by Calculated Risk on 9/27/2011 11:15:00 AM

From CoreLogic: CoreLogic® Reports Shadow Inventory Continues to Decline

CoreLogic ... reported today that the current residential shadow inventory as of July 2011 declined slightly to 1.6 million units, representing a supply of 5 months. This is down from 1.9 million units, a supply of 6 months, from a year ago, and follows a decline from April 2011 when shadow inventory stood at 1.7 million units. The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.
...
Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.2-months’ supply) [down from 790,000 units in April], 430,000 are in some stage of foreclosure (1.2-months’ supply) [down from 440,000] and 390,000 are already in REO (1.1-months’ supply) [down from 440,000].
...
Mark Fleming, chief economist for CoreLogic, commented, “The steady improvement in the shadow inventory is a positive development for the housing market. However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

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.

So the key number in this report is that as of July, there were 1.6 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.

Note: The unlisted REO seems a little high since total REO has dropped sharply over the last couple of quarters.

Earlier:
• Case Shiller: Home Prices increased Seasonally in July

by Calculated Risk on 9/27/2011 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for July (actually a 3 month average of May, June and July).

This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data. The composite indexes were up about 0.9% in July (from June) Not Seasonally Adjusted (NSA), but flat Seasonally Adjusted (SA).

From S&P: Home Prices Continue to Show Seasonal Strength According to the S&P/Case-Shiller Home Price Indices

Data through June 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices ... showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases; Las Vegas and Phoenix were down over the month and Denver was unchanged.

Click on graph for larger image in graph gallery.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 32% from the peak, and down slightly in July (SA). The Composite 10 is 1.4% above the June 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 31.8% from the peak, and up slightly in July (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 3.8% compared to July 2010.

The Composite 20 SA is down 4.2% compared to July 2010.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 8 of the 20 Case-Shiller cities in July seasonally adjusted. Prices in Las Vegas are off 59.2% from the peak, and prices in Dallas only off 9.5% from the peak.

As S&P noted, prices increased in 17 of 20 cities not seasonally adjusted (NSA). However seasonally adjusted, prices only increased in 9 cities.

Most of this prices increase was mostly seasonal. As S&P's David Blitzer said: "This is still a seasonal period of stronger demand for houses, so monthly price increases are expected ... ". The question is what happens later this year. I'll have more later ...

by Calculated Risk on 9/27/2011 08:41:00 AM

From the NY Times: German Leader Reaffirms Backing for Greece

Promising that Athens would live up to its commitments, the Greek prime minister urged Europe to pull together to take the steps needed to head off a potentially disastrous escalation in the sovereign debt crisis.

In a speech to the same group of German business leaders, Chancellor Angela Merkel said Germany would provide all the help it could to stabilize Greece.
...
Mrs. Merkel urged lawmakers to back the bill “in a spirit of friendship, a spirit of partnership, not in a spirit of imposing something.”

“If Europe isn’t doing well, then over the medium term Germany won’t do well,” she said.

And from the Financial Times: Rolling blog: the eurozone crisis

Our Athens reporter, Dimitris Kontogiannis, has set out the main details of the property tax ...
• The new tax will apply, with a few exceptions, to all electricity-powered buildings
• Those who refuse to pay will have their electricity cut off...
• The government estimates the new tax could raise €2bn-€2.5bn a year...

It sounds like the property tax will pass - and that the German parliament will approve the changes to the EFSF on Thursday.

by Calculated Risk on 9/26/2011 10:21:00 PM

To help keep track ...
• There is a vote on Tuesday in Greece concerning the new property tax around 12 PM ET (there will be protests too). I think this also includes some cuts in public sector too.

• Prime Minister George Papandreou will be in Germany on Tuesday for a meeting with Chancellor Angela Merkel.

• The "troika" inspectors (EU-IMF-ECB) will not return until the new legislation is passed.

• The EU Finance Ministers meet on Monday, October 3rd, and there is very little time for the inspectors to complete their work and still allow the Finance Ministers to vote on the release of the next loan installment. Greece needs the disbursement by mid-October to meet their obligations through the end of the year.

• On Thursday, the German Parliament will vote on increasing the European Financial Stability Facility (EFSF) according to the agreement reached on July 21st.

On August Home Sales:
• New Home Sales decline slightly in August
• Last week: Existing Home Sales in August: 5.0 million SAAR, 8.5 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 9/26/2011 07:35:00 PM

Alejandro Lazo at the LA Times wrote today: New home sales stuck at the bottom in August

"This year is shaping up to be the worst year on record for new home sales," [Patrick Newport, U.S. economist with IHS Global Insight] wrote in a note.

The Census Bureau started tracking New Home sales in 1963, and the record low was 412,000 in 1982 - until that record was broken in 2009 - and then again in 2010 - and it looks another new record in 2011.

Here is a table of the last ten years - remember that sales in 2009 and 2010 were boosted by the tax credit.

New Home Sales
Year	Total	Total through August
2000	877	608
2001	908	644
2002	973	670
2003	1,086	759
2004	1,203	841
2005	1,283	906
2006	1,051	756
2007	776	577
2008	485	365
2009	375	261
2010	323	231
2011	3031	211
1Current 2011 Pace

On August Home Sales:
• New Home Sales decline slightly in August
• Last week: Existing Home Sales in August: 5.0 million SAAR, 8.5 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 9/26/2011 03:55:00 PM

From CNBC: Officials Working on a Sovereign Debt TARP for Europe?

European officials are working on a detailed plan aimed at shoring up European bank stability, according to an official who spoke with CNBC’s Steve Liesman.

