by Calculated Risk on 2/06/2012 04:58:00 PM

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for monthly inventory (54 metro areas), listed inventory is probably back to early 2005 levels. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through December (left axis) and the HousingTracker data for the 54 metro areas through February.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

Seasonally housing inventory usually bottoms in December and January and then starts to increase again in February. So inventory should increase over the next 6 months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the February listings - for the 54 metro areas - declined 21% from the same month last year. The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels. Also if there is an increase in foreclosures (as expected), this will give some boost to listed inventory.

This is just inventory listed for sale, sometimes referred to as "visible inventory". There is also a large "shadow inventory" that is currently not on the market, but is expected to be listed in the next few years.

However listed inventory has clearly declined in many areas. And it is the listed months-of-supply (6.2 months as of December) combined with the number of distressed sales that mostly impacts prices.

All current existing home sales graphs

by Calculated Risk on 2/06/2012 02:47:00 PM

After my post this morning, The Housing Bottom is Here I was asked to update two graphs from 2009.

It is worth repeating: There are usually two bottoms for housing, the first for new home sales, housing starts and residential investment. The second bottom will be for house prices.

For the first bottom, we have several possible measures - the following graph shows three of the most commonly used: Starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011.

We could use any of these three measures to determine the first bottom, and then use the other two to confirm the bottom. But this says nothing about prices.

The second graph compares RI as a percent of GDP with the real Case-Shiller National house price index through Q3 2011. Prices continued to fall in Q4 and probably into 2012 too.

Although the Case-Shiller data only goes back to 1987, look at what happened following the early '90s housing bust. RI as a percent of GDP bottomed in Q1 1991, but real house prices didn't bottom until Q4 1996 - more than 5 years later!

Something similar will most likely happen again. But note this is REAL prices (adjusted for inflation). If the current price pattern follows the previous bust, real prices will gradually decline for a few years - however most homeowners care about nominal prices, and there is a good chance nominal Not Seasonally Adjusted (NSA) national prices will bottom in March - and then start moving mostly sideways.

No one has a crystal ball, and I provided the reasons for this forecast in the previous post.

by Calculated Risk on 2/06/2012 12:13:00 PM

There have been some recent articles arguing the “housing bottom is nowhere in sight”. That isn’t my view.

First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.

For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a “bottom” for housing, we need to be clear on what we mean.

Click on graph for larger image.

For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.

As the first graph shows, housing starts, both total and single family, bottomed in 2009 and have mostly moved sideways since then - with some distortions due to the ill-conceived housing tax credit.

New Home sales probably bottomed in mid-2010 and have flat lined since then.

Back in 2009, when I first wrote about the two bottoms, I thought we were close on housing starts and new home sales - but that it was "way too early to try to call the bottom in prices." In real terms, house prices have fallen another 10% to 15% since I wrote that post according to the CoreLogic and Case-Shiller house price indexes.

And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.

The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November - so it is a report for several months ago. The CoreLogic index is a little more current - the recent release was for December, and CoreLogic uses a weighted average for prices (December weighted the most) - but that is still quite a lag.

Both of those indexes will bottom seasonally around March, and then start increasing again.

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).

Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties - especially some states with a judicial foreclosure process - will probably see further price declines.

And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.

But most homeowners and home buyers focus on nominal prices and there is reasonable chance that the bottom is here.

by Calculated Risk on 2/06/2012 08:52:00 AM

Just a reminder that there are still quite a few commercial real estate (CRE) properties that are deep underwater:

From Bloomberg: Atlanta BofA Tower Auction Highlights Foreclosures (ht Mike In Long Island)

Atlanta’s 55-story Bank of America Plaza, the tallest tower in the Southeast, is set to be sold at an open outcry auction on the steps of the Fulton County Courthouse tomorrow after landlord BentleyForbes missed mortgage payments. It bought the skyscraper in 2006 for $436 million ... the 1.25 million-square-foot building has lost 54 percent of its value ...

