by Calculated Risk on 10/18/2011 12:04:00 AM

The following report suggests that a refinance plan for borrowers with negative equity might be part of any mortgage settlement. This would only apply to mortgages owned by the banks - and for borrowers who are current.

From the WSJ: New Mortgage Plan Floated

The plan under consideration would make refinancing available to some borrowers whose houses are worth less than their loans, so long as they are current on mortgage payments ... Such borrowers typically aren't able to refinance because they lack equity in their homes. The plan would apply only to mortgages owned by the banks. ... Around 20% of all U.S. mortgages are owned by U.S.-chartered commercial banks ...

by Calculated Risk on 10/17/2011 08:38:00 PM

From Chicago Fed President Charles Evans: The Fed’s Dual Mandate Responsibilities: Maintaining Credibility during a Time of Immense Economic Challenges. In his speech, Evans notes two significant Fed policy errors - one in the 1970s that led to inflation, and one in the 1930s that led to deflation. He argues the current situation is more like the 1930s. Here is an excerpt on a proposed policy, from Charles Evans:

I believe that we can substantially ease the public’s concern that monetary policy will become restrictive in the near to medium term and, hence, reduce the restraint in expanding economic activity. This can be done by clearly spelling out in our policy statements the conditionality of our dual mandate responsibilities. What should such a statement look like? I think we should consider committing to keep short-term rates at zero until either the unemployment rate goes below 7 percent or the outlook for inflation over the medium term goes above 3 percent. Such policies should enable us to make progress toward our mandated goals. But if this progress is too slow, then we should move forward with increased purchases of longer-term securities. We might even consider a regime in which we reevaluate our progress toward our policy goals and the rate of purchase of such assets at every FOMC meeting.

Let me note several aspects to this policy conditionality. As I just said, I subscribe to a 2 percent target for inflation over the long run. However, given how badly we are doing on our employment mandate, we need to be willing to take a risk on inflation going modestly higher in the short run if that is a consequence of polices aimed at lowering unemployment. With regard to the inflation marker, we have already experienced unduly low inflation of 1 percent; so against an objective of 2 percent, 3 percent inflation would be an equivalent policy loss to what we have already experienced. On the unemployment marker, a decline to 7 percent would be quite helpful. However, weighed against a conservative estimate for the natural rate of unemployment of 6 percent, it still represents a substantial policy loss. Indeed, weighed against a less conservative long-run estimate of the natural rate, it is a larger policy loss than that from 3 percent inflation. Accordingly, these triggers remain quite conservatively tilted in favor of disciplined inflation performance over enhanced growth and employment, and it would not be unreasonable to consider an even lower unemployment threshold before starting policy tightening.

I would also highlight that while I believe that optimal policy would be consistent with inflation running above our 2 percent target for some time, this policy does not abandon the 2 percent target for long-run inflation. Indeed, I would support combining this policy with a formal statement of 2 percent as our longer-run inflation target in conjunction with reaffirming our commitment to flexible inflation-targeting. Furthermore, I see a 3 percent inflation threshold as a safeguard against inflation running too high for too long and thus unhinging longer-run inflation expectations. It also is a safeguard against the kinds of policy errors we made in the 1970s. If potential output is indeed lower and the natural rate of unemployment higher than I currently think, then resource pressures would emerge and actual inflation and the outlook for inflation over the medium term would rise faster than expected. If this outlook for inflation hit 3 percent before the unemployment rate falls to 7 percent, then we would begin to tighten policy.

I understand that some may find such a policy proposal to be hard to understand, or even risky. But these are not ordinary times — we are in the aftermath of a financial crisis with massive output gaps, with stubborn debt overhangs and high degrees of household and business caution that are weighing on economic activity. As Ken Rogoff wrote in a recent piece in the Financial Times, “Any inflation above 2 percent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s, but a once-in-75-year crisis calls for outside-the-box measures.”9 The Fed has done a good deal of thinking out of the box over the past four years. I think it is time to do some more.

