by Calculated Risk on 1/26/2011 08:57:00 PM

A ditty from Merle on Italy (short to fit the time slot on Paul Solman's Making $ense (Solman is discussing Europe this week).

by Calculated Risk on 1/26/2011 05:16:00 PM

The Census Bureau reported that new home inventory declined to 190,000 new houses for sale at the end of December. A common questions is: What inventory is included?

According to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

Click on graph for larger image in graph gallery.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 80,000 units in December. And the combined total of completed and under construction is at the lowest level since this series started.

In most areas the 'completed' and 'under construction' inventory of new homes is fairly lean. (Tom Lawler sent me a note just as I was finishing this post, he wrote: Currently new SF home inventories are “pretty lean,” which is good since new home sales are still “pretty soft.” )

Here are the New and Existing December home sales posts:
• New Home Sales increase in December
• December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
• Existing Home Inventory increases 8.4% Year-over-Year in December
• Home Sales: Distressing Gap
• Graph galleries for New Home and Existing Home sales

by Calculated Risk on 1/26/2011 02:15:00 PM

• The target range for the federal funds rate remains at 0 to 1/4 percent
• The policy of reinvestment of principal payments remains
• no change to the plan to purchase an additional $600 billion of longer-term Treasury securities by the end of June 2011.
• the key sentence "likely to warrant exceptionally low levels for the federal funds rate for an extended period" remains

From the Federal Reserve:

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

No dissent. A mention of rising commodity prices, but not much change in the language.

by Calculated Risk on 1/26/2011 12:10:00 PM

Here is an update to a graph I've been posting for several years (most of the text is a repeat).

This graph shows existing home sales (left axis) and new home sales (right axis) through December. 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).

Click on graph for larger image in new window.

Initially the gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The two spikes in existing home sales were due primarily to the homebuyer tax credits (the initial credit in 2009, followed by the 2nd credit in 2010). There were also two smaller bumps for new home sales related to the tax credits.

Note: it is important to note that 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.

In a few years - when the excess housing inventory is absorbed and the number of distressed sales has declined significantly - I expect existing home-to-new home sales to return to something close to this historical relationship.

New and Existing December home sales posts:
• New Home Sales increase in December
• December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
• Existing Home Inventory increases 8.4% Year-over-Year in December
• Graph galleries for New Home and Existing Home sales

by Calculated Risk on 1/26/2011 10:00:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 329 thousand. This is up from a revised 280 thousand in November.

Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted or annualized).

Note the Red columns for 2010. In December 2010, 22 thousand new homes were sold (NSA). This is a new record low for the month of December.

The previous record low for December was 23 thousand in 1966; the record high was 87 thousand in December 2005.

The second graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in December 2010 were at a seasonally adjusted annual rate of 329,000 ... This is 17.5 percent (±17.7%)* above the revised November rate of 280,000, but is 7.6 percent (±17.0%)* below the December 2009 estimate of 356,000.

And another long term graph - this one for New Home Months of Supply.

Months of supply decreased to 6.9 in December from 8.4 in November. The all time record was 12.1 months of supply in January 2009. This is still high (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of December was 190,000. This represents a supply of 6.9 months at the current sales rate.

The final graph shows new home inventory.

The 329 thousand annual sales rate for December is still very low, and this was just the weakest December on record. This was above the consensus forecast of 300 thousand homes sold (SAAR).

It says something when sales increase and are still below the previous record lows for all years prior to 2010. New Home sales are still bouncing along the bottom - the good news is inventory is still declining.

by Calculated Risk on 1/26/2011 08:14:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 15.3 percent from the previous week and reached its lowest level since January 2010. The seasonally adjusted Purchase Index decreased 8.7 percent from one week earlier. The Purchase Index is at its lowest level since October 2010.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.8 percent from 4.77 percent, with points decreasing to 1.19 from 1.20 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

The four-week moving average of the purchase index suggests weak existing home sales through the first few months of 2011.

by Calculated Risk on 1/25/2011 11:21:00 PM

The Financial Crisis Inquiry Commission report will be released on Thursday, but Sewell Chan at the NY Times has some excerpts: Financial Crisis Was Avoidable, Inquiry Finds

The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.
...
The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.
...
[T]he report is harsh on regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion potential losses and halt risky practices, and that the Fed “neglected its mission.”

