by Calculated Risk on 12/15/2011 08:30:00 AM

The DOL reports:

In the week ending December 10, the advance figure for seasonally adjusted initial claims was 366,000, a decrease of 19,000 from the previous week's revised figure of 385,000. The 4-week moving average was 387,750, a decrease of 6,500 from the previous week's revised average of 394,250.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 387,750.

This is the lowest level for weekly claims - and the lowest level for the 4-week average - since early 2008.

And here is a long term graph of weekly claims:






All current Employment Graphs

by Calculated Risk on 12/14/2011 10:55:00 PM

In an earlier post - The Excess Vacant Housing Supply - I mentioned that there are serious question about the Census Bureau's Housing Vacancies and Homeownership (CPS/HVS) survey, and that it is probably not useful for estimating the excess vacant housing supply.

There is another more robust annual survey - the American Community Survey (ACS) - that is based on a sample of 3 million housing units every year. Unfortunately this data doesn't jibe with the decennial Census data.

The table below shows the ACS estimates of total housing units taken every July 1st. In 2000, the ACS was benchmarked to the 2000 decennial Census (as of April 1st). I've included the total completion data for single family, multi-family, manufactured homes - and calculated the implied number of demolitions using the change in the ACS.

For most years the ACS data looks somewhat reasonable, although I'd expect the number of demolitions to have peaked in 2004 through 2006. Over the first nine years of the decade, the change in the ACS averaged about 200 thousand less than total completions - suggesting demolitions of around 200 thousand per year and that is probably reasonable.

However, in April 2010, the decennial Census showed significantly more housing units than the ACS had captured (obviously a negative 1.15 million homes weren't demolished in early 2010!) The decennial Census data itself seems a little off since it suggests only about 645 thousand housing units were demolished during the decade (that would be very low). Most estimates are demolitions are in the 200 to 300 thousand per year range (so the ACS seemed reasonable through the first 9 year of the decade).

These discrepancies really needs to be explained before the ACS can be used for estimating the excess supply of vacant housing units. It is possible the 2000 Census under counted the total number of housing units - or the 2010 Census over counted the total. Or perhaps the completion data from the Census Bureau is low. But this shows one of the reason it is very difficult to estimate the excess vacant housing supply - an error of over 1 million units is huge.

Source	Date	Period	Total Housing Units	Change	Completions, Total	Calculated Demolitions
Census	4/1/2000		115,904,473
ACS	7/1/2000	3 Months	116,300,799	396,326	468,300	71,974
ACS	7/1/2001	1 Year	117,905,005	1,604,206	1,719,600	115,394
ACS	7/1/2002	1 Year	119,456,206	1,551,201	1,771,800	220,599
ACS	7/1/2003	1 Year	121,076,837	1,620,631	1,784,700	164,069
ACS	7/1/2004	1 Year	122,824,501	1,747,664	1,866,000	118,336
ACS	7/1/2005	1 Year	124,711,041	1,886,540	1,980,900	94,360
ACS	7/1/2006	1 Year	126,500,212	1,789,171	2,068,800	279,629
ACS	7/1/2007	1 Year	128,132,164	1,631,952	1,831,600	199,648
ACS	7/1/2008	1 Year	129,313,137	1,180,973	1,370,200	189,227
ACS	7/1/2009	1 Year	129,969,653	656,516	999,700	343,184
Census	4/1/2010	9 Months	131,704,730	1,735,077	584,000	-1,151,077
Decennial Census Change:			15,800,257		16,445,600	645,343

by Calculated Risk on 12/14/2011 07:07:00 PM

I missed this last week from Adam Belz at the Des Moines Register: Iowa AG says mortgage settlement should be done by Christmas (ht Kevin)

Iowa Attorney General Tom Miller said Thursday a settlement between almost all state attorneys general and the five largest mortgage servicers should be finalized before Christmas, with or without California.

The deal, which Miller has been trying to negotiate since March, would release the five servicers – Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo – from legal claims on past home loan servicing and foreclosures. The deal would not prohibit individuals from suing the banks, or government prosecutors from suing banks over issues related to the packaging of home loans into mortgage-backed securities.

In return the banks will agree to pay for what Miller calls “substantial principal reductions” for homeowners who are underwater, and agree to a set of mortgage servicing standards, interest rate reductions, and cash payments to some homeowners who’ve alrady gone through foreclosure.

And from Bloomberg today: Ex-Cuomo Aide Said to Be Among 4 Foreclosure-Monitor Candidates

Steven M. Cohen, who was the governor’s secretary, is one potential foreclosure monitor, according to the person, who declined to be identified because the negotiations are secret. That person said North Carolina Commissioner of Banks Joseph A. Smith Jr. is also a candidate, as did a second person who asked not to be identified.

