by Calculated Risk on 1/16/2012 05:05:00 PM

Earlier I posted some housing forecasts for 2012. A frequently asked question is how do new home sales compare to single family housing starts (both series are from the Census Bureau). This graph below shows the two series - although they track each other, the two series cannot be directly compared.

For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. From the Census Bureau: Comparing New Home Sales and New Residential Construction

Click on graph for larger image.

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series. We categorize new residential construction into four intents, or purposes:

Built for sale (or speculatively built): the builder is offering the house and the developed lot for sale as one transaction this includes houses where ownership of the entire property including the land is acquired ("fee simple") as well as houses sold for cooperative or condominium ownership. These are the units measured in the New Residential Sales series.

Contractor-built (or custom-built): the house is built for the landowner by a general contractor, or the land and the house are purchased in separate transactions.

Owner-built: the house is built entirely by the landowner or by the landowner acting as his/her own general contractor.

Built for rent: the house is built with the intent that it be placed on the rental market when it is completed.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The Q3 2011 quarterly report showed that there were 79,000 single family starts, built for sale, in Q3 2011, and that was about the same as the 77,000 new homes sold for the same quarter. This data is Not Seasonally Adjusted (NSA).

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations.

This graph provides a quarterly comparison of housing starts and new home sales. In 2005, and most of 2006, starts (blue) were higher than sales (red), and inventories of new homes increased.

Sales and starts have been running at about the same level for the last 2 years. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory they built up in 2005 and 2006.

by Calculated Risk on 1/16/2012 01:14:00 PM

Earlier I posted some housing forecasts from analysts at Wells Fargo, Goldman Sachs, and added two more forecasts from Merrill Lynch and John Burns.

David Crowe, chief economist at the National Association of Home Builders has put out his forecasts (excel) calling for new home sales to increase to 360 thousand in 2012 (from 304 thousand in 2011), and for housing starts to increase 17% to 709 thousand. He forecasts single family starts will also increase 17% to 501 thousand. Crowe expects a significant increase in new home sales in 2013.

But here is the most optimistic forecast I've seen from Moody's via Julie Schmit at USA Today: Housing outlook is more upbeat

Existing home sales will rise 12% this year after a 2% increase last year, and new home sales, coming off a horrid year, will jump 74% this year, Moody's Analytics predicts.

Single-family housing starts will rise 37% this year, Moody's predicts, after falling 9% last year.

That would put single family starts (not total starts) at 687 thousand in 2012, and new home sales at 530 thousand.

Here is a table of some recent forecasts. I expect some increase in 2012 for both starts and new home sales, but I think the Wells Fargo / John Burns / NAHB forecasts are probably the upper range for 2012.

Some Housing Forecasts for 2012 (000s)
	New Home Sales	Single Family Starts	Total Starts
Merrill Lynch1	304	427
Fannie Mae	336	473	704
Wells Fargo	350	457	690
John Burns	359		717
NAHB	360	501	709
Moody's	530	687
1 Merrill forecast is "sideways" in 2012

by Calculated Risk on 1/16/2012 09:24:00 AM

Press remarks by President of the European Council Herman Van Rompuy

For the short term, we discussed the fiscal compact treaty and the crisis mechanisms. There is a number of things I can assert today:

- we will agree on the new fiscal compact treaty at the end of this month and we will sign it early March;

- our crisis mechanisms are being strengthened. The European Stability Mechanism (ESM) will enter into force in July 2012, earlier than planned. We will also assess the adequacy of the EFSF/ESM’s size without delay. ...

In the meantime, we should re-focus on growth and job creation. Growth friendly consolidation and job friendly growth are what we need! Growth should be enhanced by strengthening supply and by stimulating demand. We must urgently put in place an anti-recession strategy, mobilizing means and efforts at the Union level and - most importantly - at Member States level.

... our foremost concern should be stimulating employment. We need more, better and new jobs. Today, over 23 million people are unemployed in Europe. The economic slowdown risks increasing this number. Many of them are young. Women are particularly affected. The young are Europe's future and we need to give them hope and a decent perspective of joining the labour market.

