by Calculated Risk on 2/02/2011 10:06:00 PM

On Egypt ...
• From al Jazeera, another day: Live blog Feb 3 - Egypt protests

• From the Telegraph: Egypt crisis: violent clashes over country's future

Anti-government protesters who had been assembling relatively calmly for days found themselves under assault by demonstrators in favour of the regime of President Hosni Mubarak. In the most dramatic clashes thugs on horse and camelback charged and whipped the protesters, and dropped concrete blocks onto them.

By nightfall, several buildings were ablaze from petrol bombs, with the army making belated attempts to act as a barrier between the two sides.

On Europe, another attempt to find a resolution to the financial crisis ...
• From the WSJ: Summit Marks Key Moment for Euro Zone

European leaders in Brussels on Friday are expected to confirm the broad outline of a strategy for solving the debt crisis, in a move that is seen as a decisive moment for the euro zone.
...
The solvent majority is offering to boost the effective size of the euro zone's bailout fund for crisis-hit countries—known as the European Financial Stability Facility, or EFSF—and to broaden its mandate. In return, Germany, with French support, is calling for a shake-up of how national governments manage their economies, to make the weaker countries more competitive and future crises less likely.

I'll believe it when I see the details.

And earlier on U.S. data ...
• Daily Color: D-List Data

by Calculated Risk on 2/02/2011 05:30:00 PM

CR: This is an interesting question and hard to answer ... the following is from economist Tom Lawler ...

How Many Folks Have “Lost Their Homes” to Foreclosure/Short Sales/DILs Over the Past Few Years?

According to Hope Now estimates, completed foreclosure sales (rounded) were about as follows over the past few years.

Year	Completed Foreclosure
2007	514,000
2008	914,000
2009	949,000
2010	1,070,000

While these numbers are disturbingly high, they are not nearly as large as one would have expected given the surge in seriously delinquent loans and loans in the process of foreclosure. For the latter, here is a chart based on data from the MBA’s National Delinquency Survey, which covers “over 85%” of total 1-4 family first-lien mortgages.


On one side, the “completed foreclosure sales” understates the number of homes “lost,” given that many homeowners have “lost” their homes but been able to negotiate a short sale or (much less likely) done a deed in lieu of foreclosure. While there are no official estimates of either short sales or DILs, there is no doubt that the volume of short sales increased dramatically in 2009 and 2010.

Using CoreLogic’s estimates and grossing them up to reflect its incomplete geographic coverage, one would get short sales estimates of around 78,000 for 2007, 164,000 for 2008, 278,000 for 2009, and 331,000 for 2010. However, based on data reported by lenders on short sales in the OCC/OTS mortgage metrics reports, the CoreLogic estimates of short sales look way too high for 2007 and 2008 (the 2009 estimates look OK, but the 2010 estimates – which admittedly are not available for the full year – look a tad low). Using instead my own estimates for 2008 through 2010, here’s what completed foreclosure sales plus short sales might look like (I don’t have a DIL estimate, but it appears as if the volume of DILs was pretty low).

Year	Completed Foreclosure Sales	Short Sales	Total
2008	914,000	95,000	1,009,000
2009	949,000	263,000	1,212,000
2010	1,070,000	375,000	1,445,000

On the other hand, the above numbers could well OVERSTATE significantly the number of homeowners who lost their primary home either to foreclosure or to a short sale. A “significant” % of completed foreclosure sales has been completed foreclosures on non-owner-occupied homes, though estimates vary as to what that % has been. In addition, not all short sales have involved homeowners “involuntarily” leaving their home, but who instead wanted to (for economic or other reasons) move and who were able to negotiate a short sale with their lender.

So what is the right number for folks who lost their residence to foreclosure, a short sales, or a DIL? I don’t rightly know.

It is pretty clear, however, that overall foreclosure moratoria, foreclosure delays, modifications, and other workout activity continued to keep the number of homeowners who “lost” their homes to foreclosure massively lower than one would have expected given the delinquency/in foreclosure numbers.

