by Calculated Risk on 1/26/2012 08:30:00 AM

The DOL reports:

In the week ending January 21, the advance figure for seasonally adjusted initial claims was 377,000, an increase of 21,000 from the previous week's revised figure of 356,000. The 4-week moving average was 377,500, a decrease of 2,500 from the previous week's revised average of 380,000.

The previous week was revised up to 356,000 from 352,000.

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 377,500.

The 4-week moving average remains below 400,000.

And here is a long term graph of weekly claims:



Weekly claims have been bouncing around lately - January is a period with large seasonal adjustments and that can lead to some large swings - but the 4-week average of weekly claims have been mostly trending down.

All current Employment Graphs

by Calculated Risk on 1/25/2012 07:19:00 PM

From Alejandro Lazo at the LA Times: California calls $25-billion mortgage settlement 'inadequate'

Calif. Atty. Gen. Kamala D. Harris' office has called a proposed $25-billion settlement with the nation’s mortgage industry “inadequate.”

"We've reviewed the details of the latest settlement proposal from the banks, and we believe it is inadequate for California,” Shum Preston, a spokesman for Harris, said in a statement. “Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners and meaningful enforcement that ensures accountability. At this point, this deal does not suffice for California."
...
[As part of the settlement] attorneys general would agree to release the banks from further action related to the improper servicing of loans as well as claims against originating mortgages. Several attorneys general, including New York's Eric Schneiderman and California's Harris, have voiced concerns that those releases are overly broad and would preclude them from carrying out ongoing investigations.

Schneiderman was appointed Tuesday by President Obama as co-chairman of a new investigative effort that will try to coordinate existing federal and state probes into mortgage practices before the financial crisis. Schneiderman promised Wednesday to move aggressively.

A spokesman for Schneiderman said in a statement that the New York attorney general would not sign onto a foreclosure settlement that would limit his ability to carry out investigations of the mortgage crisis.

by Calculated Risk on 1/25/2012 04:30:00 PM

A few quick thoughts ...

• Fed Chairman Ben Bernanke made it clear that no decision on additional asset purchases has been made and that any additional balance sheet expansion would be a "collective" decision, however ...

• Bernanke made it clear that maximum sustainable employment and stable prices (defined as 2% inflation of personal consumption expenditures) are on "equal footing".

• The current projections are for unemployment to be significantly too high for years and inflation to be at or below the Fed's target. That is a strong argument for additional monetary accommodation.

• In the Q&A, Bernanke made it clear that even if inflation moved above the target - and unemployment was still very high - the Fed would only slowly pursue policies to reduce the inflation rate.

• The minutes for the FOMC meeting will probably contain discussion of the outlook for the balance sheet and possible further asset purchases. Those minutes will be released in 3 weeks.

Although the FOMC might still wait until one of the two day meetings in April or June, the likelihood of QE3 being announced at the March 13th meeting has increased significantly.

by Calculated Risk on 1/25/2012 02:00:00 PM

Earlier the FOMC released a statement for the January meeting.

Here are the longer run projections

The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. ... FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.

Here are the updated forecasts from the January meeting. The key details are below the video.

Fed Chairman Ben Bernanke will hold a press briefing at 2:15 PM.




Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

Most participants project the first rate hike will appropriately occur in 2014 or later.

"The dots represent individual policymakers’ projections of the appropriate federal funds rate target at the end of each of the next several years and in the longer run. Each dot in that chart represents one policymaker’s projection."

Most participants think the Fed Funds rate will be in the current range into 2014. Then there is some disagreement.

GDP projections were revised down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0
November 2011 Projections	2.5 to 2.9	3.0 to 3.5	3.0 to 3.9

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Unemployment rate projections were also revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6
November 2011 Projections	8.5 to 8.7	7.8 to 8.2	6.8 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

And inflation projections were revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0
November 2011 Projections	1.4 to 2.0	1.5 to 2.0	1.5 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2012	2013	2014
January 2012 Projections	1.5 to 1.8	1.5 to 2.0	1.6 to 2.0
November 2011 Projections	1.5 to 2.0	1.4 to 1.9	1.5 to 2.0

If the economy under performs or even tracks the November projections, QE3 would seem likely at either of the two day meetings in April or June. Some have argued that QE3 could happen sooner, perhaps at the March meeting. Based on these projections, QE3 is very likely.

by Calculated Risk on 1/25/2012 12:30:00 PM

Note: The Summary of Economic Projections (SEP) will be released around 2 PM ET (including the new FOMC forecasts for the federal funds rate), and Ben Bernanke will hold a press briefing starting at 2:15 PM.

FOMC Statement:

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee's dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.

by Calculated Risk on 1/25/2012 10:00:00 AM

From the NAR: Pending Home Sales Decline in December, Remain Above a Year Ago

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 3.5 percent to 96.6 in December from 100.1 in November but is 5.6 percent above December 2010 when it was 91.5. The data reflects contracts but not closings.
...
The PHSI in the Northeast declined 3.1 percent to 74.7 in December and is 0.8 percent below a year ago. In the Midwest the index rose 4.0 percent to 95.3 and is 13.3 percent higher than December 2010. Pending home sales in the South slipped 2.6 percent to an index of 101.1 in December but are 4.9 percent above a year ago. In the West the index fell 11.0 percent in December to 107.9 but is 3.7 percent higher than December 2010.

by Calculated Risk on 1/25/2012 08:38:00 AM

From the MBA: Mortgage Applications Fall by 5 percent in Latest MBA Weekly Survey

The Refinance Index decreased 5.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5.4 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 4.06 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.39 percent from 4.40 percent...