And on Greece from CNBC: Greek PM: Two Deals But No Drachma Ahead

In his first and only interview since taking office, Greek Prime Minister Lucas Papademos ... expressed complete confidence in his country’s ability to get through what is likely to be a harrowing two months as it approaches a 14.5 billion euro debt repayment in March.

Two different financial deals must be negotiated before then. ... The first of the two deals is with the country’s private sector lenders—banks, pension funds, and hedge funds around the world that own 206 billion euros worth of Greek government debt. ... Greece must then come up with a 4-year economic plan that is acceptable to the IMF and the EU, in order to secure the 130 billion euros and fund its operations. That deal with the IMF and the EU must also get done before the March repayment deadline.

The Greek deal with creditors must be worked out over the next week or so. The second deal must be completed in February.

The EU summit meeting is on January 30th and will focus on growth.

by Calculated Risk on 1/15/2012 09:26:00 PM

From the NY Times: As Reforms Flag in Greece, Europe Aims to Limit Damage

As Greece and its lenders prepare for another week of tense negotiations, European officials now say that the task is less to help the country through its troubles than to avoid the sort of uncontrolled default that many experts fear could threaten the global financial system.

Officials from the so-called troika of foreign lenders to Greece — the European Central Bank, European Union and International Monetary Fund — have come to believe that the country has neither the ability nor the will to carry out the broad economic reforms it has promised in exchange for aid, people familiar with the talks say, and they say they are even prepared to withhold the next installment of aid in March.
...
As recently as November, Greece and its lenders were optimistic that the country’s newly installed prime minister, Lucas Papademos ... would stabilize Greece’s soaring debt and help nurse the country back to health.

But since then, his interim government ... has been paralyzed.

And more from Tim Duy at FedWatch: How's That Austerity Working?

Bottom Line: The actions of the European Central Bank greatly eased the immediate financial pressures in the Eurozone. But the underlying problem of internal imbalances remain, and the European response is still not addressing those imbalances. Instead, the commitment to the fixed exchange rate combined with Germany's failure to recognize that their current account surplus must turn to deficit if they ever hope to be repaid promises to lock the Eurozone on the path of ongoing recession.

We should know about the Greek debt deal over the next week or two. I suspect a deal will be reached, and that Greece will receive the March aid. But at some point the "pretending" will have to stop.

Yesterday:
• Summary for Week Ending January 13th
• Schedule for Week of Jan 15th

by Calculated Risk on 1/15/2012 06:32:00 PM

A followup to the previous post on the possible impact on oil prices of an Iranian oil embargo, from Brad Plumer at the WaPo: How high oil prices could squelch the recovery

According to a U.S. Energy Information Administration analysis, a $20 increase in the cost of a barrel of oil — roughly what we saw last year — is estimated to shave roughly 0.4 points off GDP growth in the first year alone and boost unemployment by 0.1 percentage points. So if Iran threatens to close the Strait of Hormuz (through which about 20 percent of the world’s oil flows) and prices start screaming upward from $107 per barrel to $120 or beyond, that would put a very noticeable dent in growth.

What’s more, oil shocks tend to have long-lingering effects. The EIA estimates that a $20 price increase continues biting into the economy for at last another year thereafter. James Hamilton, an economist at the University of California, San Diego, has suggested that the consequences of a price spike can persist for several quarters, as the resulting slowdown in consumer spending takes some time to ripple through the economy. That’s true even if the spike is only temporary and recedes quickly.

The recession in Europe, and slower growth in China (as Plumer notes), might offset some of the upward price pressure from a disruption of supply from Iran.