The $363 million Bank of America Plaza loan became delinquent in December ... was appraised in March at $202 million

“We’re hitting a tremendous amount of that debt coming due,” William Yowell, a vice chairman with CBRE Group Inc. in Atlanta, said in a telephone interview. That will cause “more distressed assets that come to market this year” and may lower the price per square foot on buildings, he said.

by Calculated Risk on 2/05/2012 11:01:00 PM

From the NY Times: Deal Is Closer for a U.S. Plan on Mortgage Relief

With a deadline looming on Monday for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from crucial states that would significantly expand the breadth of the deal.

The biggest remaining holdout, California, has returned to the negotiating table ... in the last few days, differences have narrowed in negotiations that one participant described as round the clock, with California officials in direct communication with bank representatives for the first time in months. ... Officials involved in the negotiations cautioned that broader state support could still be days away.

I expect most states (if not all) to join the settlement.

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

by Calculated Risk on 2/05/2012 03:06:00 PM

From the Athens News: Lengthy and difficult negotiations

A five-hour meeting between prime minister Lucas Papademos and the leaders of the three parties supporting the government ended without agreement on Sunday.

Pasok leader George Papandreou, main opposition New Democracy party leader Antonis Samaras and Popular Orthodox Rally (Laos) party leader George Karatzaferis failed to reach agreement with Papademos concerning the demands of the EU-IMF troika for private-sector wage cuts, further pension cuts, large-scale firing of public-sector staff and major downsizing of the public sector.
...
Main opposition New Democracy leader Antonis Samaras made no statements as he left the meeting but indicated the deadlock reached during the meeting during a brief statement to television cameras when he returned to ND's headquarters.

"For the first time, a negotiation is taking place. The country cannot stand more recession. I am fighting with every means to prevent this," he said, confirming that the negotiations will continue on Monday.

More from the Financial Times: Deadlock for Greek austerity talks

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

by Calculated Risk on 2/05/2012 10:13:00 AM

By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that several major indicators are still significantly below the pre-recession peaks.

Click on graph for larger image.

This graph is for real GDP through Q4 2011. Real GDP returned to the pre-recession in Q3 2011, and Gross Domestic Income (not shown) returned to the pre-recession peak in Q2 - GDI for Q4 will be released with the 2nd estimate of GDP. (For a discussion of GDI, see here).

At the worst point, real GDP was off 5.1% from the 2007 peak. Real GDI was off 5.7% at the trough.

Real GDP has performed better than other indicators ...

This graph shows real personal income less transfer payments as a percent of the previous peak through December.

This measure was off 10.7% at the trough.

Real personal income less transfer payments is still 4.8% below the previous peak.

This graph is for industrial production through December.

Industrial production was off over 17% at the trough, and has been one of the stronger performing sectors during the recovery.

However industrial production is still 5.4% below the pre-recession peak, and it will probably be some time before industrial production returns to pre-recession levels.

The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 4.1% below the pre-recession peak.

If the economy adds 243 thousand payroll jobs per month on average (the January report), it will take another 2 years to get back to the pre-recession employment peak. And that doesn't count growth of the working age population over the last 4+ years.

Yesterday:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

by Calculated Risk on 2/04/2012 09:56:00 PM

From the Athens News: Crucial meeting of coalition partners

The crucial negotiation of the coalition political party leaders over the EC-ECB-IMF troika's ultimatums and shock measures has been set for 13:00 on Sunday.

In this new meeting of the leaders of three parties backing the interim government led by Lucas Papademos which will take place on Sunday, the prime minister is expected to present them with a document detailing the rigid positions of the troika. ... [reports are] the prime minister is thinking of resigning if the three do not manage to come to an agreement.

From Reuters: Euro zone loses patience with Greece

Euro zone finance ministers told Greece on Saturday it could not go ahead with an agreed deal to restructure privately-held debt until it guaranteed it would implement reforms needed to secure a second financing package from the euro zone and the IMF.

From the NY Times: Greek Talks at a Delicate Point, Official Says

The Greek finance minister, Evangelos Venizelos, said on Saturday that talks between the government and its foreign creditors on a second rescue deal were “on a razor’s edge,” adding that though progress had been made on some levels, crucial issues were unresolved.

