by Calculated Risk on 7/05/2011 11:14:00 PM

Back in April, economist Tom Lawler previewed the coming changes to the GSE conforming loan limits on October 1st: FHFA: Where the Conforming Loan Limit Might Fall on October 1

The FHFA has now released the new limits.

Here is a Spreadsheet with the current loan limits and the new loan limits (sorted by largest change in limit).

The largest changes were for Monterey, CA (decrease of $246,750), Monroe, FL (-$200,750) and Puerto Rico (-$189,250). Maui, HI will see a decrease of $163,250 and San Diego, CA a decrease of $151,250.

From Nick Timiraos and Alan Zibel at the WSJ: Sellers Brace for New Mortgage Caps

As an emergency measure three years ago, Congress raised to as high as $729,750 the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies could guarantee. ... Now those limits are set to decline modestly in hundreds of counties across the U.S. as the government attempts to reduce its outsized footprint in the mortgage market and create room for private investors to compete.

Had the lower limits been in place last year, Fannie and Freddie would have backed 50,000 fewer loans, according to the Federal Housing Finance Agency. The bulk of the affected loans —about 60%— are in California, with another 20% in Massachusetts, New York and New Jersey.

This will not have a significant impact on the housing market. Remember there are about 5 million home sales per year - so even if all these homes fell through, the impact would be very small.

As Tom Lawler wrote in April:

Letting the conforming loan limits go down on October 1st is not a big deal from the standpoint of the housing market, and the new limits would still leave the VAST bulk of home sales transactions eligible for GSE acquisition. However, it is a “big deal” in terms of it being the first (though very small) step to reduce the government’s/GSE’s “footprint” in the US mortgage market.

by Calculated Risk on 7/05/2011 06:57:00 PM

From Ronald White at the LA Times: Gas prices aren't likely to drop much more this summer

California's average price fell 4.5 cents a gallon in the last week ... Prices have dropped an average of 46.3 cents a gallon since May 2, the [Energy Department's Energy Information Administration ]said.

Nationally, the price rose an average of 0.5 cent to $3.579 a gallon, largely because of continuing problems with refineries in the Midwest ... The national average peaked at $3.965 a gallon on May 9.

The gasbuddy.com data shows a similar decline (graph below).

This price decline is good news, but it just takes us back close to the March levels - when it appeared gasoline prices were already a drag on economic activity. That is when Personal Consumption Expenditure (PCE) growth slowed, and consumer sentiment fell sharply.

Still this is better than $4 per gallon ...

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 7/05/2011 03:20:00 PM

There are a few interesting pieces of data in this article ...

From Jon Lansner at the O.C. Register: 1st gain in O.C. construction jobs in 4 years

The number of Orange County construction workers in May was 200 jobs higher than a year ago. That’s no hiring spree but it’s the first year-over-year gain since December 2006.
...
This is not the only sign of stability in Orange County construction. Local builders pulled 935 building permits in May. That’s up fourfold in a year — and the most for a May in nine years, according to figures from the Construction Industry Research Board.

Cypress Village, an Irvine Co. apartment complex in northern Irvine, accounted for nearly three-fourths of the total permits issued in May and pushed multi-family permits to a 22-year high for May. But it wasn’t all rentals. May’s 250 single-family building permits were the most for that type of Orange County housing in a May in four years.

One of my predictions for 2011 was that residential construction employment would increase nationally for the first time since 2005. This table below shows the annual change in construction jobs (total, residential and non-residential) and through May for 2011.

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
Through May 2011	31	22	9

Not much - but it is a start.

Click on graph for larger image in graph gallery.

This graph shows the number of construction payroll jobs (blue line), and the number of construction jobs as a percent of total non-farm payroll jobs (red line).

Construction employment is down 2.197 million jobs from the peak in April 2006, but up 31 thousand jobs so far this year (through May).

Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential building employees in 1985, and residential specialty trade contractors in 2001). Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usual pickup in residential construction following previous recessions. Of course residential investment didn't lead the economy this time because of the huge overhang of existing housing units.