And below is a graph of gasoline prices. Gasoline prices had been slowly moving down since peaking in early May, but have started moving up again. Note: The graph below shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 1/15/2012 01:49:00 PM

From Professor Hamilton at Econbrowser: Iranian oil embargo

The most likely outcome of an embargo on oil purchased from Iran is that the countries participating in the embargo buy less oil from Iran while other countries not participating in the embargo [buy] more oil from Iran ([1], [2]). While this would produce some dislocations, if total world oil production doesn't change, it would have little effect on either Iran or oil-consuming countries, and would basically be a symbolic gesture.

If instead the embargo is successful in reducing the total amount of oil sold by Iran, then the shortfall for global consumers would have to be met by some combination of increased production elsewhere and oil price increases sufficient to bring down global petroleum demand.

As for the first possibility, there appears to be only a limited amount of excess oil-producing capacity at the moment, and certainly far short of the 4.3 million barrels per day that Iran produced in the first three quarters of 2011.

And for the second possibility, it is useful to draw a comparison with previous episodes in which geopolitical events led to production shortfalls from key producing areas.

Hamilton provides a summary of world oil production and prices following previous events.

At their peak disruptions, these events took out 4-7% of net world production and were associated with oil price increases of 25-70%.

Oil prices are already very high; currently Brent Crude futures are at $110.44 per barrel, and WTI is at $98.70 per barrel. There is much more Hamilton's post.

Yesterday:
• Summary for Week Ending January 13th
• Schedule for Week of Jan 15th

by Calculated Risk on 1/15/2012 09:43:00 AM

From the WSJ: Greece to Resume Debt Talks

Greece will resume talks with its private-sector creditors next week on a massive debt restructuring plan ... "Our counterparts from the Institute for International Finance will return on Wednesday and our goal is to have a general outline agreed before the next euro-group meeting on Jan. 23," Mr. Venizelos said in a speech late Saturday.

Under such a timeline, Greece would then proceed with a formal debt offer during the week of Feb. 6-10, Mr. Venizelos said, with the final debt exchange expected to be completed by the end of February.

This will be (another) critical week for Europe. The goal is to have a preliminary deal before the next finance minister meeting on Jan 24th, and a complete loan package deal by the European Union summit meeting in Brussels on January 30th.

by Calculated Risk on 1/14/2012 07:36:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Jan 13, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Minor changes were made to the Unofficial Problem Bank List this week. There were two removals and one addition, which leave the list with 969 institutions and assets of $391.2 billion. A year ago, there were 933 institutions with assets of $410.4 billion on the list.

Removals were Heritage First Bank, Gulf Shores, AL ($55 million), which merged on an unassisted basis with Merchants & Marine Bank, Pascagoula, MS; and CrediCard National Bank, Tucson, AZ ($66 thousand), which closed through a voluntary liquidation. Next week, we anticipate for the OCC to release its latest actions.

With the conclusion of the fourth quarter of 2011, it is time to update the Unofficial Problem Bank List transition matrix. The list debuted on August 7, 2009 with 389 institutions with assets of $276.3 billion (see table). Over the past 29 months, about 57 percent or 222 institutions have been removed from the original list with 136 from failure, 66 from action termination, 19 from unassisted merger, and one from voluntary liquidation. About 35 percent of the 389 institutions on the original list have failed, which is substantially higher than the 12 percent figure usually cited by the media as the failure rate for institutions on the FDIC Problem Bank List.

Since the publication of the original list, another 1,089 institutions have been added. However, only 803 of those 1,089 additions remain on the current list as 286 institutions have been removed in the interim. Of the 286 inter-period removals, 165 were from failure, 66 were from an unassisted merger, 51 from action termination, and four from voluntary liquidation.

