by Calculated Risk on 9/29/2011 08:30:00 AM

The DOL reports:

In the week ending September 24, the advance figure for seasonally adjusted initial claims was 391,000, a decrease of 37,000 from the previous week's revised figure of 428,000. The 4-week moving average was 417,000, a decrease of 5,250 from the previous week's revised average of 422,250.

The following graph shows the 4-week moving average of weekly claims since January 2000 (there is a longer term graph in graph gallery).

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 declined this week to 417,000.

This is the lowest level for weekly claims since early April, although the 4-week average is still elevated.

by Calculated Risk on 9/28/2011 09:31:00 PM

From Treasury: Second Quarter Mortgage Loan Fraud Suspicious Activity Persists

The Financial Crimes Enforcement Network (FinCEN) today reported in its Second Quarter 2011 Analysis of mortgage loan fraud suspicious activity reports (MLF SARs) that financial institutions filed 29,558 MLF SARs in the second quarter of 2011 up from 15,727 MLF SARs reported in the same quarter of 2010.

A large majority of the MLF SARs examined in the second quarter involved mortgages closed during the height of the real estate bubble. The upward spike in second quarter MLF SAR numbers is directly attributable to mortgage repurchase demands and special filings generated by several institutions. For instance, FinCEN noted that 81 percent of the MLF SARs filed during the quarter involved suspicious activities that occurred before 2008; 63 percent involved suspicious activities that occurred four or more years ago.

"We're continuing to see a large number of SARs filed on activity that occurred more than two years ago, an indication that financial institutions are uncovering fraud as they sift through defaulted mortgages," said FinCEN Director James H. Freis, Jr.

The most common mortgage loan fraud suspicious activity was the misrepresentation of income, occupancy, debts, or assets (about 30%). Some of the more current frauds are related to debt elimination and short sale fraud (unfortunately attempted short sale fraud is very common).

FinCEN has some Mortgage Fraud SAR Datasets breaking down the data by state, MSA and county. California was #1 in Q2 (Nevada or Florida have usually been #1). San Jose-Sunnyvale-Santa Clara, CA was the #1 MSA.

And in a related story from the AP: Santa Rosa Hells Angels leaders indicted on loan fraud. This involved a mortgage broker and false statement of income and assets to buy marijuana "grow houses". Oh my ...

by Calculated Risk on 9/28/2011 05:31:00 PM

From economist Tom Lawler:

It is difficult to “work up” an estimate of the NAR’s Pending Home Sales Index from local Realtor associations/boards/MLS, for several reasons. First, many of these A/B/M’s don’t release “new” pending sales data (that is, data on contracts signed in a month). Indeed, many don’t track such data at all, and as a result the NAR’s PHSI is based on a sample size about half as large as that used to estimate closed existing home sales. And second, some publicly-released A/B/M reports are run early in the month, and have preliminary pending sales that are often revised by a lot in subsequent months.

As such, my estimate of the NAR’s PHSI is subject to far more uncertainty than are my estimates for closed existing home sales.

Based on the data I do have, however, I estimate that the NAR’s August Pending Home Sales Index will probably come in about 3.5% higher than the July PHSI on a seasonally adjusted basis. While, as always, reported YOY gains vary massively across various A/B/M’s, almost all showed YOY gains and many – including but not limited to several in the Midwest – showed hefty YOY increases. Of course, July’s PHSI on a seasonally adjusted basis was 9% higher than last August’s, and this August had one more business day than last August. As such, a national YOY gain in unadjusted pending sales for August of close to 12% would produce a flat seasonally adjusted reading versus July.

In looking at various regional reports, only a handful showed YOY declines (including a few but not even close to all Florida markets), several showed modest single-digit gains (including several in the Northeast), but quite a few showed YOY gains of 20% or more (and a few by a LOT more).

A 3.5% gain would be well above the “consensus” forecast of a moderate decline.

CR Note: The NAR is scheduled to release Pending Home sales for August tomorrow (Thursday) at 10 AM ET. The consensus is for a 2% decrease in the index.

by Calculated Risk on 9/28/2011 03:54:00 PM

From the WSJ: Euro-Zone Bailout Plan Progresses

The euro zone is on track to expand its bailout fund ... But the debate ... has already moved on to two thornier issues: a more radical increase in the scope of bailouts, and possible debt restructuring for Greece.

Greece's failure to close its budget shortfall is prompting some European governments, led by Germany, to push for a re-examination of the international bailout program for Athens ... In return, Germany is under pressure to agree to "leverage" the euro-zone bailout fund ...

