by Calculated Risk on 6/17/2011 09:55:00 AM

The preliminary June Reuters / University of Michigan consumer sentiment index declined to 71.8 from 74.3 in May.


Click on graph for larger image in graphic gallery.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with gasoline prices falling, consumer sentiment is mostly moving sideways at a low level.

This was below the consensus forecast of 74.0.

by Calculated Risk on 6/17/2011 08:39:00 AM

From the NY Times: Germany Backs Down From Confrontation With E.C.B. Over Greece

Germany backed away Friday from a confrontation with the European Central Bank over a new bailout package for Greece, agreeing under pressure from France not to force private investors to shoulder some of the burden.
...
“We would like to have a participation of private creditors on a voluntary basis,” Mrs. Merkel said at joint news conference with Mr. Sarkozy.

“This should be worked out jointly with the E.C.B.,” she added. “There shouldn't be any dispute with the E.C.B. on this.”

I wonder how much pressure there will be on the private creditors? And how long will "voluntary" remain "voluntary"?

The Greek 2 year yield is off sharply to 28.2%. Seems strange to say the yields have fallen to 28.2%!

The ten year yields are down to 17.1%.

From the WSJ: Greece Reshuffles Cabinet

Greece's embattled Socialist government announced a sweeping cabinet reshuffle Friday, replacing the country's finance minister in an effort to shore up support for unpopular economic reforms.

In a statement, spokesman George Petalotis said the government had appointed Evangelos Venizelos as finance minister, replacing George Papaconstantinou.

I think being "unpopular" is part of Greek finance minister's job.

by Calculated Risk on 6/17/2011 01:09:00 AM

From Dow Jones: Trichet: Clear Position Is Greek Default Should Be Avoided - Report

It is the clear position of the European Central Bank that a Greek default in any form should be avoided, as should any action in the Greek crisis that would spawn a credit event, ECB President Jean-Claude Trichet says in an interview to be released Friday.
...
"We are telling them that doing anything that would create a credit event or selective default or default is not advisable," he says.

Still it remains the decision of political authorities and the ECB will act accordingly, based on decisions made, he notes. "But again, we are saying very clearly that they should avoid compulsion, credit event, or selective default or default. Our position is clear."

Trichet also said no one is considering that Greece, Portugal or Ireland leave the euro zone.

Earlier from the WSJ: EU Rehn Confident Next Greece Loan Tranche Approval Sunday

Euro-zone governments will agree at a meeting starting Sunday in Luxembourg to pay the next installment of rescue loans for Greece, while delaying the final decision on a longer-term Greek aid package until July, European Union economics commissioner Olli Rehn said in a statement Thursday.

Rehn strongly implied that the International Monetary Fund, which must also sign off on the loan payment, would agree even if euro-zone governments haven't put a multi-year financing plan in place for the country.

This would be a break from the IMF's history ... interesting times.

by Calculated Risk on 6/16/2011 07:18:00 PM

Back when I started this blog in January 2005, everyone followed the OFHEO index for house prices (now called the FHFA index), and none of the other indexes were publicly available. Although Case-Shiller was made available to the public in 2006, it wasn't widely followed until 2007.

Most reporters just used median prices from the NAR in 2005, but median prices are distorted by the mix of homes sold.

The first mention of the Case-Shiller index on my blog that I could find was in May 2007. The first report about the index in the LA Times appears to be on June 27, 2007 (ht Alex).

This is just a reminder that we were flying blind in 2005 and 2006!

Now the most followed house price indexes are Case-Shiller and CoreLogic; both repeat sales indexes. The FHFA index is still followed, but not as closely - it is also a repeat sales index, but only for homes with loans sold to or guaranteed by Fannie Mae or Freddie Mac.

There are several other house price indexes that I follow now: RadarLogic (based on a house price per square foot method), FNC Residential Price Index (a hedonic price index), Clear Capital, Altos Research and Zillow.

Recently Scott Sambucci, VP of Analytics at Altos Research, presented his outlook: Catfish Recovery: The Future Of US Housing

I'm planning on mentioning these other indexes, in addition to Case-Shiller and CoreLogic, and discussing some of the differences.

