by Calculated Risk on 2/07/2012 08:38:00 PM

From the WSJ: Concession Smooths Way Toward a Greek Debt Deal

The European Central Bank has made key concessions over its holdings of Greek government bonds ... The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value ...

The idea is for the ECB, in effect, to exchange its Greek bonds for bonds of the European Financial Stability Facility ... The EFSF ... will return the bonds to Greece, and Greece will then agree to repay the EFSF for the price at which the fund bought the bonds from the ECB ... officials said the ECB's concessions could contribute a maximum €11 billion to fill a gap estimated at some €15 billion

The ECB would break even, or might even make a small profit on the transaction. A similar plan would probably help Portugal and Ireland too.

From the Financial Times: Greece misses bail-out deadline

Greece missed another deadline ... on Tuesday night ... [Prime Minister] Lucas Papademos ... would hold the talks on Wednesday morning and expected a deal to be presented for approval at a meeting of eurozone finance ministers later in the week.
excerpt with permission

I still think a deal is likely.

by Calculated Risk on 2/07/2012 06:08:00 PM

From MarketWatch: New York AG cancels bank settlement statement

New York Attorney General Eric Schneiderman late Tuesday postponed a much anticipated conference call with reporters that was set up to announce whether the state would participate in broad a settlement with five big banks over foreclosure practices.

Uh, never mind.

by Calculated Risk on 2/07/2012 03:52:00 PM

From Diana Olick at CNBC (video at 4:30): New York state Attorney General Eric Schneiderman will make a statement at 6 PM ET.

Olick speculates that if Schneiderman announces New York is joining the settlement that that might mean he has to drop the suit against MERS that was recently filed.

Update: From Bloomberg: States With Highest Foreclosure Rates Among Bank Deal Holdouts

California, New York, Nevada, Florida and Massachusetts are among the handful of states that haven’t signed a deal with banks over foreclosure abuses ... California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been some of the most outspoken in pushing for changes to the deal, were among those who hadn’t joined as of yesterday’s deadline.
...
Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last-minute demand that New York drop claims filed against them Feb. 3 as a condition of the foreclosure settlement ... The push by the three banks raised an obstacle in getting Schneiderman’s support for the deal, said the person.

by Calculated Risk on 2/07/2012 01:24:00 PM

In a research note released last night, Goldman Sachs economist Sven Jari Stehn looked at the population revisions from the 2010 Census and argued that there is "No Labor Force Participation Rebound in Sight".

This is a key point. Some of the recent decline in the participation rate was expected due to demographics (mostly aging of the population), but most analysts expected some rebound in the participation rate this year as the economy (hopefully) improves. Goldman is now expecting the participation rate to stay flat through 2013.

From Stehn:

The demographic structure of the population matters because participation follows a distinct life cycle: it rises with age as teens enter the labor force, reaches a plateau between ages 25 and 55, and falls sharply thereafter due to retirement. Moreover, participation is higher for prime-age men than women, mostly due to child bearing. This life-cycle pattern can be seen by splitting the working-age population into four groups: young individuals (aged 16-24 years), prime-age men (25-54), prime-age women (25-54), and older individuals (55+). Specifically, in 2011 prime-aged individuals had much higher participation rates (89% for men, 75% for women) than young (at 55%) or older individuals (at 40%). The updated population controls from the 2010 Census revealed an increase in young and older workers relative to prime-age ones, pushing down the estimate for the aggregate participation rate.
...
[O]ur model suggests that the participation rate will remain broadly flat at 63.7% through the end of 2013

This is very important. Although I expect the participation rate to decline over the next couple of decades as the population ages, I thought the participation rate would rise a little in 2012. If the participation rate stays steady at 63.7%, then the unemployment rate would fall quicker than I had expected (and possibly quicker than the Fed expected too). I'll add some calculations later.

This is a reminder that we can't just look at the participation rate and the overall employment-population ratio (the ratio of employed to over 16 population).

Click on graph for larger image.

During this period of a significant shift in demographics, it helps to look at the employment-population ratio for the prime working age group (25 to 54 years old). This leaves out most changes in demographics, although there are more women than originally thought, so that impacts this ratio too.

For this key demographic, it appears the employment situation for men is improving a little, but the employment situation for women is still lagging behind.

by Calculated Risk on 2/07/2012 10:12:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 3.4 million job openings on the last business day of December, up from 3.1 million in November, the U.S. Bureau of Labor Statistics reported today.
...
Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the number of job openings has increased 39 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 December, the most recent employment report was for January.

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 increased in December, and the number of job openings (yellow) has generally been trending up, and are up about 15% year-over-year compared to December 2010.

Quits declined slightly in December, but have mostly been trending up - quits are now up about 5% 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 2/07/2012 08:51:00 AM

Here is a serious incentive to do a short sale ... from Bloomberg: Banks Paying U.S. Homeowners to Avoid Foreclosures(ht Mike in Long Island)

Banks ... are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.
...
Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.
...
Farley ... said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 -- about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home. Farley, who is also approved for an additional $3,000 through a federal incentive program, is scheduled to close the deal Feb. 10.
...
JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Unfortunately it seems there are still many suspicious short sales. It is common to see a home initially listed as "contingent" or "pending" at a price well below market - meaning the agent or seller already had a buyer lined up. If the banks are paying an incentive for those deals, they are losing twice!

by Calculated Risk on 2/06/2012 10:12:00 PM

But none of the key holdout states have signed on yet ...

From Bloomberg: Mortgage Accord Has More Than 40 States Signed On, Iowa Says

More than 40 states have signed on to a settlement over mortgage-servicing practices ... This enables us to move forward into the very final stages of remaining work,” Iowa Attorney General Tom Miller said in a statement today ...

Nevada Attorney General Catherine Cortez Masto said today she wouldn’t decide whether to sign in time for the deadline, which was extended by the parties from Feb. 3. ... Masto said in a statement she was reviewing the settlement and “advocating for improvements to address Nevada’s needs.”

Makes me wonder: Will the Greek debt deal or the mortgage servicer settlement be announced first (or collapse first)?

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.