by Calculated Risk on 8/23/2011 03:05:00 PM

I haven't post this in some time, but the map is turning red again ...


Click on map for larger image.

Above is a map of the three month change in the Philly Fed state coincident indicators. Several states have turned red again. This map was all red during the worst of the recession, and all green not long ago. Here is the Philadelphia Fed state coincident index release (pdf) for July 2011.

In the past month, the indexes increased in 29 states, decreased in 13, and remained unchanged in eight for a one-month diffusion index of 32. Over the past three months, the indexes increased in 34 states, decreased in 12, and remained unchanged in four (Arkansas, Delaware, Hawaii, and Washington) for a three-month diffusion index of 44.

The second graph is of the monthly Philly Fed data for the number of states with one month increasing activity.

The indexes increased in 29 states, decreased in 13, and remained unchanged in 8. Note: this graph includes states with minor increases (the Philly Fed lists as unchanged).

Note: These are coincident indexes constructed from state employment data. From the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

On July Home Sales:
• New Home Sales in July at 298,000 Annual Rate
• Last week: Existing Home Sales in July: 4.67 million SAAR, 9.4 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 8/23/2011 12:15:00 PM

• Richmond Fed: Manufacturing Activity Pulled Back Markedly in August; Shipments and New Orders Declined

In August, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — declined nine points to −10 from July's reading of −1.
...
Hiring activity at District plants slowed in August. The manufacturing employment index subtracted three points to 1 and the average workweek index moved down five points to −5. Moreover, wage growth eased, losing eight points to finish at 2.

Another weak regional manufacturing survey.

• From the FDIC: Quarterly Banking Profile

The number of institutions on the FDIC's "Problem List" fell for the first time in 15 quarters. The number of "problem" institutions declined from 888 to 865. This is the first time since the third quarter of 2006 that the number of "problem" banks fell. Total assets of "problem" institutions declined from $397 billion to $372 billion. Twenty-two insured institutions failed during the second quarter, four fewer than in the previous quarter, and the fewest since the first quarter of 2009. This is the fourth quarter in a row that the number of failures has declined. Through the first six months of 2011, there have been 48 insured institution failures, compared to 86 failures in the same period of 2010.

• Distressing Gap: The following graph shows existing home sales (left axis) and new home sales (right axis) through July. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Then along came the housing bubble and bust, and the "distressing gap" appeared due mostly to distressed sales. The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

Click on graph for larger image in graph gallery.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

On July Home Sales:
• New Home Sales in July at 298,000 Annual Rate
• Last week: Existing Home Sales in July: 4.67 million SAAR, 9.4 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 8/23/2011 10:00:00 AM

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 298 thousand. This was down from a revised 300 thousand in June (revised from 312 thousand).

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new single-family houses in July 2011 were at a seasonally adjusted annual rate of 298,000 ... This is 0.7 percent (±12.9%)* below the revised June rate of 300,000, but is 6.8 percent (±13.5%)* above the July 2010 estimate of 279,000.

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

Months of supply was unchanged at 6.6 in July. The all time record was 12.1 months of supply in January 2009. This is still higher than normal (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of July was 165,000. This represents a supply of 6.6 months at the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was at 61,000 units in July. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In July 2011 (red column), 27 thousand new homes were sold (NSA). The record low for July was 26 thousand in 2010 (following the expiration of the homebuyer tax credit). The high for July was 117 thousand in 2005.

This was below the consensus forecast of 313 thousand, and was just above the record low for the month of July - and new home sales have averaged only 300 thousand SAAR over the 15 months since the expiration of the tax credit ... moving sideways at a very low level.

by Calculated Risk on 8/23/2011 08:58:00 AM

By request, the following graphs show the percent of loans delinquent by loan type: Prime, Subprime, FHA and VA. First a table comparing the number of loans in Q2 2007 and Q2 2011 so readers can understand the shift in loan types.

Both the number of prime and subprime loans have declined over the last four years; the number of subprime loans is down by about one-third. Meanwhile the number of FHA loans has increased sharply.

MBA National Delinquency Survey Loan Count
	Q2 2007	Q2 2011	Change	Seriously Delinquent
Prime	33,916,830	31,888,314	-2,028,516	1,839,956
Subprime	6,204,535	4,126,408	-2,078,127	1,102,989
FHA	3,030,214	6,467,909	3,437,695	529,075
VA	1,096,450	1,402,208	305,758	64,502
Survey Total	44,248,029	43,729,247	-518,782	3,536,521

Note: There are about 50 million total first-lien loans - the MBA survey is about 88% of the total.