In total, 1,478 institutions have made an appearance on the Unofficial Problem Bank List and 301 or 20.4 percent have failed. Of the 508 total removals, the primary way of exit from the list is failure at 301 institutions or 59 percent. Only 117 or around 23 percent have been able to rehabilitate themselves to see their respective action terminated. Alternatively, another 85 or nearly 17 percent found merger partners most likely to avoid failure. Total assets that have appeared on the list amount to $784.9 billion and $277.9 billion have been removed due to failure. The average asset size of removals from failure is $923 million.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	66	(15,433,115)
	Unassisted Merger	19	(3,290,170)
	Voluntary Liquidation	1	(4,840,599)
	Failures	136	(178,520,334)
	Asset Change		(16,554,637)
Still on List at 6/24/2011		167	57,674,574
Additions		803	333,514,539
End (12/31/2011)		970	391,189,113
Intraperiod Deletions1
	Action Terminated	51	32,654,782
	Unassisted Merger	66	41,813,131
	Voluntary Liquidation	4	1,213,876
	Failures	165	99,366,764
	Total	286	175,048,553
1Institutions not on 8/7/2009 or 12/31/2011 list but appeared on a list between these dates.

Earlier:
• Summary for Week Ending January 13th
• Schedule for Week of Jan 15th

by Calculated Risk on 1/14/2012 04:03:00 PM

Earlier:
• Summary for Week Ending January 13th

There are three key housing reports that will be released this week: January homebuilder confidence on Wednesday, December housing starts on Thursday, and December existing home sales on Friday.

For manufacturing, the January NY Fed (Empire state) and Philly Fed surveys, and the December Industrial Production and Capacity Utilization report will be released this week.

On prices, the December Producer Price index (PPI) will be released Wednesday, and CPI will be released on Thursday.

----- Monday, Jan 16th -----
All US markets will be closed in observance of Martin Luther King, Jr. Day.

----- Tuesday, Jan 17th -----
8:30 AM ET: NY Fed Empire Manufacturing Survey for January. The consensus is for a reading of +10.5, up from +9.53 in December (above zero is expansion).

----- Wednesday, Jan 18th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index was especially weak last year, although this doesn't include cash buyers.

8:30 AM: Producer Price Index for December. The consensus is for a 0.1% increase in producer prices (0.1% increase in core).

9:15 AM ET: The Fed will release Industrial Production and Capacity Utilization for December.

This shows industrial production since 1967. Industrial production decreased in November to 94.8.

The consensus is for a 0.5% increase in Industrial Production in December, and for Capacity Utilization to increase to 78.1% (from 77.8%).

10 AM ET: The January NAHB homebuilder survey. The consensus is for a reading of 21, unchanged from December. Any number below 50 indicates that more builders view sales conditions as poor than good. This index has been below 25 for four years.

During the day: The AIA's Architecture Billings Index for December (a leading indicator for commercial real estate).

----- Thursday, Jan 19th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 383,000 from 399,000 last week.

8:30 AM: Consumer Price Index for December. The consensus is a 0.1% increase in prices. The consensus for core CPI is also an increase of 0.1%.

8:30 AM: Housing Starts for December.

After collapsing following the housing bubble, single family housing starts have been moving sideways for almost three years. However multi-family starts increased in 2011.

The consensus is for a slight decrease in total housing starts to 680,000 (SAAR) from 685,000 (SAAR) in November.

10:00 AM: Philly Fed Survey for December. The consensus is for a reading of 11.0, up from 6.8 last month (above zero indicates expansion).

----- Friday, Jan 20th -----
10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR).

The consensus is for sales of 4.6 million on seasonally adjusted annual rate basis.

Economist Tom Lawler estimates the NAR will report sales of 4.64 million, up about 5% from November’s pace. He also expects the NAR to report inventory declined to around 2.44 million, down 5.4% from November and down 19.2% from last December. This would put months-of-supply at around 6.3 months (lowest since early 2006), and would put listed inventory at the lowest level since early-2005.

During the day: The current "troika" discussions with Greece are set to conclude.

by Calculated Risk on 1/14/2012 08:15:00 AM

The economic data last week was mostly disappointing. Retail sales for December were weak, the November trade deficit was larger than expected, and initial weekly unemployment claims increased sharply. The good news was consumer sentiment and small business confidence increased.

This data suggests the US economy grew in Q4, but at a slightly slower pace than previously expected. As an example, Goldman Sachs lowered their Q4 GDP estimate to 3.2%, and Merrill Lynch lowered their Q4 estimate to 3.0% from 3.3%.

