by Calculated Risk on 3/31/2011 10:16:00 AM

A quick note: The Irish bank stress test results will be released at 4:30 PM local time (11:30 AM ET).

The Irish Times has a live blog discussing the results.

Here are the Irish yields from Bloomberg for 2 year and 10 year bonds.

by Calculated Risk on 3/31/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending March 26, the advance figure for seasonally adjusted initial claims was 388,000, a decrease of 6,000 from the previous week's revised figure of 394,000. The 4-week moving average was 394,250, a increase of 3,250 from the previous week's revised average of 391,000.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 394,250.

The number of weekly claims for last week was revised up - so this was reported as a decline. But what really matters is this is the 5th consecutive week with the 4-week average below the 400,000 level. There is nothing magical about 400,000, but this is a small positive step for the labor market.

by Calculated Risk on 3/30/2011 10:37:00 PM

The Irish bank stress test results will be released tomorrow.

From the Irish Times: Noonan to propose 'radical' bank sector restructuring

... The results of the tests will lead [Finance Minister] Michael Noonan to undertake “a radical new approach” to fix the banks, a Government source said.

Mr Noonan will make a “watershed” argument for a EU-wide solution around passing bank losses on to bondholders ... The Minister will speak for 20 minutes in the Dáil immediately after the announcement of the test results by the Central Bank.

Mr Noonan told Fine Gael TDs and Senators at the party’s parliamentary party meeting last night that the test results would be of major significance and would dominate the news over the weekend.
...
ECB chief Jean-Claude Trichet chaired a teleconference meeting of the bank’s governing council from China yesterday to discuss the situation in the Irish banks. A further meeting may be held today as the ECB finalises its response.

Here are the Irish yields from Bloomberg for 2 year and 10 year bonds.

Earlier:
• CoreLogic: Shadow Inventory Declines Slightly
• Lawler: The “Shrill Cry” from Lobbyists on QRM

by Calculated Risk on 3/30/2011 07:46:00 PM

Fannie Mae reported that the serious delinquency rate decreased to 4.45% in January from 4.48% in December. This is down from 5.52% a year ago.

Freddie Mac reported that the serious delinquency rate decreased to 3.78% in February from 3.82% in January. (Note: Fannie reports a month behind Freddie). This is down from a record high 4.20% in February 2010.

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 in 2009 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 slowdown in the rate of decline in the 2nd half of last year was probably related to the new foreclosure moratoriums.

Earlier:
• CoreLogic: Shadow Inventory Declines Slightly
• Lawler: The “Shrill Cry” from Lobbyists on QRM

by Calculated Risk on 3/30/2011 04:11:00 PM

Earlier on Shadow Inventory:
• CoreLogic: Shadow Inventory Declines Slightly

In the following long post, housing economist Tom Lawler clears up some misunderstandings and misinformation regarding the new proposed mortgage rules: The “Shrill Cry” from Lobbyists on QRM

Yesterday the Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); U.S. Securities and Exchange Commission (Commission); Federal Housing Finance Agency (FHFA); and Department of Housing and Urban Development (HUD) jointly issued their proposed rule on “credit risk retention” for assets collateralizing asset-backed securities pursuant to the Dodd-Frank Act, and the proposed rule included a proposed definition of a “qualified residential mortgage (QRM)” For ABS backed by QRMs, the DFA provides for an exemption of the risk-retention rule. For folks who don’t remember, the “inclusion” of an exemption for QRMs was in the act because of heavy lobbying by financial institutions and housing-related trade groups, and it put regulators in the uncomfortable position of trying to decide what types of mortgages were so inherently “low risk” that they should/could be excluded from the rule designed to ensure that ABS issuers had “skin in the game.”

Regulators yesterday proposed defining “QRM” much more restrictively than the lobbyists who had successfully gotten the concept of a “QRM” into the legislation, including a LTV restriction of 80% (and no piggybacks), front/back end DTIs of 28% and 36%, respectively, and other “borrower credit history” restrictions. Industry lobbyists quickly commented negatively.

Read more »

by Calculated Risk on 3/30/2011 02:18:00 PM

Much has been made about recent comments by St Louis Fed President James Bullard and Philly Fed President Charles Plosser. Kansas City Fed president Thomas Hoenig added his voice today: Fed should head for the exit, Hoenig says

A few comments:
• When Plosser gave his EXIT speech last week, he started by saying: "As always, and perhaps particularly so today, the views I express are my own and do not necessarily represent those of the Federal Reserve System or my colleagues on the Federal Open Market Committee." Notice that he emphasized these are his views.

• Tim Duy wrote today: Fed Watch: Running the Fed Like an Economics Department

It seems to me that the Fed lacks a coherent communication strategy – there is no willingness on the part of the leadership to enforce talking points. As a consequence, there is enormous pointless chatter from Fed officials that might be interesting in some sense, but provide misleading guidance about policy direction. Recent talk about scaling back the size of the large scale asset program, for instance. Almost certainly not going to happen – so why talk about it? Sadly, it appears to be an almost deliberate effort to create uncertainty among market participants at a time when the opposite is so important.