Bernanke suggested something similar back in 1999 with regards to Japan: Japanese Monetary Policy: A Case of Self-Induced Paralysis?* "[A] target in the 3-4% range for inflation, to be maintained for a number of years, would confirm not only that the BOJ is intent on moving safely away from a deflationary regime ..."

by Calculated Risk on 10/17/2011 05:37:00 PM

From Roger Vincent at the LA Times: Southland office rents, occupancy rates stay low

Overall, Los Angeles County office vacancy rose slightly to 19% from 18.5% in the third quarter last year, according to brokerage Cushman & Wakefield. The average rent landlords asked for was $2.47 a square foot per month, down from $2.56.

This was the first quarter with positive absorption since 2007 in LA. (More tenants moved in than moved out).

This is similar to the Reis report for Q3 that showed the office vacancy rate is mostly moving sideways at a very high level. New office construction has slowed sharply, but the vacancy rate will not decline significantly until employment pick ups.

Earlier:
• The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in October.
• Industrial Production increased 0.2% in September, Capacity Utilization increased slightly
• Residential Remodeling Index at new high in August

by Calculated Risk on 10/17/2011 02:38:00 PM

From the WSJ: Merkel, Schäuble Temper Expectations for Summit

German Chancellor Angela Merkel expects a package of measures towards solving the euro-zone debt crisis to be agreed on Oct. 23, but warned against hoping that all of Europe's debt woes would be resolved ...

Spokesman Steffen Seibert said a "package" of measures would be agreed upon at the European Union summit in Brussels this coming Sunday, but "the chancellor reminds [everyone] that the dreams that are emerging again, that on Monday everything will be resolved and everything will be over, will again not be fulfilled," Mr. Seibert said.

From Bloomberg: Germany Shoots Down ‘Dreams’ of Swift Fix

On the summit agenda is how any recapitalization of Europe’s banks “might be carried out in a coordinated way” and how to make the European Financial Stability Facility, the EU’s rescue fund for indebted states, as effective as possible, Seibert said. The leaders will also discuss aid for Greece and ways to tighten economic and financial policy, [Steffen Seibert, Merkel’s chief spokesman] said.

Officials have been trying to lower expectations for a few days. There are several stumbling blocks - especially the size of the Greek debt "haircuts" and how to recapitalize the banks.

by Calculated Risk on 10/17/2011 11:21:00 AM

The BuildFax Residential Remodeling Index was at 138.6 in August, up from 130.4 in July. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 29% year-over-year--and for the twenty-second straight month--in August to 138.6. Residential remodels in August were significantly up month-over-month over 8 points (6.3%) from the July value of 130.4, and up year-over-year 31.2 points (29%) from the August 2010 value of 107.4.
...
In August, the West (11.9 points; 9.3%), Midwest (11.4 points; 10.8%), and South (1 point; 1%) all had month-over-month gains, while the Northeast (-.6 points; -.8%) saw a decline.
...
"As mortgage rates hit record lows, it is apparent that millions of Americans are refinancing their homes and using some of their new monthly savings to reinvest in their homes with remodeling projects," said Joe Emison, Vice President of Research and Development at BuildFax. "With remodeling activity growing at an estimated 9.5 percent in 2011 compared to 2010, this is one segment of the economy that is showing continued strength, even as other sectors struggle."

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: Permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 29% from August 2010. This is the highest year-over-year increase in activity since the index started.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

Weekend:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/17/2011 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.2 percent in September after having been unchanged in August. Previously, industrial production was reported to have stepped up 0.2 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 5.1 percent. Manufacturing output moved up 0.4 percent in September after having gained 0.3 percent in August. Production at mines advanced 0.8 percent in September, while the output of utilities decreased 1.8 percent. At 94.2 percent of its 2007 average, total industrial production for September was 3.2 percent above its year-earlier level. Capacity utilization for total industry edged up to 77.4 percent, a rate 1.7 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972--2010) average

Click on graph for larger image in graph gallery.

This graph shows Capacity Utilization. This series is up 10.1 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.4% is still 3.0 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in September to 94.2. July was revised up, so there was no increase in August.

After the fairly rapid increase last year, increases in industrial production and capacity utilization have slowed recently.

