by Calculated Risk on 10/21/2011 12:22:00 AM

For discussion ... from the WSJ: Fed Is Poised for More Easing

Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.
...
"I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities," Federal Reserve governor Dan Tarullo said in a speech Thursday at Columbia University.

A new Fed mortgage-bond-buying program isn't a certainty.

Here is the speech by Dan Tarullo: Unemployment, the Labor Market, and the Economy

I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets.
...
A large-scale MBS purchase program has many of the benefits associated with purchases of longer-duration Treasury securities, such as inducing investors to shift to other assets, including bonds and equities. But it could also have more direct effects on the housing market. By increasing demand for MBS, such a program should reduce the effective yield on those MBS, which in turn should put downward pressure on mortgage rates. The aggregate demand effect should be felt not just in new home purchases, but also in the added purchasing power of existing homeowners who are able to refinance. Indeed, homeowners who refinance get the equivalent of a permanent tax cut.
...
[T]he effectiveness of an MBS purchase program would be amplified, perhaps significantly, if certain nonmonetary policies were changed.

Proposals for promoting refinancing have been made by many academics, policymakers, and policy analysts. Any proposals that could sensibly and effectively be implemented would increase the effect of an MBS purchase program. For example, action could be taken to bring the benefits of refinancing to underwater borrowers. ... In practice, though, numerous obstacles have kept the program from helping many potentially eligible borrowers. Underwater borrowers whose loans are not guaranteed by GSEs are essentially unable to refinance at all. Policy changes directed at this last, larger group of homeowners would have to be carefully designed so as not to transfer credit risk from private investors to the government, and could well require legislation.

And from the WaPo: Bernanke shares concerns on European debt, action on housing

Federal Reserve Chairman Ben S. Bernanke delivered a stern warning Thursday to Senate Democrats regarding the European debt crisis and offered insight into stabilizing the ailing housing market, according to senators and aides who attended the meeting.

... much of the senators’ conversation with Bernanke revolved around “the growing recognition from everyone—economists across the board—that there needs to be some more dramatic action in housing.”

Bernanke declined to answer questions from reporters as he emerged from the Capitol Hill meeting. But, senators said, Bernanke told the caucus that some relief could come next week when the Federal Housing Finance Agency announces new plans to try to enable homeowners who are under water to refinance.

by Calculated Risk on 10/20/2011 07:05:00 PM

The Case-Shiller House Price index for August will be released Tuesday, Oct 25th. Two other indexes were released today:

• From FNC: Home Prices End Recent Seasonal Rebound with 0.8% Decline in August

FNC’s latest Residential Price Index, released Thursday, indicates U.S. home prices declined in August despite strong existing home sales during the month. This decline reverses a modest fourth-month long seasonal uptrend.
...
Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ 1 (RPI) indicates that single-family home prices fell in August to a seasonally unadjusted rate of 0.8%. As a gauge of underlying home value, the RPI excludes sales of foreclosed homes, which are often sold with large price discounts due to poor property conditions.

The FNC index tables for three composite indexes and 30 cities are here.

• From Radar Logic today Radar Logic Sees Nothing But Weakness in Recent Housing Data

The seasonal decline in home prices shifted into high gear in August. The 25-metropolitan-area RPX Composite Price declined 0.8 percent from July to August, the largest decline for this time of year since the crash of 2008. The RPX Composite price declined 4.7 percent relative to August 2010 ...

Last month, we predicted that the S&P/Case-Shiller 10-City composite for July 2011 would be about 156 and the 20-City composite would be roughly 143. In fact, the 10-City composite was 156.23 and the 20-City composite was 142.77.

The August 2011 10-City composite index will be about 156, and the 20-City index will be roughly 142.

• CoreLogic reported earlier this month for August: Home prices decreased 0.4 percent on a month-over-month basis

August Home Price Index (HPI) which shows that home prices in the U.S. decreased 0.4 percent on a month-over-month basis, the first monthly decline in four months. According to the CoreLogic HPI, national home prices, including distressed sales, also declined on a year-over-year basis by 4.4 percent in August 2011 compared to August 2010.... Excluding distressed sales, year-over-year prices declined by 0.7 percent in August 2011 compared to August 2010 and by 1.7 percent in July 2011 compared to July 2010. ...