Selection of a monitor is one of the final issues to be worked out between the banks and state and federal officials, said the people. Selection of the monitor is a key issue for the regulators because success of the agreement will largely depend on his or her work, one of the people said.

Other candidates are Nicolas P. Retsinas, a former assistant secretary of the U.S. Department of Housing and Urban Development, and ex-Federal Deposit Insurance Corp. Chairman Sheila Bair, one of the people said.

The discussion of possible principal reductions is too optimistic. They are discussing something like a $25 billion settlement (including California) and only a portion would be for principal reductions. Currently, according to CoreLogic, homeowners with negative equity (including 2nd liens) are an aggregate $699 billion underwater. Even if the entire settlement went to principal reductions, the average underwater homeowner would only see a few percent of their negative equity eliminated.

The major impact from this settlement on the housing market would be to reduce the number of seriously delinquent loans - either by modifications (including principal reductions) or through foreclosures. Currently, according the LPS, there are 1.76 million loans 90+ days delinquent (not in foreclosure) and another 2.21 million loans in the foreclosure process. I'd expect those numbers to decline fairly rapidly next year following a settlement.

by Calculated Risk on 12/14/2011 05:00:00 PM

Some headlines ...

From the WaPo: Greece is slipping on reforms, IMF warns

From the WaPo: UK’s unemployment increases to highest level in 17 years as austerity measures bite

From the Financial Times: Dive in deposits at foreign-owned banks in US

From the WSJ: Strains Remain in Interbank Market Despite Cheap Dollars

From CNBC: Fitch Downgrades Five Major European Commercial Banks and Banking Groups

It might be time for another summit.

by Calculated Risk on 12/14/2011 01:40:00 PM

The Federal Reserve released the Q3 2011 Household Debt Service and Financial Obligations Ratios yesterday. (ht Bob_in_MA) I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
...
The homeowner mortgage FOR includes payments on mortgage debt, homeowners' insurance, and property taxes, while the homeowner consumer FOR includes payments on consumer debt and automobile leases

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only a rough approximation of the current debt service ratio faced by households. Nonetheless, this rough approximation may be useful if, by using the same method and data series over time, it generates a time series that captures the important changes in household debt service payments.

Click on graph for larger image.

The graph shows the DSR for both renters and homeowners (red), and the homeowner financial obligations ratio for mortgages and consumer debt.

The overall Debt Service Ratio has declined back to 1994 levels - thanks to very low interest rates. The homeowner's financial obligation ratio for consumer debt is also at 1994 levels.

However the homeowner's financial obligation ratio for mortgages (blue) is still high and will probably continue to decline. This ratio increased rapidly during the housing bubble, and continued to increase until 2008. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined to 2003 levels.

by Calculated Risk on 12/14/2011 11:48:00 AM

Over the last few days, there has been some more discussion on the current number of excess vacant housing units in the United States.

There are always a large number of vacant housing units - this includes second homes, housing units for rent, homes sold but not yet occupied, and several other categories. The key is the "excess". Once the excess is absorbed in a local area, then new construction will pickup (we are already seeing an increase in apartment construction in many areas).

Here is the recent discussion, first from an article by Catherine Rampell over the weekend in the NY Times:

Household formation has slowed dramatically since the recession, as cash-strapped families double up and unemployed recent college graduates are unable to leave behind their parents’ couches. To judge just from demographic statistics, more than a million households that should have been formed in the last few years weren’t, according to Mark Zandi of Moody’s Analytics.

The tally of missing households is approximately equal to the country’s current surplus of vacant homes.

Dean Baker responded: Mark Zandi and the NYT Hugely Underestimate the Number of Vacant Homes

The NYT cited Mark Zandi as saying the number of vacant homes is roughly 1 million, which he puts as equal to the gap in household formation that resulted from the recession. According to the Commerce Department, if the vacancy rate was back at its pre-bubble level, there would be 3 million fewer vacant units.

Unfortunately Dr. Baker is using the Census Bureau's Housing Vacancies and Homeownership (CPS/HVS) survey, and there are serious questions about this survey. See Be careful with the Housing Vacancies and Homeownership report and Lawler to Census on Housing Data: "Splainin" Needed Not Just on Vacancy Rate. The HVS is based on a fairly small sample, and does not track the decennial Census data. Dr. Baker's estimate of 3 million excess vacant housing units is probably far too high.

Using the Census 2010 national data, Tom Lawler estimated "a number in the 1.6 to 1.7 million range seems about right.” (as of April 1, 2010) and "probably in the 1.2 to 1.4 million range on May 1, 2011."