Click on graph for larger image in graph gallery.

The first graph is for all prime loans. This is the key category now ("We are all subprime!").

Since there are far more prime loans than any other category (see table above), over half the loans seriously delinquent now are prime loans - even though the overall delinquency rate is lower than other loan types.

The second graph is for subprime. This category gets all the attention - mostly because of all the terrible loans made through the Wall Street "originate-to-distribute" model and sold as Private Label Securities (PLS). Not all PLS was subprime, but the worst of the worst loans were packaged in PLS.

Although the delinquency rate is still very high, the number of subprime loans had declined sharply.

The third graph is for FHA loans. The delinquency rate increased in Q2 after declining for the last several quarters. Most of the FHA loans were made in the last couple of years.

Another reason for the previous improvement was eliminating Downpayment Assistance Programs (DAPs). These were programs that allowed the seller to give the buyer the downpayment through a 3rd party "charity" (for a fee of course). The buyer had no money in the house and the default rates were horrible.

The last graph is for VA loans.

All four categories saw a slight increase in Q2.

There are still quite a few subprime loans that are in distress, but the real keys going forward are prime loans and FHA loans.

Yesterday:
• MBA: Mortgage Delinquencies increased slightly in Q2
• MBA Delinquency Survey: Comments and State Data
• Mortgage Delinquencies by State: Range and Current

by Calculated Risk on 8/22/2011 10:05:00 PM

From Bloomberg: Commercial Property Prices Rose 0.9% in June, Moody’s Says

U.S. commercial property prices rose 0.9 percent in June, the second straight monthly gain ... The index, which measures broad price trends, is down 6.6 percent from a year earlier and 45 percent below the peak of October 2007.

The article mentions some of the events that have impacted commercial real estate since June, so July and August might be weaker:

Europe’s debt crisis, signs the U.S. will remain mired in sluggish growth through next year and the Standard & Poor’s downgrade of the nation’s credit rating roiled financial markets and triggered a selloff in securities linked to debt on commercial real estate. ...

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in graph gallery.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are down 6.6% from a year ago and down about 45% from the peak in 2007. Some of this is probably seasonal, although Moody's mentioned a price pickup "beyond trophy properties and major U.S. coastal cities". Note: There are few commercial real estate transactions compared to residential, so this index is very volatile.

Earlier:
• MBA: Mortgage Delinquencies increased slightly in Q2
• MBA Delinquency Survey: Comments and State Data
• Mortgage Delinquencies by State: Range and Current

by Calculated Risk on 8/22/2011 06:25:00 PM

Earlier I posted a graph on mortgage delinquencies by state. This raised a question of how the current delinquency rate compares to before the crisis - and also a comparison to the peak of the delinquency crisis in each state.

The following graph shows the range of percent seriously delinquent and in-foreclosure for each state (dashed blue line). The red diamond indicates the current serious delinquency rate (this includes 90+ days delinquent or in the foreclosure process).

Click on graph for larger image in graph gallery.

Some states have made progress: Arizona, Michigan, Nevada and California. Other states, like New Jersey and New York, have made little or no progress in reducing serious delinquencies.

Arizona, Michigan, Nevada and California are all non-judicial foreclosure states. States with little progress like New Jersey, New York, Illinois and Florida are all judicial states.

Note: This data is for 42 states only and D.C.

The second graph shows total delinquencies (including less than 90 days) and in-foreclosure.

Even though there has been some progress in a few states, there is a long way to go to get back to the Q1 2007 rates.

Earlier:
• MBA: Mortgage Delinquencies increased slightly in Q2
• MBA Delinquency Survey: Comments and State Data

by Calculated Risk on 8/22/2011 03:37:00 PM

From the San Francisco Fed: Boomer Retirement: Headwinds for U.S. Equity Markets?

This Economic Letter examines the extent to which the aging of the U.S. population creates headwinds for the stock market. We review statistical evidence concerning the historical relationship between U.S. demographics and equity values, and examine the implications of these demographic trends for the future path of equity values.
...
[E]vidence suggests that U.S. equity values are closely related to the age distribution of the population. Since demographic trends are largely predictable, we can forecast the path that the P/E ratio is likely to follow in the next few decades based on the predicted M/O ratio.
...
What does the model say about the future trajectory of the P/E ratio? ... To obtain this future P/E* path, we calculate the projected M/O ratio from 2011 to 2030 by feeding Census Bureau projected population data into the estimated model. Figure 2 shows that P/E* should decline persistently from about 15 in 2010 to about 8.4 in 2025, before recovering to 9.14 in 2030.