FNC released their house price indexes for April today. According to FNC, their Composite index of 20 cities (same cities as Case-Shiller) was up 0.7% in April. You can see the FNC composite indexes, and prices for 30 cities here.

Earlier this month, CoreLogic reported: CoreLogic® Home Price Index Shows First Month-over-Month Increase since mid-2010 (graphs here).

Other indexes - like Zillow - are still showing declines in April.

I prefer more data to almost no data, like back in 2005. But now we have to sort through all these indexes and figure out what they mean. It does appear the price declines have slowed - or prices might have increased slightly in April (CoreLogic and FNC). Some of this could be seasonal ...

Earlier:
• Housing Starts increase in May
• Residential Investment: Mutli-family Starts and Completions
• Philly Fed Survey: "Regional manufacturing activity weakened in June"
• Weekly Initial Unemployment Claims decrease to 414,000

by Calculated Risk on 6/16/2011 03:32:00 PM

From Prashant Gopal at Bloomberg: Homeowners Refinance to 15-Year Mortgages to Add Equity (ht Brian)

Cecelia Kirchman happily added $250 to her payment when she refinanced last August. ... [The Kirchmans] are among the growing number of “equity builders” -- creditworthy homeowners with steady jobs and enough cash to lock in near record-low interest rates and shorten the length of their loans ...

The portion of borrowers refinancing in January who took 15-year mortgages rose to 29 percent from 11 percent two years earlier ...

The share of cash-in refinancings reached a record 44 percent in the fourth quarter, according to data from Freddie Mac dating to 1985. (see Freddie Mac: Very low Cash-Out Refinance Activity for more stats) ...

“They are people who -- rather than waiting for home values to rise -- are taking matters into their own hands,” [Stuart Feldstein, president of SMR Research Corp] said. “They are building equity on their own.”

Ahhh ... building equity the old-fashioned way.

And that brings up the topic of "burning the mortgage" - a quaint old traditional that might make a come back ...

Here is a 1949 magazine ad (ht Brian).

The text reads: “Burning the Mortgage – a memorable event in the typical American home. The toast – with MILLER HIGH LIFE, of course”

The "typical American home"? I wonder what they would have thought of all the mortgage brokers a few years ago talking about home equity being "dead money"?

And from the Bloomberg article:

Switching to a 15-year term made sense for Kirchman, 55, who has no plans of moving anytime soon and is looking ahead to retirement. ... “I’ll be retiring in 10 to 12 years,” Kirchman said. “I don’t like the thought of still having that as an expense. I’d rather be taking trips.”

I hope she plans a nice mortgage burning party!

by Calculated Risk on 6/16/2011 12:11:00 PM

Also from the Housing Starts report this morning ...

Although the number of multi-family starts can vary significantly from month to month, apartment owners are seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and will be breaking ground this year. So I've been forecasting a pickup in multi-family starts this year.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

The rolling 12 month total for starts (blue line) is now at the same level as the rolling 12 month for completions (red line), but they are heading in opposite directions. Starts are picking up and completions are declining.

It is important to note that even if there is a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). The following table shows RI in Q1 2011:

Residential Investment, Q1 2011
	Dollars (millions) SAAR	Percent of RI
Single-family structures	$106,736	32.9%
Improvements	$151,622	46.8%
Multifamily structures	$12,734	3.9%
Brokers' commissions on sale of structures	$52,152	16.1%
Other	$888	0.3%

Usually investment in single-family structures is over half of RI, but obviously single-family is very depressed right now. A strong pickup in multi-family might only add a couple of percent to residential investment, but it also appears that home improvement is picking up a little. And some increase for both multi-family and home improvement is why I expect RI to make a positive contribution to both GDP and employment (residential construction) in 2011 for the first time since 2005.