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

Click on graph for larger image.

The 4-week average of the purchase index increased slightly last week. This index has mostly moved sideways for the last 2 years, and is at about the same level as in 1997. The refinance index will probably increase later in February or in March at the HARP refinance program picks up.

by Calculated Risk on 1/24/2012 10:17:00 PM

Below is a graph that compares the Ceridian diesel fuel index and the ATA trucking index.

The ATA index showed a sharp increase in December: ATA Truck Tonnage Index Posts Largest Annual Gain in 13 Years

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 6.8% in December after rising 0.3% in November 2011. The latest gain put the SA index at 124.5 (2000=100) in December, up from the November level of 116.6.

But the Ceridian index showed only a small increase: Pulse of Commerce Index Increased 0.2 Percent in December

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued ... by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.2 percent in December following the 0.1 percent increase in November and the 1.1 percent increase in October.

Click on graph for larger image.

Here is a graph comparing the two indexes. In general the two indexes move together, but there are periods when one index is strong than the other. As an example the ATA trucking index was moving sideways prior to the recession, but the Ceridian index was still increasing.

And recently the ATA index is showing a strong increase, but the Ceridian index is only increasing slightly. Perhaps rail traffic is the tie breaker: AAR: Rail Traffic increased 7.3 percent YoY in December

by Calculated Risk on 1/24/2012 08:55:00 PM

Transcript: 2012 SOTU. Not much on housing ...

I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.
...
And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.

Ezra Klein SOTU liveblogging

by Calculated Risk on 1/24/2012 06:56:00 PM

The State of the Union Address is at 9 PM tonight.

President Obama will probably mention some housing policy initiatives that do not require Congressional approval: 1) the updated HARP program (refinance activity will increase in March), 2) an REO to rental program for Fannie and Freddie, and 3) the mortgage settlement agreement.

On the possible REO to rental program, here is a story from Patrick Coolican at the Las Vegas Sun: Your next landlord in Las Vegas could be a hedge fund

Hedge funds could be the next big player in the Las Vegas real estate market. ...

“We’ve been contacted by a number of different groups who have never considered owning single-family residences as rental properties in their investment portfolios,” says Brian Krueger, vice president for strategic services at Coldwell Banker, the real estate firm.

They are organizing money and have started to come in and do due diligence,” he says.

Doug Brien, managing director and co-founder of Waypoint Homes, tells me he was in Las Vegas last week to survey the landscape. Waypoint, an Oakland, Calif.-based company, has bought 1,000 homes as rental properties in other markets.

However in many areas selling REO in bulk doesn't seem to make much sense - since there are so many small investors already buying. Here is an excerpt of a piece from economist Tom Lawler:

Contrary to what some espousers of “bulk” REO sales to large investors to rent our SF properties might suggest, the number and % of single-family detached homes occupied by renters increased significantly during the latter half of last decade, with the largest gains coming in “bubbly” areas. The table below is based on data from the American Community Survey. The 2000 data are from Census 2000, while the 2006-07 and 2008-09 averages are derived from the 5-year, 3-year, and 1-year ACS results for the 2006-10, 2008-10, and 2010 periods released this year.

Percent of Occupied SF Detached Homes Occupied by Renters
	2000	2006-07	2008-09	2010
US	13.2%	12.8%	14.3%	15.1%
Maricopa County	10.4%	13.5%	16.8%	19.8%
Clark County	12.5%	18.2%	22.0%	24.4%
Sacramento County	18.8%	16.7%	20.2%	22.4%
Lee County	10.6%	12.3%	14.6%	17.3%
Source: Decennial Census 2000, American Community Survey 5-, 3-, and 1-year Estimates

According to ACS estimates – which sadly are just estimates – for the US as a whole the % of occupied SF detached homes that were occupied by renters increased from an average of 12.8% in the 2006-07 period to 15.1% in 2010. That % increase translated into a 3,637,349 jump in the number of renters occupied SF detached homes. By comparison, the number of owners occupied SF detached homes declined by 1,333,747.

For “distressed” areas, the numbers were even more striking, as the above table suggests.

In Maricopa County (home of Phoenix), the estimated number of SF detached homes occupied by renters increased to about 182,251 on average in 2010 from about 123,553 on average during the two-year 2006-07 period.

Of course, SF homes lost to foreclosure rose sharply in Maricopa County in 2008, and remained at elevated levels through last year – though foreclosures in 2011 were down from 2010. Investor buying also appeared to pick up dramatically in 2008, as (NOT coincidentally) the all-cash share of home sales in the county.

The ACS data, combined with investor/all-cash shares, suggests by 2010 a SIGNIFICANT share of SF homes lost to foreclosure in 2008-2010 period (1) were purchased by “investors;” and (2) had by 2010 been successfully rented out.
...
It is not clear why folks focusing on the rental market for SF housing have not actually looked at any data, much less analyzed or commented on the truly astounding increase in the rental share of the SF housing market in many parts of the country. The astounding increase in the number of foreclosed SF detached homes in Maricopa County occurred, of course, without any mandated program to have bulk sales of REO at discounts to “large” investors.

CR note: Foreclosures will probably pick up significantly once (and if) a mortgage settlement is reached. But right now it doesn't appear a bulk REO program is needed in most areas. Hopefully, if a program is announced, it will be limited to areas where small investors will be overwhelmed by the volumes (perhaps Las Vegas and parts of Florida).