Here is a summary in graphs:

• Retail Sales increased 0.1% in December

On a monthly basis, retail sales were up 0.1% from November to December (seasonally adjusted, after revisions), and sales were up 6.5% from December 2010. Sales for November were revised up from a 0.2% increase to 0.4%. Retail sales excluding autos decreased 0.2% in December.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 20.4% from the bottom, and now 5.9% above the pre-recession peak (not inflation adjusted)

This was well below the consensus forecast for retail sales of a 0.4% increase in December, and a 0.4% increase ex-auto.

All current retail sales graphs
• Trade Deficit increased in November to $47.8 Billion

The Department of Commerce reports:

[T]otal November exports of $177.8 billion and imports of $225.6 billion resulted in a goods and services deficit of $47.8 billion, up from $43.3 billion in October, revised. November exports were $1.5 billion less than October exports of $179.4 billion. November imports were $2.9 billion more than October imports of $222.6 billion.

This graph shows the monthly U.S. exports and imports in dollars through November 2011.

Exports decreased and imports increased in November. Imports had been mostly moving sideways for the past six months (seasonally adjusted). Exports are well above the pre-recession peak and up 10% compared to November 2010; imports are up about 13% compared to November 2010.

The trade deficit was above the consensus forecast of $45.0 billion.

• Weekly Initial Unemployment Claims increased to 399,000

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

The DOL reports:

In the week ending January 7, the advance figure for seasonally adjusted initial claims was 399,000, an increase of 24,000 from the previous week's revised figure of 375,000. The 4-week moving average was 381,750, an increase of 7,750 from the previous week's revised average of 374,000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 381,750.

The 4-week moving average is still well below 400,000.
All current Employment Graphs
• Consumer Sentiment increases in January

The preliminary January Reuters / University of Michigan consumer sentiment index increased to 74.0, up from the December reading of 69.9.

Most of the recent sharp decline was event due to the debt ceiling debate, and sentiment has rebounded as expected. Now it is all about jobs, wages - and gasoline prices.

Sentiment is still fairly weak, although above the consensus forecast of 71.5.

• BLS: Job Openings "unchanged" in November

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

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
• CoreLogic: House Price Index declined 1.4% in November

From CoreLogic: CoreLogic® November Home Price Index Shows Fourth Consecutive Monthly Decline

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was down 1.4% in November, and is down 4.3% over the last year.

The index is off 32.8% from the peak - and up just 1.2% from the March 2011 low.

Some of this decrease is seasonal (the CoreLogic index is NSA). Month-to-month prices changes will probably remain negative through March 2012 and it is likely that there will be new post-bubble low for this index in the next month or two.
All House Price Graphs
• NFIB: Small Business Optimism Index increased in December

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

This 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.

• Reis: Regional Mall Vacancy Rate declines slightly

From the WSJ: For Malls, Occupancy Firms Up

Malls in the top 80 U.S. markets posted an average vacancy rate of 9.2% in the quarter, down from the 11-year high of 9.4% in the third quarter, according to Reis, which began tracking [regional] mall data in 2000. ... vacancy [for strip malls] remained at 11% ...

Retail landlords also have been helped by a virtual shutdown in new store construction, meaning they face less competition for tenants. Only 4.5 million square feet of shopping-center space opened in 2010, the lowest figure in 31 years, according to Reis. Last year was slightly higher, with only 4.9 million square feet being delivered.

The vacancy rate for regional malls is just below the record set last quarter, and the vacancy rate for strip malls is just below the record set in 1990. It is still very ugly for malls ... but the good news is new construction is at very low levels.

• Other Economic Stories ...
• Ceridian-UCLA: Diesel Fuel index increased 0.2% in December
• RealtyTrac: Bank seizures of homes fell to four year low in 2011 due to process issues
• Fed's Beige Book: Economic activity increased at "modest to moderate" pace
• Fiscal Policy: Kind of a Drag