Also note the pickup in single family permits mentioned in Lansner's article (that fits with my thoughts yesterday).

I think this employment change - from layoffs to some small employment increases - is a kind of a big story.

by Calculated Risk on 7/05/2011 02:18:00 PM

Bloomberg reports that Moody's downgrades Portugal to Ba2 with a negative outlook.

This is a reminder that the financial crisis in Europe doesn't stop with Greece.

by Calculated Risk on 7/05/2011 11:09:00 AM

From the American Bankruptcy Institute: Consumer Bankruptcy Filings Down 8 Percent Through the First Half of 2011

U.S. consumer bankruptcy filings totaled 709,303 nationwide during the first six months of 2011 (Jan. 1-June 30), an 8 percent decrease from the 770,117 total consumer filings during the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The overall June consumer filing total of 119,768 represented a 5 percent decrease from the 126,270 filings recorded in June 2010.

Click on graph for larger image in graph gallery.

This graph shows the non-business bankruptcy filings by quarter using monthly data from the ABI and previous quarterly data from USCourts.gov.

Note: The spike in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation).

It is possible that consumer bankruptcy filings peaked in 2010, but they will probably stay elevated for some time.

by Calculated Risk on 7/05/2011 08:45:00 AM

From Bloomberg: Trichet May Save Face With S&P, Fitch Greece Moves: Euro Credit

Standard & Poor’s and Fitch Ratings may enable European Central Bank President Jean-Claude Trichet to support a private investor rollover of Greek debt by saying a default rating would be partial and temporary.

Many observers think the ECB will back down and still accept Greek government bonds as collateral.

By saying the default is temporary - and if at least one rating agency keeps the Greek government bonds above a default rating (even if the rating agency lowers Greece's issuer rating to “restricted default”) - this could give the ECB wiggle room to keep accepting Greek government bonds as collateral.

The policymakers appear to have a couple of months to find a solution. The yield for Greek 2 year bonds are up to 27% this morning, and the 10 year yield is at 16.5%. Portuguese and Irish 10 year yields are at (11.6% for Ireland, 11% for Portugal).

by Calculated Risk on 7/04/2011 08:28:00 PM

Weekend:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

The key report for this week will be the June employment situation report to be released on Friday.

The following table summarizes some of the grim labor statistics and compares the current situation (May 2011) with the employment situation when the recession started (December 2007).

Since December 2007, the U.S. working age civilian population has increased by 6.157 million people - however the number of people saying the are in the labor force has actually declined.

Total nonfarm payrolls are still 6.94 million below the December 2007 level, and private payrolls are 6.69 million lower.

Some of the decline in the labor force participation is due to an aging population, but these numbers suggest the U.S. needs 6.94 million jobs, plus some percent of the increase in the labor force, to get back to the 2007 employment situation.

On unemployment, perhaps the most staggering number is the 6.2 million workers who have been unemployed for 27 weeks or more.

Recoveries following a housing/credit bubble and financial crisis are usually sluggish - so these numbers are not a surprise - but this is a reminder that the top priorities for policymakers remains jobs, jobs and jobs.

Employment Statistics (Thousands or Percent)1
	May-11	Dec-07	Change
Civilian noninstitutional population (16 and over)	239,313	233,156	6,157
Civilian labor force	153,693	153,936	-243
Total nonfarm Payroll	131,043	137,983	-6,940
Private Payroll	108,916	115,606	-6,690
Unemployment Rate	9.1%	5.0%	4.1%
Unemployed	13,914	7,664	6,250
Part-Time for Economic Reasons	8,548	4,638	3,910
Marginally Attached to Labor Force2	2,206	1,395	811
Discouraged Workers2	822	363	459
U-6 Unemployment rate3	15.8%	8.8%	7.0%
Unemployed for 27 Weeks & over	6,200	1,327	4,873

¹ The payroll numbers are from the Current Employment Statistics (establishment survey), and the remaining numbers are from the Current Population Survey (household survey).
² BLS: "Discouraged workers are a subset of persons marginally attached to the labor force. The marginally attached are those persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, discouraged workers were not currently looking for work specifically because they believed no jobs were available for them or there were none for which they would qualify."
³ BLS: "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers"

by Calculated Risk on 7/04/2011 03:43:00 PM

Happy 4th of July!