Using the Census 2010 state data, I estimated that the number of excess vacant housing units was above 1.8 million on April 1, 2010 (the date of the Census). See: The Excess Vacant Housing Supply. The number of excess units is lower today - even with sluggish household formation - because the builders are completing a record low number of housing units this year.

Lawler's most recent estimate was as of May 1, 2011. We can walk that forward to today. The decline in the excess vacant housing units is equal to new households formed, minus completions, minus scrappage (demolitions). Completions are still at record lows, and the excess vacant housing supply has probably declined conservatively by another 200 to 300 thousand units over the last seven months - so the excess vacant housing supply is probably close to 1 million or so as the NY Times reported.

by Calculated Risk on 12/14/2011 08:38:00 AM

From the MBA: Refinance Applications Increase as Rates Drop to 2011 Lows

The Refinance Index increased 9.3 percent from the previous week to its highest level since November 4, 2011. The seasonally adjusted Purchase Index decreased 8.2 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.12 percent, the lowest rate this year, from 4.18 percent, with points decreasing to 0.45 from 0.48 (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 4.47 percent, the lowest rate this year, from 4.52 percent, with points decreasing to 0.45 from 0.47 (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.

The purchase index decreased last week, but the 4-week average increased slightly. This index has mostly been sideways for the last 2 years - and at about the same level as in 1997.

The MBA index was one of the indicators that NAR was overestimating existing home sales for the last several years.

All current Existing Home Graphs

by Calculated Risk on 12/13/2011 10:15:00 PM

From DataQuick: Southland November Home Sales Rise; Median Price Still Below Year Ago

The number of homes sold in Southern California rose modestly last month from both October and a year earlier as investors and first-time buyers targeted homes priced below $400,000. Sales above $500,000 fell nearly 16 percent from a year earlier amid a troubled market for larger home loans ...

While November sales of existing (not new) houses and condos combined rose 5.8 percent from a year earlier, sales of newly built homes fell 15.2 percent to the lowest level on record for a November. [CR note: the Census Bureau reports new home sales when contracts are signed, DataQuick reports at closing - so this fits with the record low contracts reported earlier this year]
...
Distressed property sales accounted for 51.3 percent of the Southland resale market last month, down from 52.3 percent in October and down from 53.4 percent a year earlier. Nearly one out of three homes resold last month was a foreclosure, while roughly one in five was a “short sale.”
...
Absentee buyers, mainly investors and vacation-home buyers, purchased a near-record 24.8 percent of the Southland homes sold in November, paying a median $200,000.

Over half of existing home sales in SoCal were distressed sales in November; a very unhealthy market.

NAR is scheduled to report November existing home sales on Wednesday, December 21st. The big story this month will be the downward revisions to sales and inventory for the years 2007 through 2011.

I expect the NAR to report sales in November in the low 4 million range on a seasonally adjusted annual rate basis (the NAR reported October sales at 4.97 million SAAR, but that will be revised down significantly).

Earlier:
• Retail Sales increased 0.2% in November
• BLS: Job Openings "essentially unchanged" in October
• Ceridian-UCLA: Diesel Fuel index increased 0.1% in November
• NFIB: Small Business Optimism Index increases in November
• Lawler on NAR Revisions for 2007 through 2011

by Calculated Risk on 12/13/2011 06:42:00 PM

I posted yesterday about some speculation that the losses at MF Global might be related to rehypothecation. Several people who know better than me have told me that is unlikely.

Terrence Duffy, the chief executive of the CME Group, suggested today that there was a "loan" of customer money to MF Global.

From the NY Times DealBook on the Senate Panel Hearing on MF Global

Terrence Duffy, the chief executive of the CME Group, the exchange responsible for regulating MF Global, says he has information that indicates Mr. Corzine knew about some of the missing customer money.
...
Mr. Duffy is claiming that he was told of this revelation on Saturday by someone in his legal department, and did not know it when he testified before Congress last week.

“Somebody went in and violated the rules of the CME and the rules of the government,” he said.
...
While Mr. Duffy clearly aimed to throw the attention on what Mr. Corzine knew of the illegal transfers, subsequent guidance (or lack thereof) from CME has softened the accusation. They are now saying that the information they received indicated Mr. Corzine knew about the loans, but not whether they knew these loans were illegal or improper. They cannot comment on that, they said.

by Calculated Risk on 12/13/2011 03:35:00 PM

CR Note: Economist Tom Lawler first noted that the NAR appeared to be overestimating sales in 2009. In late 2010 other economists approached NAR with questions. From Nick Timiraos at the WSJ in Feb 2010: Home Sales Data Doubted

Several economists approached NAR late last year [late 2010] with questions about its modeling. NAR economists promised to study the issue during a December conference call that included economists from the Mortgage Bankers Association, Fannie Mae, Freddie Mac, the Federal Reserve, the Federal Housing Finance Agency and CoreLogic.