A key European analyst wrote to his clients today:

Professor Bernanke likes to allow his students to roam the campus and say what they think. This collegiate approach leads to vibrant debate, but debate that may have previously only occurred behind the closed doors of the FOMC.

And that is the point: these comments are the opinions of a few regional presidents - some non-voting - and do not represent the views of the majority on the FOMC.

• The "big three", Fed Chairman Bernanke, Vice Chair Janet Yellen, and NY Fed President William Dudley will all speak over the next two weeks, starting with Dudley this Friday, Bernanke on April 4th, and Yellen on April 11th. I expect they will speak with one voice and stand behind the current QE2 policy stance and the "exceptionally low levels for the federal funds rate for an extended period" guidance. I also expect they will also argue that the increase in inflation is transitory.

Although I read all the regional Fed speeches, I'm not sure why some market participants have been paying closer attention to certain speeches. Perhaps they are unaware of Professor Bernanke's "collegiate approach"!

I believe the current policy will continue as planned.

by Calculated Risk on 3/30/2011 10:25:00 AM

From CoreLogic: CoreLogic Reports Shadow Inventory Declines Slightly, However, Nine Months’ Worth of Supply Remains

Click on graph for larger image in graph gallery.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the "visible supply" and cannot be counted as shadow inventory.

CoreLogic estimates the "shadow inventory" (by this method) at about 1.8 million units.

CoreLogic ... reported today that the current residential shadow inventory as of January 2011 declined to 1.8 million units, representing a nine months’ supply. This is down slightly from 2.0 million units, also a nine
months’ supply, from a year ago.

CoreLogic estimates current shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLS) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders. Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed non-listed properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official metrics of unsold inventory.
...
Of the 1.8-million unit current shadow inventory supply, 870,000 units are seriously delinquent (4.2 months’ supply), 445,000 are in some stage of foreclosure (2.1 months’ supply) and 470,000 are already in REO (2.2 months’ supply).

The second graph shows the same information as "months-of-supply". This is in addition to the visible months-of-supply (inventory listed for sale). Note: It is the visible inventory that mostly impacts prices, but this suggests the visible inventory will stay elevated for some time (no surprise).

CoreLogic also notes:

In addition to the current shadow inventory supply, there are nearly 2 million current negative equity loans that are more than 50 percent “upside down” that will likely become shadow supply in the near future.

This report provides a couple of key numbers: 1) there are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale, and 2) there are about 2 million current negative equity loans that are more than 50 percent “upside down”.

by Calculated Risk on 3/30/2011 08:15:00 AM

ADP reports:

Private-sector employment increased by 201,000 from February to March on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from January 2011 to February 2011 was revised down to 208,000 from the previously reported increase of 217,000.
...
The average monthly increase in employment over the last four months – December through March – has been 211,000, consistent with a gradual if uneven decline in the unemployment rate. This is almost three times the average monthly gain of 74,000 over the preceding four months of August through November.

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

This was about at the consensus forecast of an increase of about 205,000 private sector jobs in March.

The BLS reports on Friday, and the consensus is for an increase of 195,000 payroll jobs in March, on a seasonally adjusted (SA) basis, and for the unemployment rate to hold steady at 8.9%.

by Calculated Risk on 3/30/2011 07:19:00 AM

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

The Refinance Index decreased 10.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 1.7 percent from one week earlier.
...
"Treasury and mortgage rates increased towards the end of last week, as global markets calmed following the recent crises in Japan and the Middle East. Refinance volume predictably fell in response to these rate increases. As rates climb back to 5 percent, fewer homeowners have both the incentive and the ability to refinance," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Purchase volume remained roughly flat as we enter what is typically the peak homebuying season."
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.92 percent from 4.80 percent, with points decreasing to 0.83 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in graph gallery.

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

The four-week moving average of the purchase index is still moving sideways suggesting fairly weak home sales "as we enter what is typically the peak homebuying season". Note: There is a large percentage of cash buyers too.

by Calculated Risk on 3/30/2011 12:06:00 AM

Based on the February Personal Income and Outlays report, it is pretty clear that GDP growth in Q1 is going to be sluggish. We are going to see a number of downgrades, this once via David Leonhardt at the NY Times: As Economy Sputters, a Timid Fed (pay)

"a prominent research firm ... Macroeconomic Advisers, has downgraded its estimate of economic growth in the current quarter to a paltry 2.3 percent, from 4 percent."

Leonhardt mostly discusses the Fed, QE2 and whether the Fed is properly balancing unemployment and inflation.

Earlier posts on Case-Shiller house prices:
• Case Shiller: Home Prices Off to a Dismal Start in 2011
• Real House Prices and Price-to-Rent
• House Price Graph Gallery