Year	Completed Foreclosure Sales plus Short Sales	Loans in Foreclosure/90+ Delinquent at end of previous year
2008	1,009,000	1,664,760
2009	1,212,000	2,859,959
2010	1,445,000	4,296,018

Note: the loans in foreclosure/90+ delinquent are derived from the MBA National Delinquency Survey, which only covers somewhere around 85-87% of the total 1-4 family first-lien mortgage market. A crude estimate of the “total” market would “gross up” the above numbers by around 1.163 (or 1/0.86).

CR Note: This was from housing economist Tom Lawler.

by Calculated Risk on 2/02/2011 02:10:00 PM

Not all data are created equal.

For me, the ‘A List’ for understanding the current situation includes the monthly employment report from the Bureau of Labor Statistics (BLS), and the quarterly GDP report from the Bureau of Economic Analysis (BEA). My ‘B List’ usually includes several housing reports, the ISM manufacturing survey, retail sales and the monthly Personal Income and Outlays report from the BEA.

This brings up a key point: these lists are not static.

As an example, right now initial weekly unemployment claims is ‘B List’ data. This is a high frequency indicator for the labor market. I watch this closely when I think a recession is possible, during a recession, and then during the early stages of a recovery (like right now). During an expansion, initial weekly claims are ‘D List’ at best; “Don’t call us, we’ll call you!”

Watching initial weekly claims helped me call the 2007 recession in real time. However this data is not forward looking. At the end of 2006, when I predicted a recession would start in 2007, I wasn’t using weekly claims at all – I was mostly using housing data and my sense of how the housing bust would play out.

Deciding what data is important and when comes from experience.

The data released this morning – the Mortgage Bankers Association (MBA) Purchase Activity Index and the ADP Employment report – are pretty much ‘D-List’ data. They give us hints about other economic data (the MBA index about home sales, and ADP about the BLS employment report). Some people would argue either or both are a little more important – OK, call them ‘C-List’ data (I’m not here to quibble, but ‘D-List’ made for a better post title).

The MBA index has been very weak since the end of the housing tax credit last year. This weakness suggests that home sales will be weak for at least the next couple of months (homebuyers usually apply for a mortgage 30 to 60 days before closing on a home purchase). It is also important to remember that a fairly large percentage of recent homebuyers have been paying cash (many of these purchases are low end homes being bought by investors) and cash buyers aren’t captured by the MBA index.

It is also important not to use data in a vacuum, and the MBA index provides an excellent example. Here are a couple of articles quoting former Fed Chairman Alan Greenspan in 2006:

From Bloomberg in August 2006: Greenspan Says `Worst' May Be Past in U.S. Housing

Former Federal Reserve Chairman Alan Greenspan said the ``worst may well be over'' for the U.S. housing industry that's suffering its worst downturn in more than a decade.

Greenspan, speaking at a conference in Calgary today, pointed to a ``flattening out'' of weekly mortgage applications after they went down ``very dramatically.''

And from Reuters in October 2006: Greenspan: Housing market worst may be over

The U.S. housing market appears to be emerging from its recent travails and the “worst may well be over,” former Federal Reserve Chairman Alan Greenspan was quoted as saying on Friday.

“I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out,” Greenspan said at an event in Calgary, Canada ...

The housing downturn had just started, and I made fun of Greenspan's comments in 2006!

Here is a repeat of the MBA index graph from this morning:

Click on graph for larger image in new window.

You can see the "flattening out" in the middle of 2006, and the increase at the end of 2006 and again in 2007.

This brings up a couple of points:

• The MBA data was NEVER the “most important series”.

• In mid-2006, the MBA index did flatten out, and in late 2006 the index increased (and increased further in 2007). At that time I spoke with some mortgage brokers, and there was clear evidence of homebuyers applying for mortgages with multiple brokers - this lead to some double counting by the MBA. And in late 2006 the increase was because mortgage brokers started going out of business (this skewed the data, because the MBA samples only certain large brokers – and the large brokers were getting more applications as the weaker companies went under). I identified these flaws and stopped using the MBA index, but Greenspan blindly used the index and drew the wrong conclusion.

The lesson: Never listen to Greenspan Always ask if the data is being impacted by changes in behavior or sample.

Now to the ADP employment report: this report is intended to help predict the BLS employment numbers, but the record on a monthly basis is very spotty. Just look at December: The ADP report showed 297,000 private sector jobs added, but the BLS report only showed 113,000 private sector payroll jobs added (103,000 Total). Not close.

