by Calculated Risk on 1/11/2012 12:53:00 PM

A few comments from Herman Van Rompuy, president of the European Council (translation via Google Translate):

It is a crisis in the € zone. The divergent trends in the € zone are too large. It is not an "optimum currency area"

It's not just government, to "sovereign debt" but also excesses in the financial sector, real estate etc.

We must do everything to avoid recession. ... We need a fiscal strategy that is "growth friendly"

Fiscal consolidation will not tell us to say "no" to all or which is cut everywhere. We must "prioritize"

We ask each member state to establish a "job plan", we make commitments we can evaluate

This is a prelude to the next European Union summit meeting in Brussels on January 30th - the key topic will be a growth agenda.

Maybe even Germany will pay attention to growth now that the German economy appears headed into recession too (no surprise since they export to other EU countries that are already in recession), from the WSJ: German Economy Shrank Slightly at End of 2011

Germany's statistics office said GDP slid around 0.25% in the fourth quarter from the third, ending a two-year expansion.

by Calculated Risk on 1/11/2012 11:10:00 AM

The LPS HPI is a repeat sales index that uses public disclosure by county recorders or loan origination data for purchase loans (if the sales price isn't disclosed).

From LPS: LPS Home Price Index Shows U.S. Home Prices Declined 0.8 Percent to Late 2002 Levels in October; Early Data Suggest 0.5 Percent Drop in November Likely

The LPS HPI national average home price for transactions during October 2011 was $200,000 – a decline of 0.8 percent during the month relative to September, reaching a price level not seen since October of 2002. This is the fifth consecutive month of decreases in prices. The partial data available for November suggests more moderation of price declines to approximately 0.5 percent.

Click on graph for larger image.

Figure 1: "Prices have fallen since autumn 2008 with brief interruptions each spring. Prices have not been at the current level since October 2002."

During the period of most rapid price declines, from June 2007 through December 2008, the LPS HPI national average home price dropped $56,000 from $282,000, which corresponds to an average annual decline of 13.8 percent. Since December 2008, prices have fallen more slowly, interrupted by brief seasonal intervals of rising prices. During this period of more slowly declining prices, the national average price has fallen approximately $26,000 from $226,000.

The October national average price is down 2.7 percent from the average price at the beginning of the year.

The LPS index is already showing a new post-bubble low, and it appears all of the price indexes will show new post-bubble lows later this year - or early in 2012.

by Calculated Risk on 1/11/2012 08:20:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 4.5 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending January 6, 2012. The results include an adjustment to account for the New Year's Day holiday.
...
The Refinance Index increased 3.3 percent from the previous week. The seasonally adjusted Purchase Index increased 8.1 percent from one week earlier. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.11 percent from 4.07 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.34 percent from 4.41 percent ...

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

Click on graph for larger image.

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

by Calculated Risk on 1/11/2012 12:47:00 AM

From the WSJ: Trouble Is Brewing for Office Market

[M]any [office] owners who have been able to keep their heads above water are being undone by tenant contractions and the expiration of five-year leases that were signed at the peak of the boom.

Rents in most markets are still well below what they were in 2007, with the drop in some areas as much as 26%, according to data firm Reis Inc. Because of the weak market, landlords with empty space or expiring leases also have to spend large amounts on incentives to attract tenants, like free rent and interior work.

Defaults and foreclosures are rising. The delinquency rate of office loans that were securitized hit 9% in December, up from 7.4% in June.

As these older leases expire, the tenants are demanding lower rents - or they are moving. Since some of these owners are barely "keeping their heads above water" with the old lease rates, lower rents or higher vacancies are leading to more defaults.

Even with a little improvement in the economy there is still more pain to come for commercial real estate, especially for offices and malls.

by Calculated Risk on 1/10/2012 09:11:00 PM

North county San Diego Realtor Jim Klinge has asked me to be a guest on his online radio show tonight. The show starts at 8 PM PT (11 PM ET).

Here is the link for the show. There is a toll-free number for questions (877) 317-7373. This is a first for me, so please excuse any errors.

Here is a video from Jim tonight of Mitt Romney's house in La Jolla.

by Calculated Risk on 1/10/2012 04:54:00 PM

Cardiff Garcia at the Financial Times Alphaville has posted a new graph from economist Alec Phillips of Goldman Sachs: Fiscal flailing, continued

CR note: The following graph shows the estimated impact of Federal, state and local policy on GDP growth. The dark shaded rectangles are Federal policy and the light shaded rectangles are state and local policy. From Garcia:

Goldman Sachs has updated this chart, which shows the projected impact of fiscal policy on GDP growth, to reflect its latest assumptions (see the previous version here):

The dotted line that dips through 2012 is what would happen if, um, nothing happens — that is, no new fiscal measures are passed in 2012. The bars and the black line are Goldman’s forecast.