“Although the calendar says August, the end of the summer traditionally marks the beginning of ‘fall’ for the housing market as it begins to prepare for ‘winter.’ So the slight month-over-month decline was predictable ...” said Mark Fleming, chief economist for CoreLogic.

Case-Shiller is a 3 month average (June, July and August), but even with prices for June and July averaged in, the index will probably show price declines for August NSA. The expected seasonal decline in house prices has started.

On a Not Seasonally Adjusted (NSA) basis, as of July, the Case-Shiller composite 10 index was 3.8% above the post-bubble low. The Composite 20 index was 3.7% above the post-bubble low (NSA). Prices will probably fall to new lows (NSA) later this year or early in 2012.

Earlier:
• Existing Home Sales in September: 4.91 million SAAR, 8.5 months of supply
• Philly Fed Survey shows Expansion, Existing Home Sales NSA Graph
• Existing Home Sales graphs

by Calculated Risk on 10/20/2011 04:35:00 PM

Earlier:
• Existing Home Sales in September: 4.91 million SAAR, 8.5 months of supply
• Philly Fed Survey shows Expansion, Existing Home Sales NSA Graph
• Existing Home Sales graphs

On Tuesday, in a discussion of "builder confidence", I mentioned that "the builders delivered a record low number of housing units last year - and will probably break that record again this year."

I should have left out the "probably"; the builders will deliver a record low number of housing units this year (see the table at the bottom).

I am upping my forecast for multi-family deliveries this year. Usually it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year. I still expect a record low number of multi-family units completed this year, however the builders have clearly accelerated construction on some projects (shorter time to completion).

The following graph shows the lag between multi-family starts and completions using a 12 month rolling total.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

Click on graph for larger image in graph gallery.

The rolling 12 month total for starts (blue line) is now above the rolling 12 month for completions (red line). However completions are now moving up too.

It is important to note that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). Still this is bright spot for construction.

Below is a table of net housing units added to the housing stock since 1990. Note: Demolitions / scrappage estimated.

This means there will be a record low number of housing units added to the housing stock this year (good news with all the excess inventory), and that the overhang of excess inventory should decline significantly in 2011 depending on the rate of household formation (and that depends on jobs).

Housing Units added to Stock (000s)
	1 to 4 Units	5+ Units	Manufactured Homes	Sub-Total	Demolitions / Scrappage	Total added to Stock
1990	1010.8	297.3	188.3	1496.4	200	1296.4
1991	874.4	216.6	170.9	1261.9	200	1061.9
1992	999.7	158	210.5	1368.2	200	1168.2
1993	1065.7	127.1	254.3	1447.1	200	1247.1
1994	1192.1	154.9	303.9	1650.9	200	1450.9
1995	1100.2	212.4	339.9	1652.5	200	1452.5
1996	1161.6	251.3	363.3	1776.2	200	1576.2
1997	1153.4	247.1	353.7	1754.2	200	1554.2
1998	1200.3	273.9	373.1	1847.3	200	1647.3
1999	1305.6	299.3	348.1	1953	200	1753
2000	1269.1	304.7	250.4	1824.2	200	1624.2
2001	1289.8	281	193.1	1763.9	200	1563.9
2002	1360.1	288.2	168.5	1816.8	200	1616.8
2003	1417.8	260.8	130.8	1809.4	200	1609.4
2004	1555	286.9	130.7	1972.6	200	1772.6
2005	1673.4	258	146.8	2078.2	200	1878.2
2006	1695.3	284.2	117.3	2096.8	200	1896.8
2007	1249.8	253	95.7	1598.5	200	1398.5
2008	842.5	277.2	81.9	1201.6	200	1001.6
2009	534.6	259.8	49.8	844.2	150	694.2
2010	505.2	146.5	50	701.7	150	551.7
2011 (est)	430	135	46	611	150	461

by Calculated Risk on 10/20/2011 01:51:00 PM

Via Google Translate:

FRANCO-GERMAN PRESS

The President and German Chancellor spoke today by telephone to prepare the European dates in the coming days.

The President and the Chancellor have agreed to provide a comprehensive and ambitious global response to the current crisis in the euro area.

This response will include the following:

- The operational implementation of new forms of intervention EFSF.

- A plan to strengthen the capital of European banks.