There are two diagrams in the economic letter. This is probably another reason many boomers will never retire ...

Earlier:
• MBA: Mortgage Delinquencies increased slightly in Q2
• MBA Delinquency Survey: Comments and State Data

by Calculated Risk on 8/22/2011 12:25:00 PM

A couple of comments from MBA chief economist Jay Brinkmann on the conference call:

• The bad news is short term delinquencies increased in Q2. The not-so-bad news is long serious delinquencies declined slightly.

• Because of the high level of delinquencies, there are some questions about the accuracy of the seasonal adjustment.

• Florida has almost 25% of all loans in the U.S. in the foreclosure process. California is 2nd with 10.6%, but the percent of loans in-foreclosure in California (3.62%) is actually below the national average (4.43%).

• Judicial foreclosure states usually have the highest percentage of loans in the foreclosure process.

Click on graph for larger image in graph gallery.

This graph shows the percent of loans in the foreclosure process by state and by foreclosure process. Red is for states with a judicial foreclosure process. Because the judicial process is longer, those states typically have a higher percentage of loans in the process. Nevada is an exception.

Florida, Nevada, New Jersey and Illinois are the top four states with percent of loans in the foreclosure process.

This graph shows all delinquent loans by state (sorted by percent seriously delinquent).

Florida and Nevada have the highest percentage of serious delinquent loans, followed by New Jersey, Illinois, New York, Ohio and Maine.

I'll post some more graphs later to show which states are seeing improvement.

Note: the MBA's National Delinquency Survey (NDS) covered "MBA’s National Delinquency Survey covers about 43.9 million first-lien mortgages on one- to four-unit residential properties" and the "The NDS is estimated to cover around 88 percent of the outstanding first-lien mortgages in the market." This gives almost 50 million total first lien mortgages or about 6.4 million delinquent or in foreclosure.

The third graph shows the number of loans delinquent in each state (as opposed to the percent). California is the largest state, so it is no surprise that the number of delinquent loans is very high (I'd expect California to always be #1). In that sense this graph is misleading - in reality California is in about the same shape as Indiana and Rhode Island (previous graph).

Florida has 7.6% of all loans, but almost 25% of all loans in-foreclosure and 18% of all seriously delinquent loans. In most ways, dividing this by states is arbitrary - except the foreclosure process matters.

Earlier:
• MBA: Mortgage Delinquencies increased slightly in Q2

by Calculated Risk on 8/22/2011 10:30:00 AM

The MBA reported that 12.87 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q2 2011 (seasonally adjusted). This is up slightly from 12.84 percent in Q1 2011.

From the MBA: Delinquencies Rise, Foreclosures Fall in Latest MBA Mortgage Delinquency Survey

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, an increase of 12 basis points from the first quarter of 2011, and a decrease of 141 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. ...

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 4.43 percent, down 9 basis points from the first quarter and 14 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.85 percent, a decrease of 25 basis points from last quarter, and a decrease of 126 basis points from the second quarter of last year.

"While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped. Mortgage delinquencies are no longer improving and are now showing some signs of worsening," said Jay Brinkmann, MBA's Chief Economist. "The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due."

Note: 8.44% (SA) and 4.43% equals 12.87%.

Click on graph for larger image in graph gallery.

This graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent increased to 3.46% from 3.35% in Q1. This is probably related to the increase in the unemployment rate.

Delinquent loans in the 60 day bucket increased slightly to 1.37% from 1.35%.

There was a slight decrease in the 90+ day delinquent bucket. This decreased to 3.61% from 3.65% in Q1 2011.

The percent of loans in the foreclosure process decreased to 4.43%.

So short term delinquencies ticked up, and the 90+ day and in-foreclosure rates declined. I'll have more later after the conference call this morning.

by Calculated Risk on 8/22/2011 08:30:00 AM

This is a composite index from the Chicago Fed: Index shows economic activity improved in July

Led by improvements in production-related indicators, the Chicago Fed National Activity Index increased to –0.06 in July from –0.38 in June. Three of the four broad categories of indicators that make up the index improved in July; only the sales, orders, and inventories category deteriorated from June.
...
The index’s three-month moving average, CFNAI-MA3, increased to –0.29 in July from –0.54 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image in graph gallery.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This index suggests the economy was still growing in July, but below trend.

Weekend:
• Summary for Week ending August 19th (with plenty of graphs)
• Schedule for Week of Aug 21st
• Some preliminary thoughts on Bernanke's 2011 Jackson Hole Speech