by Calculated Risk on 12/27/2011 09:36:00 PM

From economist Tom Lawler:

While data on the number of loans either seriously delinquent or in the foreclosure process suggested that an increase in the number of residential properties lost to foreclosure this year was a “slam dunk,” incoming data suggest that in fact the numbers will be down significantly from 2010, and will in fact probably come in at the lowest level since 2007!

Of course, there are no “official” data on completed foreclosure sales. However, estimates both from RealtyTrac through November and Hope Now through October suggest that this will in fact be the case.

Moreover, estimates from Hope Now on the number of completed foreclose sales on owner-occupied properties suggest that such foreclosures will be down very sharply this year. Unfortunately, Hope Now only started reporting the breakout by occupancy status in December 2009.

Short sales and DILs, in contrast are likely to be up in 2011 compared to 2010, at least according to estimates derived from Hope Now data. Unfortunately, Hope Now data doesn't allow for an estimate of SS/DILs by occupancy type, and HN didn’t start releasing data that allowed one to derive estimated short sales/DILs until early 2010.

Here is a table of what completed foreclosure sales and short sales/DILs for residential first-lien mortgages might end up looking like for 2011, compared to the last 3 years.

Completed foreclosure sales are estimates from Hope Now, and the 2010 and 2011 short sales/DILs estimates are derived from Hope Now data. 2008 and 2009 short sales/DILs are my own estimates derived from Fannie, Freddie, FHA, and OCC mortgage metrics data. The data on the number of seriously delinquent loans and loans in the process of foreclosure are from LPS analytics (whose estimate might differ from Hope Now’s, if HN produced such estimates).

Completed Foreclosure Sales And Short Sales/DILs (thousands, estimates)
	2008	2009	2010	2011(E)
Completed Foreclosure Sales	914	949	1,070	815
Owner-occupied	N.A.	N.A.	785	608
Non-owner-occupied	N.A.	N.A.	285	207
Short Sales/DILs	105	270	354	380
Foreclosures plus Short Sales/DILs	1,019	1,219	1,424	1,195
Outstanding first liens:	Jan-08	Jan-09	Jan-10	Jan-11
Seriously Delinquent (90+)	1,016	1,983	3,061	2,168
In Process of Foreclosure	860	1,386	2,110	2,203

Given the number of loans either seriously delinquent or in the process of foreclosure at the beginning of the year, the number of completed foreclosure sales in 2011 is almost absurdly low, reflecting the complete screw-up of the mortgage servicing industry, and the resulting dramatic slowdown in foreclosure resolutions. As of the end of October, 2011 LPS estimated that there were 1.759 million seriously delinquent loans with the average number of days delinquent at 388 (compared to 192 days in January 2008), and there were 2.210 million loans in the foreclosure process that had been on average delinquent for 631 days.

While there are no data that I know of that break out the number of seriously delinquent loans or loans in the foreclosure process backed by properties that are vacant (or rented out by owners not paying on the mortgage), at least one industry consultant who has looked at some (unfortunately confidential) data told me that the % of loans in the foreclosure process that are not occupied by the owner of the property is “shockingly” large.

CR Note: It would really be helpful to have an official count of foreclosures and short sales.

Earlier:
• Case Shiller: House Prices fall to new post-bubble lows in October (seasonally adjusted)
• Real House Prices and House Price-to-Rent

by Calculated Risk on 12/27/2011 06:00:00 PM

From Reuters: U.S. says China is not a currency manipulator

[T]he Treasury, in a semi-annual report, said that statutes covering a designation of currency manipulator "have not been met with respect to China."

Even so, Treasury said appreciation in the yuan has been too slow. The value of the yuan, which Beijing manages closely, has risen by 4 percent against the dollar this year and 7.7 percent since China dropped a firm peg against the greenback in June 2010.

Here is the report from Treasury: Report to Congress on International Economic and Exchange Rate Policies (includes a discussion of the global economy).