- The implementation of the economic governance of the euro area and the strengthening of economic integration.

For a lasting solution to the situation in Greece, the Greek authorities will have to make ambitious commitments to address the situation of their economies as part of a new program. Based on the report of the troika and the analysis of debt sustainability Greece, France and Germany call for immediately undertake negotiations with the private sector to reach an agreement for strengthening sustainability.

The President and the Chancellor will meet Saturday night in Brussels ahead of the European Council summit in the euro area on Sunday.

France and Germany have agreed that all elements of this ambitious and comprehensive response will be discussed in depth at the summit on Sunday in order to be finally adopted by the Heads of State and Government at a second meeting later than Wednesday.

And in French:

COMMUNIQUÉ FRANCO-ALLEMAND

Le président de la République et la chancelière allemande se sont entretenus ce jour par téléphone pour préparer les échéances européennes de ces prochains jours.

Le président et la chancelière ont marqué leur accord complet pour apporter une réponse globale et ambitieuse à la crise que traverse actuellement la zone euro.

Cette réponse comportera notamment les éléments suivants :

- la mise en œuvre opérationnelle des nouvelles modalités d’intervention du FESF.

- Un plan de renforcement du capital des banques européennes.

- La mise en place de la gouvernance économique de la zone euro et le renforcement de l’intégration économique.

En vue d’une solution durable à la situation de la Grèce, les autorités grecques devront prendre des engagements ambitieux pour redresser la situation de leur économie dans le cadre d’un nouveau programme. Sur la base du rapport de la troïka et de l’analyse de la soutenabilité de la dette grecque, la France et l’Allemagne demandent que les négociations s’engagent immédiatement avec le secteur privé pour trouver un accord permettant de renforcer cette soutenabilité.

Le président de la République et la chancelière se retrouveront samedi soir à Bruxelles en amont du Conseil européen et du sommet de la zone euro de dimanche.

La France et l’Allemagne sont convenues que l’ensemble des éléments de cette réponse globale et ambitieuse sera examiné de manière approfondie lors du sommet de dimanche pour pouvoir être adopté définitivement par les chefs d’Etat et de gouvernement lors d’une deuxième rencontre au plus tard mercredi.

Earlier:
• Existing Home Sales in September: 4.91 million SAAR, 8.5 months of supply
• Philly Fed Survey shows Expansion, Existing Home Sales NSA Graph
• Existing Home Sales graphs

by Calculated Risk on 10/20/2011 11:45:00 AM

The high frequency data and surveys continue to indicate some improvement. Earlier this morning, the 4-week average of initial weekly unemployment claims fell to the lowest level since April - although still elevated - and now the Philly Fed manufacturing survey indicated expansion for the first time in three months - although still weak.

Even if there has been a little rebound from the economic shock in early August, due to the threat of a U.S. default, the rebound is just to sluggish growth. And there are significant downside risks from the European crisis and premature tightening in the U.S.

As a reminder, my most used post title over the last few years has been "Jobs, jobs, jobs", and even if we see sluggish growth, jobs remain priority #1 in the U.S.

• From the Philly Fed: October 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ‐17.5 in September to 8.7, the first positive reading in three months. The current new orders index paralleled the rise in the general activity index, increasing 19 points and returning to positive territory. The shipments index also recorded a positive reading, increasing from ‐22.8 in September to 13.6 this month.
...
The current employment index remained slightly positive but decreased 4 points from its reading in September. The average workweek index increased notably from ‐13.7 to 3.1.

This indicates expansion in October, and was well above the consensus forecast of -9.0.

Click on graph for larger image in graph gallery.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys rebounded in October, and is now slightly positive.

• The following graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2011.

Sales NSA are above last September - of course sales declined sharply last year following the expiration of the tax credit in June 2010.

The level of sales is still elevated due to investor buying. The NAR noted:

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.

Earlier:
• Existing Home Sales in September: 4.91 million SAAR, 8.5 months of supply
• Existing Home Sales graphs

by Calculated Risk on 10/20/2011 10:00:00 AM

The NAR reports: Existing-Home Sales Off in September but Higher Than a Year Ago

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010.
...
Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.

Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2011 (4.91 million SAAR) were 3.0% lower than last month, and were 11.3% above the September 2010 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 3.48 million in September from 3.55 million in August.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 13.0% year-over-year in September from September 2010. This is the eight consecutive month with a YoY decrease in inventory.