Here is the ADP purpose and methodology:

Employment is an intrinsically important statistic. Furthermore, financial markets react, sometimes strongly, to “surprises” in the BLS estimates of establishment employment that might signal future changes in monetary policy. Hence, information that helps analysts anticipate monthly changes in employment is valuable. ... The ADP National Employment Report ... can be used, in real time, to improve upon consensus forecasts of the monthly change in establishment employment.

The report sure doesn't seem useful in "real time" to improve on forecasts. Sometimes the ADP report is close. Sometimes it is not (like last month). The ADP data is from a statistical black box based partially on the BLS data (as opposed to a completely independent report of payroll jobs added), and it is not as useful as some analysts had hoped.

Right now I think the ADP report is suggesting stronger job growth (a good thing). The ADP report has averaged 217,000 jobs added per month over the last two months, and maybe that indicates the BLS report will be higher than expected (current expectations are for an increase of 150,000 payroll jobs in January). But the ADP report really isn’t useful in predicting the BLS numbers on a month to month basis. I just use it as a “hint”.

by Calculated Risk on 2/02/2011 10:46:00 AM

For discussion (I have no special insights - just hoping for the best).

• From the WSJ: Clashes After Egypt's Army Calls for End to Protests

• From the NY Times: Clashes Erupt in Cairo Between Mubarak’s Allies and Foes

• From al Jazeera: Live blog Feb 2 - Egypt protests

by Calculated Risk on 2/02/2011 08:15:00 AM

ADP reports:

Private-sector employment increased by 187,000 from December to January on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from November to December was revised down by 50,000 to 247,000 from the previously reported increase of 297,000.

This month’s ADP National Employment Report suggests solid growth of private nonfarm payroll employment heading into the New Year. The recent pattern of rising employment gains since the middle of last year appears to be intact, as the average gain over December and January (217,000) is well above the average gain over the prior six months (52,000). Strength was evident within all major industries and across all size business tracked in the ADP Report.
...
In January, construction employment dropped 1,000. The total decline in construction employment since its peak in January 2007 is 2,311,000.

Note: ADP is private nonfarm employment only (no government jobs).

This was slightly above the consensus forecast of an increase of about 150,000 private sector jobs in January.

The BLS reports on Friday, and the consensus is for an increase of 150,000 payroll jobs in January, on a seasonally adjusted (SA) basis, and for the unemployment rate to increase slightly to 9.5%.

by Calculated Risk on 2/02/2011 07:26:00 AM

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

The Refinance Index increased 11.7 percent from the previous week. The seasonally adjusted Purchase Index increased 9.5 percent from one week earlier.
...
"Applications increased this week relative to the holiday week [Martin Luther King, Jr Day]," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Looking over the past two weeks, purchase applications are flat, and refinance applications are down about five percent."
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.81 percent from 4.80 percent, with points decreasing to 1.02 from 1.19 (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 2/01/2011 11:08:00 PM

From Dina ElBoghdady at the WaPo: Low rates prompting more 'cash-in' refinances

In the fourth quarter, 46 percent of borrowers who refinanced their primary mortgages brought cash to settlement to lower the balance on their loans, Freddie Mac said. That's the highest share of so-called "cash-in" refinances since the company started tracking the numbers in 1985.

Some people are doing 'cash in' refis because they have negative equity, others to avoid PMI, and apparently a large number are bringing cash to closing to meet conforming loan limits:

Among them is Amy Rifkind, an attorney who wrote a check for about $70,000 when she refinanced her home ... By doing that, Rifkind and her husband brought down their loan balance below the $417,000 mark and secured a 4.25 percent rate.

Talk about deleveraging - we've come a long way from the 'cash out' craze.

by Calculated Risk on 2/01/2011 08:45:00 PM

Earlier:
• A little color on the economic data and my current economic outlook.
• U.S. Light Vehicle Sales 12.62 million SAAR in January

Fannie Mae reported that the serious delinquency rate decreased to 4.50% in November from 4.52% in October. Freddie Mac reported that the serious delinquency rate decreased to 3.84% in December from 3.85% in November. (Note: Fannie reports a month behind Freddie).

These are loans that are "three monthly payments or more past due or in foreclosure".
Click on graph for larger image in graph gallery.