Click on graph for larger image.

Goldman’s assumptions include the payroll tax cut’s extension through the end of the year. Emergency unemployment benefits will also probably be extended, but the analysts expect that the maximum duration will be reduced from 99 weeks to 79 weeks.

There is more discussion in Garcia's post.

A couple of key points:
1) In addition to the assumptions about 2012, this estimate assumes that the "2001/2003 tax cuts are extended through 2013, and that automatic spending cuts do not take effect." That isn't clear at this point, and the fiscal drag in 2013 could be significantly more than shown on the graph.
2) The good news, according to this estimate from Phillips, is that the drag from state and local governments will stop mid-year 2012, and be neutral for the following 12 months. That fits with my current outlook for State and Local Governments.

by Calculated Risk on 1/10/2012 02:02:00 PM

Earlier the National Federation of Independent Business (NFIB) released their small business survey for December. The report included a typo in the "biggest problem" section that has now been corrected.

Twenty three percent of small business owners reported that weak sales continued to be their top business problem in December.

Currently 21% are reporting taxes as the most important problem, and 20% are reporting regulations - just below the 23% reporting "poor sales".

Click on graph for larger image.

In good times, small business owners usually report taxes and regulation as their biggest problems.

This is another small sign of improvement for small businesses, but lack of demand is still the key problem.

by Calculated Risk on 1/10/2012 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in November was 3.2 million, unchanged from October. Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the level in November was 1.0 million higher than in July 2009 (the most recent trough for the series). The number of job openings has increased 30 percent since the end of the recession in June 2009.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November, the most recent employment report was for December.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings declined slightly in November, but the number of job openings (yellow) has generally been trending up, and are up about 7% year-over-year compared to November 2010.

Quits increased in November, and have mostly been trending up - and quits are now up about 12% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs

by Calculated Risk on 1/10/2012 08:10:00 AM

From the National Federation of Independent Business (NFIB): Small Business Confidence Inches Upward: While Economic Winter Continues, It Appears to be Getting Warmer

For the second consecutive month, small-business optimism rose 1.8 points, according to the National Federation of Independent Business (NFIB) Optimism Index; the small but notable gain settled the December reading at 93.8. This represents the fourth monthly increase since September, suggesting that the rising trend might stick. However, a comparative look at early 2011 shows the Index rising in the early part of the year, only to decline in March and April.

“Much of December’s gain resulted from the fact that concerns about business conditions over the next six months have subsided and because many small-business owners have improved their expectations for real sales gains in the coming months,” said NFIB Chief Economist Bill Dunkelberg.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image.

The first graph shows the small business optimism index since 1986. The index increased to 93.8 in December from 92.0 in November. This is the fourth increase in a row after declining for six consecutive months.

The second graph shows the net hiring plans for the next three months.

Hiring plans declined slightly in December, but the trend is up.

According to NFIB: “Unfortunately, December’s jobs numbers fizzled, with the net change in employment per firm turning negative again; small businesses lost an average .15 workers per firm. ... The good news is that the number of owners cutting jobs has ‘normalized’. In the past several months, reports of those cutting workers have been at the lowest levels since the recession started in December 2007. ... Over the next three months ... a seasonally adjusted net 6 percent of owners planning to create new jobs, a 1 point decline but still one of the strongest readings since September 2008."

The optimism index declined sharply in August due to the debt ceiling debate and has now rebounded to about the same level as early in 2011. This index is still low - probably due to a combination of sluggish growth, and the high concentration of real estate related companies in the index.

by Calculated Risk on 1/09/2012 07:45:00 PM

A couple of articles ...

From the WaPo: France, Germany warn Greece to make debt deal

France and Germany, the European Union’s key powers, insisted Monday that private creditors must take losses to help over-indebted Greece right its finances, but they also warned the Greek government that E.U. rescue funds will be held back unless it makes a deal soon with the increasingly nervous banks holding its debt.
...
“We must see progress on the voluntary restructuring of Greek debt,” Reuters quoted Merkel as telling a joint news conference after the Berlin consultations. “From our point of view, the second Greek aid package, including this restructuring, must be in place quickly. Otherwise, it will not be possible to pay out the next tranche (of the bailout) for Greece.”

From the WSJ: Greek Bailout in Peril

The spreading recession in the euro zone is also making it harder for Greece and other countries with bailout programs to close their fiscal deficits, economists said. Greece's stubbornly high deficit is raising the risk of a full-blown default on its bonds ...

Usually these negotiations continue right until the last minute. The "spreading recession in the euro zone" isn't helping.