It says the Office of the Comptroller of the Currency, which regulates some banks, and the Office of Thrift Supervision, which oversees savings and loans, blocked states from curbing abuses because they were “caught up in turf wars.”

When the Financial Crisis Inquiry Commission was announced, I was skeptical if they'd be willing to address the willful lack of regulatory supervision and the role of Wall Street in the crisis.

These excerpts give me hope - there is much more in Chan's article - now I'm definitely looking forward to reading the report! Barry Ritholtz is happy too.

Earlier posts on Case-Shiller Home Price indexes:
• Case-Shiller: U.S. Home Prices Keep Weakening as Eight Cities Reach New Lows in November
• House Prices and Months-of-Supply, and Real House Prices
• House Price graph gallery

by Calculated Risk on 1/25/2011 08:42:00 PM

Update:
Text of Obama’s State of the Union speech

From the NY Times: Obama Sees Global Fight for U.S. Jobs

From the WSJ: Obama: Freeze Spending

Earlier posts on Case-Shiller Home Price indexes:
• Case-Shiller: U.S. Home Prices Keep Weakening as Eight Cities Reach New Lows in November
• House Prices and Months-of-Supply, and Real House Prices
• House Price graph gallery

by Calculated Risk on 1/25/2011 06:59:00 PM

From Patrick Coolican at the Las Vegas Sun: Generation Y wants housing Las Vegas has in short supply

[D]evelopers filled the valley and made piles of money with suburban tract homes that carry little appeal for the next generation of housing consumers, according to an emerging body of survey data of the so-called Millennials or Generation Y.

That’s the generation — about 80 million strong, which is larger than the postwar Baby Boom — born from about the mid-1970s to the early 2000s.

At the recent homebuilders trade show in Orlando, Fla., Melina Duggal of the real estate consulting firm RCLCO laid out the data on the next generation of housing consumers. Her firm asked young renters where they would move to if they had the opportunity. More than 80 percent said they would choose an urban area, or a suburban area that qualified as “urban lite,” such as Arlington, Va., or Bethesda, Md. These are suburbs that feature walkability and easy access to urban amenities.

As Patrick notes, this preference for urban living can partially be explained by their current age:

"[T]hey may want the urban experience now, but eventually they’ll marry and have children and want to live near good suburban schools and have a bigger home with a yard."

Maybe ... I'm not in Generation Y (or even close), but I desire walkability and to be close to some urban amenities. Maybe tastes are changing.

by Calculated Risk on 1/25/2011 03:55:00 PM

Earlier today I posted the usual graph of the state unemployment rate (with highs and lows since 1976).

Reader picosec suggested comparing the current state unemployment rates against the peak unemployment rates for each state during the recent recession. He writes: "This would indicate the relative rate that each state is recovering and might inspire discussion about why certain states are recovering faster/slower than others."

The following graph shows the current unemployment rate for each state (blue), and the max during the recession (red). If there is no red, the state is currently at the maximum during the recession.

Click on graph for larger image in graph gallery.

The states are ranked by the largest percentage decline from the peak. New Hampshire's unemployment rate has declined from 7.1% to 5.5% currently (the largest percentage decline). Michigan's rate has declined from 14.5% to 11.7%, the largest percentage point decline, but less as percentage than New Hampshire or Vermont.

The auto states - led by Michigan - tend to be on the left side of the graph with improving employment. The worst housing bubble states - California, Arizona, Florida and Nevada - are mostly on the right side of the graph.

Six states are at the recession maximum (no improvement): Arkansas, Colorado, Idaho, Nevada, Texas and West Virginia.