Some of the rapid increase over the last couple of years was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent. As modifications have become permanent, they are no longer counted as delinquent.

The increases for Freddie Mac in October and November were probably related to the new foreclosure moratoriums. Now it appears the rate has started to decrease again.

by Calculated Risk on 2/01/2011 04:47:00 PM

Please see the previous post for a little color on the economic data.

Based on an estimate from Autodata Corp, light vehicle sales were at a 12.62 million SAAR in January. That is up 17.5% from January 2010, and up 1.0% from the sales rate last month (Dec 2010).

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for January (red, light vehicle sales of 12.62 million SAAR from Autodata Corp).

This is the highest sales rate since August 2008, excluding Cash-for-clunkers in August 2009.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate. The current sales rate is still near the bottom of the '90/'91 recession - when there were fewer registered drivers and a smaller population.

This was at the consensus estimate of 12.6 million SAAR.

by Calculated Risk on 2/01/2011 02:41:00 PM

I’ve been writing this blog for over six years now - and there are many people to thank - and I’m still enjoying the process. I use the blog to track economic data and occasionally post some analysis.

Of course I have no crystal ball, and I try to link to the source data, when available, so readers can draw their own conclusions (I'm well aware that many people disagree with my views).

I’m going to add a daily summary and analysis post, usually around 4 PM ET, although sometimes earlier, like today because the vehicle sales data will be available around 4 PM, and sometimes later because – well, sometimes I’m especially lazy.

For the U.S. economy, there have been two huge stories over the last 5 or 6 years. The first was the housing / credit bubble, followed by the housing bust and financial crisis ... and everything related. The second has been the sluggish and choppy recovery that started in the 2nd half of 2009 and is ongoing. Hopefully I’ve gotten both stories mostly right.

Some people question whether it is a real “recovery” with significant fiscal and monetary support, and with the unemployment rate at 9.4%. I understand. This is definitely a fragile recovery, but it does appear both GDP and employment (finally) are improving.

This will be a difficult transition from life support to a self-sustaining recovery, but it does appear that GDP and employment growth will be better in 2011 than in 2010. Here is my current economic outlook:

• GDP growth better in 2011 than in 2010, but still not strong recovery given the slack in the system. I expect real GDP growth of 3.5% to 4.0% this year.

• Similarly, I expect employment growth to be better in 2011 than in 2010. I’m forecasting something close to 200 thousand private sector jobs on average per month this year.

• I think the inflation rate (by the core measures) will stay below the Fed's 2% target throughout 2011.

• Also I don't think the Fed will raise rates in 2011. I do think the Fed will buy the entire $600 billion of LSAP (or QE2). As I mentioned yesterday, I think there is a good possibility that the Fed will taper off the QE2 program instead of ending it abruptly in June. I think the size will remain the same, but the purchase program will be decreased gradually over a few additional months (like through the end of Q3).

• There are several downside risks: European issues, state and local government budget cuts and some possible defaults, housing issues (falling house prices, more foreclosures), and rising commodity / oil prices.

For more, see the The Brighter Outlook (and the Ten Questions for 2011 at the bottom).

The data this morning is consistent with this outlook.

• ISM Manufacturing Index increases in January

This was a strong report and above expectations. The new orders and employment indexes were especially strong. Here is the graph of the ISM index.

• Private Construction Spending decreases in December

This was weak as expected. However the story with construction spending is that residential investment will probably pick up in 2011, adding to both GDP and employment for the first time since 2005. This is most obvious in the multi-family sector.

And non-residential investment will probably bottom mid-year, and the drag on GDP and employment is almost over from this sector. Earlier this morning I posted:

• Q4 Investment: Office, Mall, Lodging and Residential Components

Those graphs show that office, mall and lodging investment are probably near a bottom – I don’t think investment will fall much further. The second graph shows residential investment, and I expect both multi-family and single family to increase in 2011 (although single family growth will be sluggish because of the overhang of existing vacant homes). That is why the data from the Census Bureau yesterday is important:

• Q4 2010: Homeownership Rate Falls to 1998 Levels

It appears the number of excess housing units is declining. Finally, it takes over a year, on average, to complete a multi-family building. So even though investment will pick up in 2011, the number of units completed will be at record lows this year – and that will help absorb the excess units.