by Calculated Risk on 6/14/2011 08:30:00 AM

On a monthly basis, retail sales decreased 0.2% from April to May (seasonally adjusted, after revisions), and sales were up 7.7% from May 2010. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $387.1 billion, a decrease of 0.2 percent (±0.5%) from the previous month, but 7.7 percent (±0.7%) above May 2010.

Click on graph for larger image in graph gallery.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 16.4% from the bottom, and now 2.3% above the pre-recession peak.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 6.1% on a YoY basis (7.7% for all retail sales).

This was above expectations for a 0.5% decrease. Retail sales ex-autos were up 0.3%; at expectations of a 0.3% increase. As expected, auto sales impacted retail sales (due to supply disruptions).

by Calculated Risk on 6/14/2011 07:30:00 AM

From National Federation of Independent Business (NFIB): Consumer Spending Remains Weak: Small Business Optimism Dips Lower in May

The Index of Small Business Optimism fell 0.3 points in May to 90.9. This month marks the third monthly decline in a row. The proximate cause is the fact that 1 in 4 owners still report weak sales as their top business problem. Consumer spending is weak, especially for “services,” a sector dominated by small businesses.
...
Twenty-five (25) percent of the owners reported that weak sales continued to be their top business problem

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in graph gallery.

The first graph shows the small business optimism index since 1986. The index decreased to 90.9 in May from 91.2 in April.

This has been trending up, although optimism has declined for three consecutive months now.

The second graph shows the net hiring plans for the next three months.

Hiring plans declined in May and are slightly negative.

According to NFIB: “[I]ndications of minimal future growth include the fact that in the next three months, 13 percent plan to increase employment (down 3 points), and 8 percent plan to reduce their workforce (up 2 points). That yields a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a 3 point loss from April."

Weak sales is still the top business problem with 25 percent of the owners reporting that weak sales continued to be their top business problem in May. In good times, owners usually report taxes and regulation as their biggest problems.

The recovery continues to be sluggish for this index, probably somewhat due to the high concentration of real estate related companies.

by Calculated Risk on 6/13/2011 07:04:00 PM

Special Note: Dr. James Kennedy has a new method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". I haven't evaluated his method yet (here is a companion spread sheet), so the following is using my old "simple" method.

Note 2: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity (hence the name "MEW", but there is little MEW right now!), normal principal payments and debt cancellation.

Click on graph for larger image in new window.

For Q1 2011, the Net Equity Extraction was minus $107 billion, or a negative 3.7% of Disposable Personal Income (DPI). This is not seasonally adjusted.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined sharply in Q1. Mortgage debt has declined by $634 billion over the last twelve quarters. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. Note: most homeowners pay down their principal a little each month unless they have an IO or Neg AM loan, so with no new borrowing, equity extraction would always be slightly negative.

by Calculated Risk on 6/13/2011 02:43:00 PM

From DataQuick: Southland Home Sales, Median Price Post Steeper Declines From 2010

Southern California home sales held at a three-year low last month amid a sluggish move-up market and record-low sales of newly built homes. ...

A total of 18,394 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in May. That was up insignificantly – 0.3 percent – from 18,344 in April, and down 17.4 percent from 22,270 in May 2010, according to San Diego-based DataQuick. ... On average, sales between April and May have increased 5.7 percent since 1988, when DataQuick's statistics begin.

The 1,152 newly built homes that sold across the Southland last month marked the lowest new-home total for the month of May since at least 1988.
...
Distressed property sales continued to account for more than half of the Southland resale market last month, with little change from April. Roughly one out of three homes resold was a foreclosure, while about one in five was a “short sale,” where the sale price fell short of what was owed on the property.

May was another month of sluggish home sales in SoCal, especially for new home sales. National existing home sales will be reported next week on Tuesday, June 21st, and new home sales will reported on June 23rd - and I expect weak reports.

by Calculated Risk on 6/13/2011 01:02:00 PM

From the WSJ: Greece Gets Yet Another Downgrade (ht Kevin)

Standard & Poor’s just cut Greece’s debt rating to CCC from B, meaning Greek debt is “extremely speculative.” The outlook for Greek debt is “negative.”