Months of supply increased to 8.5 months in September, up from 8.4 months in August. This is much higher than normal. These sales numbers were close to the consensus.

I'll have more soon ...

by Calculated Risk on 10/20/2011 08:30:00 AM

The DOL reports:

In the week ending October 15, the advance figure for seasonally adjusted initial claims was 403,000, a decrease of 6,000 from the previous week's revised figure of 409,000. The 4-week moving average was 403,000, a decrease of 6,250 from the previous week's revised average of 409,250.

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 403,000.

This is the lowest level for the 4-week average of weekly claims since April, and this was slightly above the consensus forecast. This is still elevated, and still above the post-recession lows of earlier this year.

by Calculated Risk on 10/19/2011 09:35:00 PM

A few articles ahead of the meeting this weekend ...

From the Financial Times: Eurozone leaders meet in Frankfurt

France’s president Nicolas Sarkozy flew to Frankfurt on Wednesday night for an emergency meeting with leading players in the eurozone crisis including German chancellor Angela Merkel, as Franco-German differences bedevilled attempts to agree a comprehensive package of measures.
excerpt with permission

From the NY Times: Leaders in Europe Take Time From a Farewell to Negotiate a Bailout Deal

Angela Merkel, the chancellor of Germany, tried to play down expectations, saying that it would not be possible “to erase the mistakes of the past in just one stroke.” A European summit meeting Sunday ... will be just “one point” in “a long journey.”

From the WSJ: Doubts Grow on Euro Fund

European officials are discussing a scenario in which governments issuing bonds would borrow from the bailout fund to guarantee a portion of the bond issues—a move that would increase debts for already troubled economies.

Pressure is rising ahead of a weekend summit of European leaders billed as critical to stemming the region's deepening debt crisis.

And from the Financial Times: EU bank recap could be only €80bn. The IMF was calling for a €200bn plan, and some estimates were for €275bn. Maybe they should do another stress test and announce all the banks passed - that has worked well before - Not!

Earlier:
• Housing Starts increased in September
• Rate of increase slows for Key Measures of Inflation in September
• AIA: Architecture Billings Index declined in September
• 2012 Social Security Cost-Of-Living Adjustment approximately 3.6% increase

by Calculated Risk on 10/19/2011 06:13:00 PM

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported - and possible hints about the trade report for August. LA area ports handle about 40% of the nation's container port traffic.

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image in graph gallery.

On a rolling 12 month basis, inbound traffic is down 0.3% from August, and outbound traffic is up 0.9%.

Inbound traffic is "rolling over" and this might suggest that retailers are cautious about the coming holiday season. However, the National Retail Federation says that imports will be pick up in October:

[T]he [import] statistics were skewed because of high-than-normal numbers in 2010 when fears of shortages in shipping capacity caused many retailers to bring holiday merchandise into the country earlier than usual.
...
“After a summer of trying to compare apples to oranges, retail cargo is back to normal [in October],” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “October is the historic peak of the shipping cycle each year, and retailers are bringing merchandise into the country on their usual schedule and at normal levels again instead of being forced to move cargo early."

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

For the month of September, loaded inbound traffic was down 4% compared to September 2010, and loaded outbound traffic was up 12% compared to September 2010.

Exports have been increasing, although bouncing around month-to-month. Exports are up from last year, but are still below the peak in 2008.

Imports have been soft - this is the 4th month in a row with a year-over-year decline in imports. However, if the NRF is correct, imports will pick up in October to the highest level this year.

by Calculated Risk on 10/19/2011 04:03:00 PM

Earlier:
• Housing Starts increased in September
• Rate of increase slows for Key Measures of Inflation in September
• AIA: Architecture Billings Index declined in September
• 2012 Social Security Cost-Of-Living Adjustment approximately 3.6% increase

A new song from blog favorite Merle Hazard about banking regulation. A creative joint venture of Merle Hazard & Marcy Shaffer (see Marcy's site for lyrics). Song by Merle Hazard, Marcy Shaffer and Curtis Threadneedle.

And from Paul Solman at the PBS NewsHour site, including a link to his 12 1/2 minute interview with former IMF chief economist Simon Johnson, discussing the song.