by Calculated Risk on 2/09/2012 12:01:00 AM

Another view on house prices from Zillow: Home Value Declines Pick Up in Fourth Quarter, But Zillow Forecasts Smaller Declines in 2012

The Zillow Real Estate Market Reports, released today, show home values decreased 1.1 percent from the third to the fourth quarter of 2011 to $146,900. On an annual basis, this represents a 4.7 percent decline. December’s data show that sequential improvements in year-over-year numbers have stopped, and the pace of monthly depreciation has once again picked up, with December’s monthly depreciation rate at 0.6 percent.
...
[W] believe 2012 will be a transitional year for real estate. Positive developments will include markets showing organic growth, and home sales increasing as the year proceeds. However, we maintain our forecast that home values will continue to fall in 2012, with the Zillow Home Value Forecast showing a 3.7 percent decline through December 2012.
...
Based on these forecasts, we expect more home value declines nationally in 2012. However, most markets will see improved trends over the course of the year.

And from a press release:

“While it may be disconcerting for homeowners to see values nationally fell at a fairly rapid clip at the end of last year, that trend won’t last through 2012,” said Zillow Chief Economist Dr. Stan Humphries. “The fourth quarter’s weak performance proves that pronouncements of a bottom in home values have been premature, but the good news is that 2012 will prove to be a better year than 2011. In fact, many markets show signs of a bottom this year, although a bottom may continue to elude the nation as a whole in 2012. Fortunately, against a backdrop of modest further declines in home values, we expect that home sales will pick up briskly this year as affordable prices bring more buyers to the table – especially investors and second-home buyers.”

by Calculated Risk on 2/08/2012 07:20:00 PM

From the WSJ: Banks Near $25 Billion Pact on Foreclosure Probe

Government officials are on the verge of an agreement worth as much as $25 billion with five major banks ... Federal officials were planning to announce the accord Thursday morning, but the timing could yet be pushed back as some details had yet to be ironed out. Among them: the precise size of the agreement and the number and identity of participating states.
...
The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York.

All three overcame misgivings about the plan in recent days, people familiar with the situation said.

by Calculated Risk on 2/08/2012 04:24:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the November report, were off 61.6% from the peak according to Case-Shiller, and off 9.2% over the last year. Prices just keep falling. Sales in 2011 were at record levels, more than during the bubble, and it looks like 2012 will be an even stronger year.

From the LVGAR: GLVAR January 2012 Housing Statistics

GLVAR reported that 48,186 local properties were sold in 2011, including 38,153 single-family homes and 10,033 condominiums and townhomes. That broke GLVAR’s all-time sales record set in 2009, when it reported 46,879 total sales. In 2010, GLVAR reported 43,877 total sales.

“At the rate we’re going, 2012 has the potential to be another record sales year,” she said.

According to GLVAR, the total number of local homes, condominiums and townhomes sold in the traditionally slow sales month of January was 3,591. That’s down from 4,250 in December 2011, but up from 3,214 total sales in January 2011.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service decreased from December to January, with a total of 19,160 single-family homes listed for sale at the end of the month. That’s down 0.4 percent from 19,230 single-family homes listed for sale at the end of December and down 12.9 percent from one year ago. GLVAR reported a total of 4,133 condos and townhomes listed for sale on its MLS at the end of January. That’s up 1.8 percent from 4,061 condos and townhomes listed in December, but down 25.6 percent from one year ago.
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In January, GLVAR reported that 52.5 percent of all existing homes sold in Southern Nevada were purchased with cash. That’s up from 50.8 percent in December. Meanwhile, 28.1 percent of all existing local homes sold during January were short sales ... Bank-owned homes accounted for 45.5 percent of all existing home sales in January, down from 46.0 percent in December 2011.

So 73.6% of the sales were distressed, and over half were purchased with cash.

One of the keys is the decline in inventory. Note that the GLVAR reports both total inventory, and inventory excluding "contingent" listings (usually short sales). Total single family inventory was down 12.9% from a year ago, and excluding contingent listings, inventory was down 35.8%!

by Calculated Risk on 2/08/2012 11:27:00 AM

Yesterday Goldman Goldman Sachs economist Sven Jari Stehn argued that the labor force participation rate would remain "broadly flat at 63.7% through the end of 2013". He argued there would be a cyclical boost to the participation rate this year from the recovering economy, but a structural decline in the participation rate due to demographics. (Note: some decline in the participation rate has been expected over the next couple of decades).

The updated population controls from the 2010 Census showed a higher percentage of younger and older workers compared to the prime working age group (25 to 54), and also more women (participation rate is lower for women) than originally estimated - so the aggregate participation rate is now at 63.7%. Stehn argues that structural factors alone could push the aggregate participation rate down further to 63.1% by the end of 2012, but that this will probably be offset by more people returning to the labor force as the economy recovers.

The participation rate plays a key role in calculating to unemployment rate. First a few definitions from the BLS Glossary:

• Civilian noninstitutional population: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

• Labor force: The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

• Labor force participation rate: The labor force as a percent of the civilian noninstitutional population.

• Unemployment rate: The unemployment rate represents the number unemployed as a percent of the labor force.

So a lower participation rate - with the same level of employment - would mean a lower unemployment rate.

Below is a table showing the sensitivity of the unemployment rate to three levels of the participation rate (centered around Goldman's forecast) and three rates of job creation for 2012. (note: this is mixing two different surveys - the household survey for the participation rate and unemployment rate, and the establishment survey for payroll jobs. Over time these two surveys move together, but there can be significant variability in the short run).

December 2012 Unemployment Rate based on Jobs added and Participation Rate
		Participation Rate
		63.4%	63.7%	64.0%
Jobs added per month (000s)	150	7.6%	8.0%	8.5%
	200	7.2%	7.7%	8.1%
	250	6.9%	7.3%	7.8%

If the January pace of payroll employment growth continues (around 250 thousand jobs per month), and the participation rate stays at 63.7%, then the unemployment rate could fall to 7.3% in December 2012. But even at a slower pace of payroll growth, the unemployment rate could be at or below 8% by the end of the year - unless the participation rate rises or the economy slows sharply.

The recent FOMC projections (see below) are for the unemployment rate to be in the 8.2% to 8.5% range by Q4 2012, and perhaps the FOMC was expecting the participation rate to increase this year.

If the participation rate doesn't increase, and payroll growth continues (even at 150 thousand per month), then the FOMC projections are too high. But even if the FOMC revises down their unemployment rate forecast, they will still view a 7.5% to 8% unemployment rate at the end of 2012 as unacceptably high.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate1	2012	2013	2014
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

¹ Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

by Calculated Risk on 2/08/2012 08:33:00 AM

From the MBA: Refinance Activity Increases as Rates Hit Survey Lows

The Refinance Index increased 9.4 percent from the previous week. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.05 percent, the lowest rate in the history of the survey, from 4.09 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500)decreased to 4.29 percent, the lowest rate in the history of the survey, from 4.33 percent ...

The purchase index is still moving sideways at a very low level, but I expect the changes to HARP to lead to a surge in refinance activity in March.

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.
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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