The downgrade reflects our view that there is a significantly higher likelihood of one or more defaults, as defined by our criteria relating to full and timely payment, linked to efforts by official creditors to close an emerging financing gap in Greece. This financing gap has emerged in part because Greece’s access to market financing in 2012 and possibly beyond, as envisaged in the current official EU/IMF program, is unlikely to materialize.

This lack of access, in our view, creates a gap between committed official financing and Greece’s projected financing requirements. Greece has heavy near-term financing requirements, with approximately EUR95 billion of Greek government debt maturing between now and the end of 2013 along with an additional EUR58 billion maturing in 2014.

Moreover, the downgrade reflects our view that implementation risks associated with the EU/IMF program are rising, given the increasingly complicated political environment in Greece coupled with its current difficult economic climate.

And from Reuters: LCH.Clearnet ups Irish, Portuguese bond repo margin

It raised the additional margin required to 65 percent from 45 percent for long positions on Portuguese government bonds when clearing transactions through its Repoclear service.

The equivalent Irish rate increased to 75 percent from 65 percent, LCH.Clearnet said in a statement on its website.

The yield on the Portugal 10 year is at a new high (10.7%) and Ireland 10 year too (11.35%).

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 6/13/2011 09:04:00 AM

A couple of articles ...
• From the Sacramento Bee: Real estate scavengers flip foreclosed homes in Sacramento area (ht picosec)

As more Sacramento homes slip into foreclosure, scores of house "flippers" have swooped in to buy properties ... and sell them for quick profits.

... if the price is right, investors pounce. They snag a fifth of foreclosures in the region, according to figures from real estate tracking firm DataQuick Information Systems.

Eighty percent of these homes will be flipped within a year. Typically, they will fetch about $30,000 – or 20 percent – more than the flipper paid.

Flippers often pay cash and buy starter or midlevel homes.

This is very different than "flippers" during the boom. Back then flippers used highly leveraged financing and held the properties off the market for some time (a type of storage). These new flippers usually pay cash and try to sell as quickly as possible.

For a discussion of speculation and storage, see my April 2005 post: Speculation is the Key

• And from the TimesUnion: To buy, or not to buy, a home? (ht Justin)

[F]our years after the bubble began losing air, the challenge is to determine where the market is headed. Is the worst behind us? Or is the bubble continuing to deflate?

Many potential buyers, locally and nationally, seem convinced of the latter. ... Brokers say attitudes among potential buyers have changed. Once the desire to own a home burned red-hot at any price, in part because housing was seen as a way to quickly build a nest egg.

Now, the mood toward housing seems almost indifferent, agents say, despite low interest rates and dramatically improved conditions for buyers.

Yes - in 2005 it seemed everyone was getting rich, and people didn't want to be left behind. Besides house prices never went down (Greenspan said so), and it was easy to get a loan - even with no income and no job - and buy a home with no money down. What could go wrong?

Weekend:
• Summary for Week Ending June 10th
• Schedule for Week of June 12th
• Updated List: Ranking Economic Data

by Calculated Risk on 6/12/2011 10:15:00 PM

Everyone is focused on June 20th when the 17 euro zone ministers will meet in Luxembourg. There is also a meeting on Tuesday this week (June 14th), although there will not be a press conference following the meeting. Someone will probably blink before the 20th.

So next Sunday might be the new Monday once again (like during the U.S. financial crisis)!

From Landon Thomas at the NY Times: In Greece, Some See a New Lehman

Bond traders and officials at the European Central Bank have been unified in their warnings that a restructuring of Greece’s debt would set off an investor panic similar to the one that followed the bankruptcy of Lehman Brothers.

... if they are forced to take a loss, and the ratings agencies declare Greece in default, investors [might] start selling in a panic. And they [might] not sell just the bonds of countries struggling with debt — Portugal, Ireland, Spain and Italy.
...
According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks.
...
Citing recent data from the Bank for International Settlements, the blog points out that in the event of a Greek default, direct creditors would be on the hook for 70 percent of the losses, with credit default insurance picking up the rest. Thus, if one includes credit default exposure, American exposure to Greece increases from $7.3 billion to $41.4 billion.