Anecdotal evidence: I visited the local planning department yesterday, and I was told that permit activity has picked up over the last couple of months. I went upstairs to chat, and when I came back down the lobby was full - something they haven't seen for some time.

by Calculated Risk on 6/16/2011 10:00:00 AM

From the Philly Fed: June 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 3.9 in May to -7.7, its first negative reading since last September. [any reading below zero is contraction]. The demand for manufactured goods, as measured by the current new orders index, showed a similar decline: The index fell 13 points and recorded its first negative reading since last October. The current shipments index fell just 3 points but remained slightly positive. Firms reported declines in inventories and unfilled orders, and shorter delivery times.

Firms’ responses suggested little overall improvement in the labor market this month. The current employment index remained positive for the ninth consecutive month ...

This indicates contraction in June for the first time since last September. This was well below the consensus of 7.0.

Click on graph for larger image in graph gallery.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through June. The ISM and total Fed surveys are through May.

This early reading suggests the ISM index could be below 50 in June - is so, this would be the lowest reading since mid-2009.

Earlier:
• Housing Starts increase in May
• Weekly Initial Unemployment Claims decrease to 414,000

by Calculated Risk on 6/16/2011 08:58:00 AM

From the Census Bureau: Permits, Starts and Completions.

Housing Starts:
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Single-family housing starts in May were at a rate of 419,000; this is 3.7 percent (±9.5%)* above the revised April figure of 404,000. The May rate for units in buildings with five units or more was 134,000.

Building Permits:
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000.

Single-family authorizations in May were at a rate of 405,000; this is 2.5 percent (±1.1%) above the revised April figure of 395,000. Authorizations of units in buildings with five units or more were at a rate of 190,000 in May.

Click on graph for larger image in graph gallery.

Total housing starts were at 560 thousand (SAAR) in May, up 3.5% from the revised April rate of 541 thousand.

Single-family starts increased 3.7% to 419 thousand in May.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

This was above expectations of 547 thousand starts in May. Multi-family starts are beginning to pickup - although from a very low level - but single family starts are still moving sideways.

by Calculated Risk on 6/16/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending June 11, the advance figure for seasonally adjusted initial claims was 414,000, a decrease of 16,000 from the previous week's revised figure of 430,000. The 4-week moving average was 424,750, unchanged from the previous week's revised average of 424,750.

The following graph shows the 4-week moving average of weekly claims for the last 40 years.

Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged this week at 424,750.

This is the tenth straight week with initial claims above 400,000, and the 4-week average is at about the same the level as in January. This suggests the labor market weakness in May continued into early June.

by Calculated Risk on 6/15/2011 10:39:00 PM

• Catherine Rampell at the NY Times Economix writes: The Great Growth Disappointment

Second verse, same as the first: The quarter when the economy was supposed to stage its comeback is looking just as bad as its disappointing predecessor.

... after a major bummer of an inflation report, Macroeconomic Advisers, the highly respected forecasting firm, lowered its annualized second quarter G.D.P. forecast to 1.9 percent.

For reference, when the quarter began, Macroeconomic Advisers was expecting 3.5 percent growth

Rampell provides a graph that shows Q2 estimates are tracking the same downward path as Q1 projections. Now it is all about the 2nd half ...

• Oil prices fell sharply today. WTI futures are down to $95.31 per barrel and Brent is down to $113.92.

Gasbuddy.com shows gasoline prices are now down almost 30 cents per gallon nationally from the recent peak at the beginning of May, and prices are still falling.

• In Q1, Fannie and Freddie were foreclosing at record levels - and selling REO (Real Estate Owned) even faster - so their REO inventory actually declined.

However, the FHA was apparently having REO inventory problems and the FHA's REO inventory increased in Q1. Apparently the problem has been solved since the FHA reported 7,410 Conveyances (REO acquired) in April, about the recent pace, but REO sales surged to 11,375 (an all time record). So the FHA's REO inventory declined in April - and will probably decline in Q2.

Just something to remember - the F's (Fannie, Freddie and the FHA) are now foreclosing and selling REO at a record pace. The REOs are not "piling up" at the lenders. This increase in REO selling is why distressed sales are a high percentage of sales again.

Earlier:
• NAHB Builder Confidence index declines in June
• Industrial Production edged up in May, Capacity Utilization unchanged
• Empire State Survey indicates contraction
• MBA: Mortgage Purchase Application activity increases