And a roundup of events from the Financial Times: Rolling blog: the eurozone crisis

• José Manual Barroso, president of the European Commission, gave his annual State of the Union address ... in which he insisted Greece would remain a member of the euro, and formally approved proposals for a tax on financial transactions ...
• The European Commission confirmed that the troika would return to Athens on Thursday ... and said an additional ‘eurogroup meeting’ (where European finance ministers meet up) would be held in October to “consider the disbursement of the next tranche” of bailout money
• Finland voted to approve expanding the powers of the [EFSF]
• German inflation hit a 3-year high
• French president Nicolas Sarkozy pledged to [reduce the French] budget deficit to 3 per cent of gross domestic product in 2013

The Greek 2 year yield is at 70%. The Greek 1 year yield is at 131%.

The Portuguese 2 year yield is up to 18% and the Irish 2 year yield was down sharply to 7.6%. 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 9/28/2011 01:43:00 PM

From Boston Fed President Eric Rosengren: Housing and Economic Recovery

A few excepts and couple of graphs that highlight two topics we've discussed for years:

[E]even though residential investment is a small share of GDP (today only 2.2 percent), it is quite interest-sensitive – it can decline quite dramatically as interest rates rise, and expand quickly when interest rates are relatively low. So it has been a disproportionally important part of the monetary policy transmission mechanism.

In the current situation, however, U.S. mortgage rates are quite low but residential investment has not been the engine of growth that it normally is in economic recoveries. As shown in Figure 4, exports have been a source of strength in the first two years of the U.S. recovery, and business fixed investment has grown at approximately the same rate in this recovery as in the previous three. Yet the household sector has been particularly weak. Consumption, which accounts for approximately 70 percent of U.S. GDP, has grown only about half as much in the first two years of the recovery as it did in the previous three recoveries. And the shortfall for residential investment is even more striking. In the previous three recoveries, residential investment grew over 30 percent on average in the first years of the recovery – but has actually decreased in the first two years of this recovery. ...

CR Note: Residential investment (RI) is usually an engine of recovery, but with the huge overhang of existing vacant housing units, RI didn't contribute during the first two years this time. This is exactly what we've expected.

The weak housing sector also has an impact on employment. Figure 9 shows that far fewer jobs have been created in the first two years of this recovery (the left bar in each pair) than in previous recoveries (the right bar in the pair). In fact, construction jobs have continued to decline during the first two years of this recovery – we have lost over a half a million construction jobs since the recovery began. While construction employment is typically volatile during a recovery, on average the sector adds roughly 150,000 jobs.

Indeed, ... employment in construction has declined by 9 percent in the first two years of this recovery compared to growth over 4 percent during the previous three recoveries. And weak construction employment and activity also reduces the demand for labor in sectors that support construction.

CR Note: Employment is been especially weak in this recovery, and construction employment was especially hard hit. In addition to the excess housing inventory, there is excess capacity in most industries - and households have too much debt and are deleveraging.

The little bit of good news is that Residential Investment will make a positive contribution to growth this year (mostly from multi-family and home improvement), and construction employment will probably increase this year (not much).

by Calculated Risk on 9/28/2011 10:24:00 AM

In June, Tom Lawler posted on how the NAR estimates existing home inventory. The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory).

In a few months the NAR will revise down their estimates fpr inventory and sales of existing homes for the last few years. Also the NAR methodology for estimating sales and inventory will be changed.

I think the HousingTracker / DeptofNumbers data that Tom mentioned provides a timely estimate of changes in inventory. Ben at deptofnumbers.com is tracking the aggregate monthly inventory for 54 metro areas.

Click on graph for larger image in graph gallery.

This graph shows the NAR estimate of existing home inventory through August (left axis) and the HousingTracker data for the 54 metro areas through September. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates this fall).

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the September listings - for the 54 metro areas - declined 16.7% from last year.

Of course there is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed or "visible" inventory is a key story in 2011 - and listed inventory for September is probably down to the lowest level since September 2005.

Note: inventory surged in the late 2005 and early 2006 - a key sign that the housing bubble was bursting.

by Calculated Risk on 9/28/2011 07:22:00 AM

Note: The graph below includes the enhanced sample discussed last week. "The survey captures more than 75% of all U.S. retail and consumer direct mortgage applications, compared to 50% previously." For a discussion of the changes, see: Presentation to Discuss Enhancements to MBA’s Weekly Applications Survey.