“Two major, interrelated issues remain unresolved — labor relations and wages in the private sector, and the fiscal measures that must be taken to ensure we are within the target for 2012,” Mr. Venizelos said after a two-hour conference call with euro zone officials. Despite the barriers, a deal must be reached in bailout talks by Sunday night, he said.

Earlier:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

by Calculated Risk on 2/04/2012 05:47:00 PM

Earlier:
• Summary for Week ending February 3rd
• Schedule for Week of February 5th

From the Association of American Railroads (AAR): AAR Reports Gains for January Rail Traffic

The Association of American Railroads (AAR) reported that total U.S. rail carloads originated in January 2012 totaled 1,144,800, an average of 286,200 per week and up 0.1 percent over January 2011. Intermodal volume in January 2012 was 877,637 containers and trailers, up 1.7 percent over January 2011. January’s average of 219,409 intermodal units per week was the third highest ever for a January for U.S. railroads.
...
“Total rail carload traffic in January was flat compared with last year, due largely to sharp declines in coal and grain traffic,” said AAR Senior Vice President John T. Gray. “However, a number of other commodity categories — including many that have historically been much more highly correlated with GDP growth than coal and grain—saw large increases in January. That’s a sign that the underlying economy is probably stronger than you would think if you just looked at the rail traffic totals.”

Click on graph for larger image.

This graph shows U.S. average weekly rail carloads (NSA).

On a non-seasonally adjusted basis, total U.S. rail carloads in January 2012 totaled 1,144,800, an average of 286,200 per week and up 0.1% over January 2011.

Rail carload traffic collapsed in November 2008, and now, 2 1/2 years into the recovery, carload traffic is still not half way back to the pre-recession levels.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Graphs reprinted with permission.

Intermodal traffic is close to the peak year in 2006.

U.S. rail intermodal volume in January 2012 was 877,637 containers and trailers, up 1.7% over January 2011. January’s average of 219,409 intermodal units per week was the third highest ever for a January for U.S. railroads.

All Current Transportation graphs

by Calculated Risk on 2/04/2012 01:21:00 PM

Earlier:
• Summary for Week ending February 3rd

This will be a light week for economic releases. The key economic release is the December trade balance report to be released on Friday.

Also on Friday Fed Chairman Ben Bernanke will speak to the National Association of Homebuilders: "Housing Markets in Transition".

Europe will be a focus, especially any announcements about Greece. Also the ECB holds a meeting on Thursday.

The mortgage settlement might be announced this coming week too.

----- Monday, Feb 6th-----
No releases scheduled.

----- Tuesday, Feb 7th -----
10:00 AM ET: Job Openings and Labor Turnover Survey for December from the BLS.

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

In general, the number of job openings (yellow) has been trending up, and were up about 7% year-over-year compared to November 2010.

10:00 AM: Testimony from Fed Chairman Ben Bernanke, "The Economic Outlook and the Federal Budget Situation", Before the Committee on the Budget, U.S. Senate (repeat of House testimony).

3:00 PM: Consumer Credit for December. The consensus is for a $7.0 billion increase in consumer credit.

----- Wednesday, Feb 8th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index was especially weak last year, although this does not include all the cash buyers.

----- Thursday, Feb 9th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 370,000 from 367,000 last week.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for December. The consensus is for a 0.5% increase in inventories.

----- Friday, Feb 10th -----
8:30 AM: Trade Balance report for December from the Census Bureau.

Imports have 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 consensus is for the U.S. trade deficit to increase to $48.5 billion in December, up from from $47.8 billion in November. Export activity to Europe will be closely watched.

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for February.

The final January Reuters / University of Michigan consumer sentiment index increased to 75.0, up from the December reading of 69.9.

The consensus is for a decrease in February to 74.3 from 75.0 in January.

12:30 PM: Speech by Fed Chairman Ben Bernanke, "Housing Markets in Transition", At the 2012 National Association of Homebuilders International Builders' Show, Orlando, Florida