In January, I hinted about this meeting and that there would be significant downward revisions. The revisions will be announced on Dec 21st.

From economist Tom Lawler: NAR to Release Existing Home Sales Revisions this Month

The National Association of Realtors yesterday sent out a media advisory [announcing] that it would release its benchmark revisions to its existing home sales estimates on December 21st. Here is what the NAR sent out:

The National Association of Realtors will release benchmark revisions to existing-home sales at the December 21 lock-up news briefing for the November report, which will begin 30 minutes before the normal briefing at 9:30 a.m. for monthly data. All data can be released at 10:00 a.m. EST.

Although there are downward revisions for total sales in recent years, there is little change to previously reported monthly comparisons or characterizations based on percentage change. There is a comparable downward revision to unsold inventory, so there is no change to relative month’s supply. Also, there is no change to median home prices.

An up-drift in sales projections developed over time between the fixed model for calculating sales rates and the actual marketplace, including growth in multiple listing service coverage areas, geographic population shifts, a decline in for-sale-by-owner transactions, some new-home sales trickling into MLS data and some individual sales being recorded in more than one MLS. Divergence of the data with other housing data metrics began in 2007, so revisions for 2007 through the present will be released.

NAR began to capture a larger share of actual transactions than was assumed in the calculation model based on the 2000 Census; resolving these issues has taking longer than anticipated in the absence of decennial data from the U.S. Census Bureau, which are no longer collected. Other major statistical series such as Gross Domestic Product and employment figures go through comparable periodic benchmark revisions to produce the most accurate data possible; the new benchmark process will permit much more frequent revisions.

NAR began its normal process for benchmarking sales at the beginning of this year in consultation with outside housing market experts. Data for the new benchmark was presented to and discussed with representatives of organizations including the Federal Reserve Board, Department of Housing and Urban Development, Freddie Mac, Fannie Mae, Mortgage Bankers Association, National Assocation of Home Builders, CoreLogic, etc.; and some individual economists.

Normal annual revisions will be released with January existing-home sales on February 22, 2012. Those revisions are expected to be minor and will fine-tune the data back though 2007.

While the NAR did not hint at the magnitude of the downward revisions, the “consensus” is that 2010 existing home sales will be revised downward by about 13% or so (yup, there’s a “consensus” for everything!).

In the past the NAR has done benchmark revisions based on decennial Census data (for owner-occupied transactions) and the decennial Residential Finance Survey (for “investor/vacant home” transactions, with this latter estimate being pretty “squishy"). Because of data availability lags, past benchmark revisions have not been released until MANY years after the end of a decade. The benchmark revisions for 1999 were not released until February 2005, and resulted in decline in estimated existing SF home sales of about 11%.

This decade, of course, the NAR could not continue with the same methodology, as the decennial Census no longer included the so-called “long form” with the data needed for the benchmarking (the “long form” is used in the ACS).

What drove the ACCELERATED benchmarking, however, were reports indicating that in many parts of the country existing home sales based on publicly recorded sales were showing SUBSTANTIALLY lower sales [than] the NAR estimates.

E.g., long-time readers will remember that I first started writing about this trend back in 2009, with my first piece focused on the widening “gap” between the NAR’s estimate of existing home sales in California and Dataquick’s data on “arms-length” existing home sales based on deeds recorded in the Golden State. DQ’s coverage of transactions in California is pretty complete, and its process for weeding out “non-arms-length” transactions seems pretty robust.

This issue got more media attention, however, when CoreLogic wrote a piece in its February 2011 “U.S. Housing and Mortgage Trends” report indicating that its data on existing sales based on public records covering “over 80%” of the US housing market strongly suggested that the NAR’s existing home sales estimates during the housing downturn were significantly overstated.

Many analysts were hoping that the NAR’s new methodology would be based on publicly recorded transactions, and apparently the NAR’s staff actually did explore this avenue. Rumor has it, however, that the new “benchmark” revisions will NOT be based on publicly recorded transactions – in part, apparently, because data coverage in many states is not comprehensive; data quality in many states/counties is poor; AND there are disparities among various private vendor estimates of sales based on publicly-recorded transactions.

An alternative for the NAR would be to use an approach similar to its old “Census/RFS” approach, but instead (1) to use the American Community Survey data for owner-occupied existing transactions; and (2) to make “crude” assumptions about turnover rates (and use some American Housing Survey data (ick!) to “guesstimate” transactions on investor/vacant homes.

Any approach, however, will result in a material reduction in estimated sales over the last few years – though the result will still be estimates and not actuals.

CR Note: This was from economist Tom Lawler.