply in June is well above normal.

The months-of-supply will jump in July as sales collapse - probably to double digits - and a double digit months-of-supply would be a really bad sign for house prices ...

The second graph shows NSA monthly existing home sales for 2005 through 2010 (see Red columns for 2010).

Sales (NSA) in June 2010 were 8.3% higher than in June 2009, and also higher than in June 2008.

With the expiration of the tax credit, I expect to see existing home sales below last year starting in July. In fact I expect sales in July to be well below last year, and probably the lowest since 1997 (or so).

This was another a weak report. Sales were slightly above expectations (5.37 million at a seasonally adjusted annual rate vs. expectations of 5.3 million), but the YoY increase in inventory and the increase in months-of-supply are the real stories.

If months-of-supply increases sharply as I expect, then there will be additional downward pressure on house prices.

by Calculated Risk on 7/22/2010 10:00:00 AM

The NAR reports: Existing-Home Sales Slow in June but Remain Above Year-Ago Levels

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 5.1 percent to a seasonally adjusted annual rate of 5.37 million units in June from 5.66 million in May, but are 9.8 percent higher than the 4.89 million-unit pace in June 2009.
...
Total housing inventory at the end of June rose 2.5 percent to 3.99 million existing homes available for sale, which represents an 8.9-month supply at the current sales pace, up from an 8.3-month supply in May.

Click on graph for larger image in new window.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June 2010 (5.37 million SAAR) were 5.1% lower than last month, and were 9.8% higher than June 2009 (4.89 million SAAR).

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.99 million in June from 3.89 million in May. The all time record high was 4.58 million homes for sale in July 2008.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory increasing in the spring and into the summer. I'll have more on inventory later ...

The last graph shows the 'months of supply' metric.

Months of supply increased to 8.9 months in June from 8.3 months in May. A normal market has under 6 months of supply, so this is already high - and probably excludes some substantial shadow inventory. And the months of supply will increase sharply next month when sales collapse.

I'll have more ...

by Calculated Risk on 7/22/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending July 17, the advance figure for seasonally adjusted initial claims was 464,000, an increase of 37,000 from the previous week's revised figure of 427,000. The 4-week moving average was 456,000, an increase of 1,250 from the previous week's revised average of 454,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 10 was 4,487,000, a decrease of 223,000 from the preceding week's revised level of 4,710,000.

Click on graph for larger image in new window.

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

The four-week average of weekly unemployment claims increased this week by 1,250 to 456,000.

The dashed line on the graph is the current 4-week average.

The 4-week average of initial weekly claims has been at about the same level since December 2009 (eight months) and the 4-week average of 456,000 is high historically, and suggests a weak labor market.

by Calculated Risk on 7/21/2010 10:29:00 PM

Voit Real Estate released their Q2 quarterly reports today for CRE in Las Vegas, Phoenix, San Diego, Orange County and several other southwest cities.

These two graphs from the O.C. office report really tell a story ...

Click on graph for larger image in new window.

The first graph shows the vacancy rate and amount of new construction. Notice that new construction has fallen to almost zero this year, and the vacancy rate in Q2 was 18.34%, slightly above the Q1 rate of 18.21%.

Look back at the early '90s when the vacancy rate was at about the same level (in '93 and '94), there was very little building for the next three years even with the vacancy rate falling.

These is so much excess capacity that there is no need for new investment for some time.

The second graph shows the average full-service monthly lease rate per sq ft.

This is just asking rates, but it looks like rents are off about 25% to 30%, and are back to 1999 levels.

Party like it's 1999!

This is just one area, but something similar is happening in most cities around the country. This also shows up in the Architecture Billings Index that showed contraction again in June. Historically the billings index will turn up 6 to 9 months before an increase in non-residential structure investment - there is a long way to go!