And from Treasury:

The Report highlights the need for greater exchange rate flexibility, most notably by China, but also in other major economies. Based on the ongoing appreciation of the RMB against the dollar since June 2010, the decline in China's current account surplus, and China's official commitments at the G-20, APEC, and the U.S.-China Strategic and Economic Dialogue (S&ED) that it will move more rapidly toward exchange rate flexibility, Treasury has concluded that the standards identified in Section 3004 of the Act during the period covered in this Report have not been met with respect to China. Nonetheless, the movement of the RMB to date is insufficient. Treasury will closely monitor the pace of RMB appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth.

by Calculated Risk on 12/27/2011 02:55:00 PM

The Department of Transportation (DOT) reported:

• Travel on all roads and streets changed by -2.3% (-6.0 billion vehicle miles) for October 2011 as compared with October 2010.

• Travel for the month is estimated to be 254.0 billion vehicle miles.

• Cumulative Travel for 2011 changed by -1.4% (-36.0 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 47 months - so this is a new record for longest period below the previous peak - and still counting! And not just moving sideways ... the rolling 12 months is declining.

The second graph shows the year-over-year change from the same month in the previous year.

This is the eight straight month with a year-over-year decline in miles driven.

This decline is probably due to high gasoline prices and the sluggish economy. Maybe habits are changing ...

by Calculated Risk on 12/27/2011 11:38:00 AM

A monthly 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) and as a price-to-rent ratio.

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.

The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through October) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to March 2003 levels, and the CoreLogic index is back to May 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 Q1 1999 levels, the Composite 20 index is back to April 2000, and the CoreLogic index back to March 2000.

In real terms, all appreciation in the '00s 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 March 2000 levels, and the CoreLogic index is back to May 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels and will probably be back to 1999 levels in the next few months.

Note: Last year I guessed that prices would decline another 5% to 10% on these national indexes (from October 2010 prices). So far prices have fallen another 3% to 4% on these indexes - with more to come - but most of the price declines are over.

All current house price graphs

Earlier:
• Case Shiller: House Prices fall to new post-bubble lows in October (seasonally adjusted)

by Calculated Risk on 12/27/2011 09:40:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for October (a 3 month average of August, September and October). This release 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. Here is a table of the year-over-year and monthly changes for both SA and NSA.

Case Shiller October 2011	Seasonally Adjusted		Not Seasonally Adjusted
	YoY Change	One Month Change	YoY Change	One Month Change
Composite 10	-3.0%	-0.5%	-3.0%	-1.1%
Composite 20	-3.4%	-0.6%	-3.4%	-1.2%

From S&P: The Fourth Quarter Starts with Broad-based Declines in Home Prices According to the S&P/Case-Shiller Home Price Indices

Data through October 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices ... showed decreases of 1.1% and 1.2% for the 10- and 20-City Composites in October vs. September. Nineteen of the 20 cities covered by the indices also saw home prices decrease over the month. The 10- and 20-City Composites posted annual returns of -3.0% and -3.4% versus October 2010, respectively.

“There was weakness in the monthly statistics, as 19 of the cities posted price declines in October over September,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Eleven of the cities and both composites fell by 1.0% or more during the month.

Click on graph for larger image.

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 32.9% from the peak, and down 0.5% in October (SA). The Composite 10 is at a new post bubble low (Seasonally adjusted), but still above the low NSA.

The Composite 20 index is off 33.0% from the peak, and down 0.6% in October (SA). The Composite 20 is also at a new post-bubble low.

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

The Composite 10 SA is down 3.0% compared to October 2010.

The Composite 20 SA is down 3.4% compared to October 2010. This was a slightly smaller year-over-year decline for both indexes than in September.

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

Prices increased (SA) in 4 of the 20 Case-Shiller cities in October seasonally adjusted (only one city increased NSA). Prices in Las Vegas are off 61.3% from the peak, and prices in Dallas only off 8.8% from the peak.