The consensus was for a 0.2% increase in Industrial Production in September, and an increase to 77.5% for Capacity Utilization.

by Calculated Risk on 10/17/2011 08:30:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to deteriorate in October. The general business conditions index remained negative and, at -8.5, was little changed. The new orders index hovered around zero, indicating that orders were flat, while the shipments index rose above zero to 5.3.
...
The index for number of employees rose several points but was at a relatively low level of 3.4, while the average workweek index was negative for a fifth consecutive month.

This is the first regional manufacturing survey released for October. Expectations were for some improvement in this index.

Weekend:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 09:30:00 PM

From Nick Timiraos at the WSJ: Slim Pickings Are Latest Headache For Home Sales

There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.
...
[R]eal-estate agents say ... people are pulling their homes off the market rather than try to sell them at today's ... prices.
...
In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.

This is similar to the data I've been using from HousingTracker. Even though inventory levels are at the lowest level in a few years, this is still a fairly high level of inventory. As I noted yesterday: "Based on [Tom Lawler's estimate for September], [NAR reported] inventory would fall to 3.44 million in September, down from 3.58 million in August, and months-of-supply would increase to 8.6 months from 8.5 months in August. This would be the lowest level of inventory for September since 2005 (2.77 million in Sept 2005). The peak inventory for September was in 2007 at 4.37 million."

Many of these people are probably waiting for a "better market" - and they probably will have a long wait!

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 04:52:00 PM

From the WSJ: Europe Faces More Hurdles on Aid Plan

European leaders have primed investors to expect a sweeping euro-zone rescue plan to be unveiled within a week. But several hurdles remain, among them the details of a new Greek bailout, and clearing them could take weeks, not days. The result could be a plan broad in ambition but short on specifics.
...
The plan will have three pillars: a call for higher capital levels for banks, a beefing up of the euro zone's bailout fund, and a new package of aid for foundering Greece. The latter is proving particularly difficult.

Olli Rehn, the European Union's economy commissioner, said Saturday that he expects euro-zone leaders on Oct. 23 to "decide on the key principles and parameters" of the second Greek bailout, but that "technical finalization of the program will take place in the course of the subsequent weeks."

From the Financial Times: G20 calls for speedy eurozone package

France and Germany have less than a week of frantic negotiation ahead ... The Group of 20 richest nations told the eurozone that by the European summit next Sunday it should: agree on the losses the private sector should take on Greek debt; arrange a credible plan for the recapitalisation of Europe’s banks; and install a firewall to protect other countries from Greece’s woes.
excerpt with permission

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th

by Calculated Risk on 10/16/2011 01:11:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Oct 14, 2011.

Changes and comments from surferdude808:

After several changes, the Unofficial Problem Bank List finished the week with 979 institutions and assets of $403.8 billion. A year ago, there were 875 institutions with assets of $401.6 billion on the list. This week, there were five removals and one addition.

The addition this week is The Savannah Bank, National Association, Savannah, GA ($737 million Ticker: SAVB). Also, the Federal Reserve issued a Prompt Corrective Action order against Anchor Commercial Bank, North Palm Beach, FL ($143 million), which has been operating under a Written Agreement since March 2010.

Among the removals are The Elgin State Bank, Elgin, IL ($277 million), which merged on an unassisted basis with St. Charles Bank & Trust Company, Saint Charles, IL. The other removals were the four failed banks -- First State Bank, Cranford, NJ ($204 million); Piedmont Community Bank, Gray, GA ($202 million); Country Bank, Aledo, IL ($191 million); and Blue Ridge Savings Bank, Inc., Asheville, NC ($161 million). All of these failures were costly relative to the failed bank assets at more than 22 percent. Moreover, Piedmont Community Bank and Country Bank resolution costs were around 35 percent of their respective assets. While the Unofficial Problem Bank List has trended down over the past three months, failure continues as the primary removal method.

Yesterday:
• Summary for Week Ending Oct 14th
• Lawler: Early Read on Existing Home Sales in September
• Schedule for Week of Oct 16th