Here was the article from Kash at the Street Light: Betting On the PIGs

And an update today from Kash: Greece Endgame, pt. 2

Earlier:
• Summary for Week Ending June 10th
• Schedule for Week of June 12th
• Updated List: Ranking Economic Data

by Calculated Risk on 6/12/2011 07:41:00 PM

As a followup to Tom Lawler's post on how the NAR estimates existing home inventory, Ben at HousingTracker.net (aka deptofnumbers.com) has put the aggregate monthly inventory data online.

UPDATE: The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory). 
Note: Sometime this summer, I expect the NAR to revise down their estimates of inventory and sales for the last few years. Also the NAR methodology for estimating sales and inventory will be changed. Until then, I think the HousingTracker data might be a better estimate of changes in inventory (and always more timely).

Ben is providing a weekly update of aggregate inventory for the 54 metro areas. Right now he is showing inventory is up 0.1% from last month, and down 7.1% from a year ago.

Usually changes in inventory lead changes in house prices.  As an example, the large increase in inventory at the end of 2005 suggested prices would fall in 2006 - and that is exactly what happened.  Now it appears inventory is falling, but of course inventory is still very high and there is a large percentage of distressed inventory, but this suggests house price declines will slow.

Also note that HousingTracker has median asking price data since 2006 (including the 25th and 75th percentiles). Thanks to Ben for putting this online!

Earlier:
• Summary for Week Ending June 10th
• Schedule for Week of June 12th
• Updated List: Ranking Economic Data

by Calculated Risk on 6/12/2011 01:20:00 PM

When the Fed's Q1 Flow of Funds report was released on Thursday, I mentioned that some homeowners were paying down their loan amounts when they refinanced. I received some email questions about this, so I dug up the most recent Freddie Mac data.

Some borrowers are paying down their loans because they do not have sufficient equity in their homes to qualify for a loan (a downpayment in arrears). Others are probably paying down their loan amount to meet the conforming loan limits and obtain a better rate.

Here is some data from Freddie Mac as of Q1: 75 Percent of Refinancing Homeowners Maintain or Reduce Debt in First Quarter

• In the first quarter of 2011, 3-out-of-4 homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Fifty-four percent maintained about the same loan amount, the highest share since 1985, when Freddie Mac began keeping records on refinancing patterns. In addition, 21 percent of refinancing homeowners reduced their principal balance.

• “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 25 percent of all refinance loans; the average cash-out share over the past 25 years was 62 percent.

• The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years (third quarter of 1996). ...

• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a savings of about 20 percent in interest costs.

A couple of graphs ...

Click on graph for larger image.

The first graph shows the percent of loans with Cash-Out, no change and lower loan amounts. Obviously the percent of Cash-Out loans is very low.

Freddie definitions: "Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.

The second graph shows the dollar amount of cash-out, and as a percent of the unpaid principal balance. The equity extraction boom in the 2004 through 2008 is obvious (too bad lending wasn't tightened up in 2005 or 2006).

Here are the Freddie spreadsheets with additional data (from Freddie): Quarterly Cash-Out Statistics and Quarterly Cash-Out Volume

by Calculated Risk on 6/12/2011 09:30:00 AM

Here is the weekly update on hotels from HotelNewsNow.com: STR: US results for week ending 4 June

In year-over-year comparisons, occupancy rose 2.5 percent to 58.5 percent, average daily rate increased 2.7 percent to US$96.63, and revenue per available room finished the week up 5.2 percent to US$56.55.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

Click on graph for larger image in graph gallery.

This graph shows the seasonal pattern for the hotel occupancy rate using a four week average for the occupancy rate.

The summer leisure travel season is now starting, and the occupancy rate will increase over the next few of months. The question is: Will the occupancy rate be closer to normal (blue), or to 2010 (dashed purple)?

Note: ADR and RevPAR are still well below the pre-recession levels. ADR is about 7% below the level of the same week in 2008.

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

Earlier:
• Summary for Week Ending June 10th
• Schedule for Week of June 12th
• Updated List: Ranking Economic Data