The NSA indexes are only about 2% above the March 2011 lows - and these indexes will hit new lows in the next few months since prices are falling again. Using the SA data, the Case-Shiller indexes are now at new post-bubble lows!

by Calculated Risk on 12/27/2011 09:14:00 AM

From MarketWatch: Oct. U.S. home prices fall 1.2%: Case-Shiller

U.S. home prices fell 1.2% in October to take the 12-month drop to 3.4%, according to the S&P/Case-Shiller 20-city composite home price index released Tuesday. Nineteen of 20 cities saw price drops, and the index is now down 32.1% from its peak in 2006.

S&P hasn't released the data online yet. The 1.2% decline is Not Seasonally Adjusted (NSA), and the seasonally adjusted decline will be smaller (prices decline seasonally in October). I'll post graphs after the data is released.

by Calculated Risk on 12/26/2011 09:05:00 PM

I always pay close attention to Fed stories from Jon Hilsenrath at the WSJ: Slowing Inflation Cheers Fed

U.S. inflation is slowing after a surge early in the year. ... The Fed has been considering new steps to spur growth. Two ideas are on the table: commit to keep short-term interest rates near zero for even longer than through mid-2013, and restart a bond-buying program aimed at driving already-low long-term interest rates lower. Before taking either step, though, Fed officials would want to have some comfort that they wouldn't be creating undesired inflation.

As Hilsenrath notes, inflation is slowing by most key measures, and this will give the Fed more leeway. It always seems the Fed telegraphs their intentions, and it now seems very likely the Fed will add a range of Fed funds rate forecasts to their quarterly economic projections at the next FOMC meeting on January 24th and 25th.

If the Fed funds rate forecasts are added, this would replace the sentence in the FOMC statement - "The Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013". The bond buying program (aka QE3) would be data dependent and probably start a little later in the year if economic growth disappoints.

Weekend:
• Schedule for Week of Dec 25th
• Summary for Week ending Dec 23rd

by Calculated Risk on 12/26/2011 03:41:00 PM

Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but one key is to watch private domestic investment. Even though private investment usually only accounts for about 15% of GDP, private investment experiences significantly larger swings than PCE during the business cycle and has an outsized impact on GDP. Note: currently private investment is just over 12% of GDP - much lower than normal.

The first graph shows the real annualized change in GDP and private investment since 1960 (this is a 3 quarter centered average to smooth the graph).

Click on graph for larger image.

GDP has fairly small annualized changes compared to the huge swings in investment, especially during and just following a recession. This is why investment is one of the keys to the business cycle.

The second graph shows the contribution to GDP from the four categories of private investment: residential investment, equipment and software, nonresidential structures, and "Change in private inventories". Note: this is a 3 quarter centered average of the contribution to GDP.

This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment lags the business cycle. Red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, and blue.

The dashed purple line is the "Change in private inventories". This category has significant ups and downs, but is always negative during a recession, and provides a boost to GDP just after a recession. Change in private inventories has made a large negative contribution to GDP over the last four quarters, and will probably make a positive contribution in Q4.

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness is a key reason why the recovery has been sluggish so far.

Equipment and software investment has made a significant positive contribution to GDP for nine straight quarters (it is coincident).

The contribution from nonresidential investment in structures was positive in Q3. Nonresidential investment in structures typically lags the recovery; however investment in energy and power is masking weakness in office, mall and hotel investment.

And residential investment has finally turned slightly positive and will make a positive contribution to GDP in 2011 for the first time since 2005.

What does this mean for the business cycle? Usually residential investment would turn down before a recession, and that isn't happening right now. Instead residential investment is mostly moving sideways.

The third graph shows residential investment as a percent of GDP. Residential investment as a percent of GDP is at a record low, and it seems unlikely that residential investment will decline significantly lower as a percent of GDP - especially with a pickup in multifamily investment and some increase in home improvement (Note: Residential investment is mostly investment in new single family and multifamily structures, home improvement and brokers' commissions). It seems likely that residential investment will make a positive contribution to GDP in 2012.

The last graph shows non-residential investment in structures and equipment and software.