There is also additional data. The weekly survey now includes mortgage rates for both conforming and jumbo loans. There is also a new Monthly Profile report (see sample here: Monthly Profile of State and National Mortgage Activity). This report breaks down the monthly application data by product type, size of loans, and state data. This appears very useful for short-term prepay modeling given the differences across states. This report is only available to subscribers.

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 11.2 percent from the previous week. The seasonally adjusted Purchase Index increased 2.6 percent from one week earlier.
...
"Mortgage rates declined last week, at least partially in response to the Fed's announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities," said Mike Fratantoni, MBA's Vice President of Research and Economics. "With lower rates, refinance application volume increased to its highest level since August 19, 2011. Purchase application volume also increased. However, the increase was in conventional purchase applications, which were up by 4.9 percent. Purchase applications for government loans fell by 0.6 percent over the week, likely influenced by the pending decline in FHA loan limits."
...
The average loan size of all loans for home purchase in the US was $212,700 in August 2011, up from $211,200 in July 2011. The average loan size for a refinance was $241,300, up from $209,200 in July.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.25 percent from 4.29 percent, with points decreasing to 0.35 from 0.41 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.51 percent from 4.55 percent, with points decreasing to 0.38 from 0.46 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

August was an especially weak month for this index. This increase was pretty small, and although this doesn't include the large number of cash buyers, this suggests fairly weak home sales in September and October.

by Calculated Risk on 9/27/2011 08:34:00 PM

A few articles ...

From the WSJ: Greece Passes Property-Tax Law, Clearing a Path for Additional Aid

Greece's parliament approved a new property-tax law in a closely watched vote Tuesday ... The approval of the property tax is expected to open the way for the return to Athens this week of a troika of inspectors from the International Monetary Fund, the European Union and the European Central Bank.

The next step will be the return of the inspectors ... and the vote on the EFSF in Germany.

From the NY Times: Merkel Rallies Wary Coalition Ahead of Vote on Greek Aid

[L]awmakers in Slovenia voted Tuesday to approve their share of the rescue fund’s guarantees. Finland’s Parliament is expected to reluctantly approve the fund measure in a vote on Wednesday

The German parliament will vote on Thursday and Friday.

[T]he German finance minister, Wolfgang Schäuble, ruled out an increase in the size of the euro zone bailout fund, though not necessarily an increase in its ability to borrow. ... Mr. Schäuble also said Tuesday that it was likely that the rescue mechanism would be further “enhanced,” though he would not give details.

And the Financial Times is reporting: Split opens over Greek bail-out terms. Apparently some officials (Germany and a few others) are arguing that the private sector should take a larger haircut. So this isn't settled yet.

Eurozone finance ministers had originally hoped to sign off on the next aid tranche to Greece on Monday, but a decision is now expected to delay the next €8bn payment until an emergency meeting in two weeks.
excerpt with permission

Greece apparently has enough cash until mid-October ...

Earlier:
• CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units
• Case Shiller: Home Prices increased Seasonally in July
• Real House Prices and House Price-to-Rent

by Calculated Risk on 9/27/2011 04:53:00 PM

From ATA: ATA Truck Tonnage Index Edged 0.2% Lower in August

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index declined 0.2% in August after falling a revised 0.8% in July 2011. July’s decrease was less than the 1.3% ATA reported on August 23, 2011. The latest drop put the SA index at 114.4 (2000=100) in August, down from the July level of 114.6.
...
Compared with August 2010, SA tonnage was up a solid 5.2%. In July, the tonnage index was 4.5% above a year earlier.

“Freight has been going sideways for much of this year, but it isn’t falling significantly either, which suggests the U.S. economy just might skirt another recession,” ATA Chief Economist Bob Costello said.

Click on graph for larger image in graph gallery.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. From ATA:

Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.

Moving sideways all year ...

Earlier:
• CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units
• Case Shiller: Home Prices increased Seasonally in July
• Real House Prices and House Price-to-Rent

by Calculated Risk on 9/27/2011 01:42:00 PM

An update: Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here).

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.

Nominal House Prices

Click on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2011), and the monthly Case-Shiller Composite 20 SA (through July) and CoreLogic House Price Indexes (through July) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is back to July 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q3 1999 levels, the Composite 20 index is back to August 2000, and the CoreLogic index back to July 2000.

In real terms, all appreciation in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Composite 20 index is back to September 2000 levels, and the CoreLogic index is back to July 2000.

Earlier:
• CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units
• Case Shiller: Home Prices increased Seasonally in July