The plan appears to have a lot of moving parts. It would involve money from the European Financial Stability Facility (EFSF), a bailout vehicle created in 2010 to alleviate the sovereign debt crisis in Europe, to capitalize a special purpose vehicle that would be created by the European Investment Bank, a bank owned by the member states of the European Union.

More details at the article.

The Greek 2 year yield was up to 71%. The Greek 1 year yield is at 138%.

The Portuguese 2 year yield is up to 18.2% and the Irish 2 year yield was down to 8.8%.

The Italian 10 year yield was up slightly to 5.6%.

On August Home Sales:
• New Home Sales decline slightly in August
• Last week: Existing Home Sales in August: 5.0 million SAAR, 8.5 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 9/26/2011 12:09:00 PM

On New Home sales: Since new home sales are reported when contracts are signed, and consumer sentiment fell off a cliff in August following the debt ceiling debate, I thought we might see an even large decline for August new home sales. This was still a weak report - the 16th month in a row with sales around 300 thousand SAAR - but I thought it might even be worse.

• Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.1 to 5.9, suggesting growth picked up this month after stalling in August.

Most other measures of current manufacturing conditions also indicated growth in September. The new orders index edged down from 4.8 to 3.6 this month, suggesting order volumes continued to increase, but at a slightly decelerated pace. The shipments index rose from 6.7 to 9.4, reaching its highest level since March. The capacity utilization index remained in negative territory in September but rose from –2.8 to –1.3.

Perceptions of general business conditions worsened in September. The general business activity index remained negative for the fifth month in a row and fell from –11.4 to –14.4; ten percent of manufacturers perceived an increase in activity this month, while one quarter noted a decrease. The company outlook index fell from 7.2 in August to a near-zero reading in September. Still, the great majority of respondents said their outlooks were unchanged or improved from last month.

Labor market indicators reflected higher labor demand growth. The employment index came in at 13.4, up notably from 5.4 in August. One quarter of manufacturers reported hiring new workers, while 12 percent reported layoffs. The hours worked index moved back into positive territory in September, suggesting average workweeks lengthened.

Some improvement. There will be two more regional manufacturing surveys released this week and the ISM survey next week.

• Distressing Gap: The following graph shows existing home sales (left axis) and new home sales (right axis) through August. 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 August Home Sales:
• New Home Sales decline slightly in August
• Last week: Existing Home Sales in August: 5.0 million SAAR, 8.5 months of supply
• Graph Galleries: New Home Sales and Existing Home Sales

by Calculated Risk on 9/26/2011 10:00:00 AM

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 295 thousand. This was down from a revised 302 thousand in July (revised up from 298 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 August 2011 were at a seasonally adjusted annual rate of 295,000 ... This is 2.3 percent (±13.9%) below the revised July rate of 302,000, but is 6.1 percent (±18.8%) above the August 2010 estimate of 278,000.

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

Months of supply increased slightly to 6.6 in August. 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 August was 162,000. 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 60,000 units in August. 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 August 2011 (red column), 26 thousand new homes were sold (NSA). The record low for August was 23 thousand in 2010 (following the expiration of the homebuyer tax credit). The high for August was 110 thousand in 2005.

This was at the consensus forecast of 295 thousand, and was not far above the record low for the month of August set last year. New home sales have averaged only 300 thousand SAAR over the 16 months since the expiration of the tax credit ... moving sideways at a very low level.

by Calculated Risk on 9/26/2011 08:30:00 AM

This is a composite index from the Chicago Fed: Index shows economic activity weakened in August

Led by declines in production- and employment-related indicators, the Chicago Fed National Activity Index decreased to –0.43 in August from +0.02 in July. Contributions from three of the four broad categories of indicators that make up the index declined from July, and three of the four were negative in August.
...
The index’s three-month moving average, CFNAI-MA3, ticked down to –0.28 in August from –0.27 in July. August’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 August, but below trend.

Weekend:
• Schedule for Week of Sept 25th
• Summary for Week Ending Sept 23rd

by Calculated Risk on 9/25/2011 08:36:00 PM

The clock is ticking ...

From Bloomberg: ‘Barrier’ Around Greece Needed: Merkel

German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states ...

“We have to be in a position to react,” Merkel said. “We have to be able to put up a barrier.” Even so, “I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks.”

Merkel rejected Greece leaving the euro area, saying that “we can’t force it, but I don’t believe in that in any case” ... “Maybe Greece leaves, the next country leaves and then the next country after that,” she said. “They would speculate against all the countries.” ...

Merkel suggested that Greece may be able to get the next tranche of bailout aid, after a team of officials from the IMF, the ECB and the European Commission assess the Greek government’s progress ... Merkel is due to host Greek Prime Minister George Papandreou for talks in Berlin on Sept. 27, two days before German lawmakers vote on the enhanced rescue fund...

From the NY Times: Investors Ask if Anything Can Save Greece From Default

Under intense pressure from the United States, euro zone leaders spent the weekend in Washington working to craft a rescue plan to bolster sickly banks and buy the bonds of weak countries like Italy. But past efforts to bring an end to the debt crisis in Europe — including a second, €109 billion rescue plan for Greece forged by Europe and the International Monetary Fund in July — have failed to stand up. Investors remain skeptical that another plan will be any different.
...
With Greek government debt trading on the open market below 40 cents on the dollar, it is quickly approaching what debt experts call the recovery rate — the price investors would get for their bonds if the country officially defaulted.

In effect, that means investors have given up.

I'm not sure what the barrier will be, but just about everyone is now accepting that Greece will default (except a few Greek politicians). The question remains when - and what happens after they default.