Equipment and software investment has increased sharply, but is still at a fairly normal level of GDP. And non-residential investment in structures increased in Q3, but this is still very low.

A key fear is that the financial crisis in Europe could drag the US economy into another recession. That is possible, especially combined with ongoing household deleveraging and fiscal tightening in the US (with current policy, Federal, state and local governments will all subtract from GDP growth in 2012).

However it seems unlikely there will be a sharp decline in private investment. Residential investment is already at record lows as a percent of GDP and will probably increase in 2012. Changes in private inventories will probably rebound a little, and investment in non-residential structures is also near record lows. It is possible that investment in equipment and software could decline in 2012, but it doesn't seem likely there will be a sharp decline in overall private investment.

If the euro zone comes apart rapidly - or there is further non-private tightening - a new recession is possible in the US, but without a sharp decline in private investment, it is unlikely a US recession would be severe. Right now it appears overall US private investment will increase in 2012, and that the US will avoid a new recession.

by Calculated Risk on 12/26/2011 09:48:00 AM

From Brady Dennis at the WaPo: Falling home values mean budget crunches for cities

Because of the time it often takes for property assessments to reflect falling home values, the bust that began in 2007 has just begun to ravage tax revenues in communities from coast to coast. The problem is unlikely to subside soon.

For instance, Baltimore collected $815 million in property taxes during the most recent fiscal year, according to Bill Voorhees, Baltimore’s director of revenue and tax analysis. Next year, the figure is predicted to shrink to $803.5 million. The following year, $773 million. The year after that, $735.7 million. The year after that, $729.4 million.

As the article notes, some states cap the annual increase in property taxes (there is a 2% annual cap in California). For long term owners, this means their property taxes will continue to increase since their assessed value is probably still below the current market value. This will keep overall taxes from falling quickly in certain states.

In California, property values are assessed annually - and most cities have already reduced assessments and taxes on many homeowners. Also in California, properties are assessed whenever ownership changes, and all the foreclosures and short sales have already pushed down property taxes. So these communities will probably not see a further dramatic decline in property tax revenue.

But there is still more pain to come in other areas.

Weekend:
• Schedule for Week of Dec 25th
• Summary for Week ending Dec 23rd

by Calculated Risk on 12/25/2011 07:36:00 PM

Update: The UK has a stamp tax on stock shares (but not other financial transactions), see:
http://www.hmrc.gov.uk/stats/stamp_duty/table15-1.pdf
and
http://www.cepr.net/documents/publications/financial-transactions-tax-2008-12.pdf

This could be a key story in 2012 ...

From Bloomberg: Schaeuble vows to push for financial transaction tax

"In the EU we've agreed to explore the chances of a financial transaction tax in the first months of the new year," [Schaeuble] said. "If the hurdles are too high then Germany and France will push for introducing the tax only in the euro zone."
...
"I don't want to wait until such a tax is introduced worldwide. Otherwise we would risk not only the stability of our financial markets... but we would also be endangering the legitimacy in the public eye for the entire system.

"That's why I'm fighting with such determination for a financial transaction tax. It might not be able to stop the ludicrous developments in financial markets but it would at least brake them a bit."

Schaeuble said he wanted the tax to slow down the pace of financial transactions and possibly make some speculative business unprofitable.

"The markets are a bit too preoccupied with themselves these days rather than supporting the real economy," he said. "We've got to decelerate the pace of transactions."
...
"I'm very much in favour of Europe leading the way," he said. "That can possibly mean that certain speculative business models are no longer profitable. But that is what we want."

This might sound good, but if this was just introduced in the euro zone, many financial transactions would move to the UK or the US. I think a transaction tax would have to enacted everywhere to be effective.

Schaeuble also said the European financial situation is "controllable". That is pretty scary since Schaeuble has misdiagnosed the problems in Europe - calling for more and more austerity - and it looks like Europe will get "Schaeubled" again in 2012!

Yesterday:
• Schedule for Week of Dec 25th
• Summary for Week ending Dec 23rd

Happy Holidays!