Just thinking out loud (and enjoying the day) ...

All year I've been forecasting an increase in multi-family starts - and that is already happening.  Multi-family starts are on a 156,000 annual pace over the first 5 months of 2011 compared to 115,700 starts for all of 2010.  Historical this is a low level, but this is a nice increase over last year.

Now I'm starting to wonder if we will see a little increase in new home sales and single family housing starts in the 2nd half of 2011 on a seasonally adjusted (SA) basis.

On a Not Seasonally Adjusted (NSA) basis, home sales and starts will probably decline in the 2nd half of 2011 (compared to the first half), but there is a strong seasonal pattern for new home sales and single family starts. The "strong" season for new home sales usually runs from March through July, and for starts from April through September or October.

We already know there was a weak homebuying season and the homebuilders are depressed. But I suspect sales (and starts) will not decline as much as usual in the 2nd half of 2011, and that would mean an increase in sales on a seasonally adjusted basis.

I'm not looking for a strong increase in sales - and we sure don't want the homebuilders starting a bunch of speculative homes - but we might see a little pickup seasonally adjusted. In 2nd half of 2010, new home sales were at a record low 140 thousand homes (Q3 and Q4), and I suspect this year will be stronger. Just a gut feeling at this point ... I'll try to add some supporting data over the next few weeks.

Weekend:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

by Calculated Risk on 7/04/2011 08:47:00 AM

From the WSJ: S&P: Greece Debt Plan Is a Default

Standard & Poor's Corp. said Monday that a leading proposal for easing repayment terms on Greece's sovereign debt would amount to a default under the ratings firm's criteria ... The European Central Bank has maintained that it won't accept bonds with a default rating as collateral. Hence, averting a selective default rating is crucial to ensure that banks holding Greek bonds aren't shut out from the ECB's liquidity operations for the few days that the country's bonds would be rated selective default.
...
A spokesman for the European Commission said euro-zone governments designing a second bailout for Greece intend to avoid a selective default and expect to have "clarity" on the outlines of the package by the July 11 meeting of finance ministers.

From Bloomberg: EU Rescue Effort May Prompt S&P Default Rating on Greece

“It is our view that each of the two financing options described in the Federation Bancaire Francaise proposal would likely amount to a default,” S&P said in the statement. “But, once either option is implemented, we would assign a new issuer credit rating to Greece after a short time reflecting our forward-looking view of Greece’s sovereign credit risk.”
...
Even if S&P or other rating companies determined that the rollover plan constituted a default, the ruling wouldn’t necessarily trigger credit swaps insuring Greek debt. That decision may be made by the determinations committee of the International Swaps & Derivatives Association.

It appears the euro-zone has some time to figure this out - or for someone to blink. The next meeting is July 11th, but it appears they don't have to have a deal until mid-September.

The yield for Greek 2 year bonds is down to 25.9%, and the 10 year yield is at 16.4%. Portuguese and Irish 10 year yields are at (11.6% for Ireland, 10.9% for Portugal).

by Calculated Risk on 7/03/2011 08:08:00 PM

I know everyone wants to know the next deadline for Greece.  It looks like mid-September.

From the WSJ: Greece Awaits Further Rescue

Euro-zone finance ministers ... decided they would agree by September on arrangements for a new bailout ... German Finance Minister Wolfgang Schäuble said after the teleconference that a new aid package for Greece could be approved by autumn, in time for the next expected quarterly tranche of EU/IMF aid.

The Greek finance ministry also said a deal was expected by mid-September.

That gives the finance ministers about 2 1/2 months to find a way for private creditors to participate - without the rating agencies calling it a default. This will heat up again soon enough.

Yesterday:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd