by Calculated Risk on 10/09/2012 04:32:00 PM

Economist Tom Lawler sent me the table below with a one word discussion: "Wow".

CR Note: We've been tracking several distressed areas across the country, and a couple of clear patterns have developed:

1) There has been a shift from foreclosures to short sales. Foreclosures are down and short sales are up just about everywhere. For two of the cities below, short sales are three times foreclosures - and more than double in Phoenix. That is a huge change. A year ago, there were many more foreclosures than short sales.

2) The overall percent of distressed sales (combined foreclosures and short sales) are down year-over-year.

The three cities in the table below - Reno, Vegas, and Phoenix - were some of the hardest hit areas in the country. The decline in in distressed sales in Phoenix (from 64.1% in Sept 2011 to 39.9% in Sept 2012) is stunning. But we have to remember that 40% distressed is still extremely high.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Sep	11-Sep	12-Sep	11-Sep	12-Sep	11-Sep
Las Vegas	44.8%	23.5%	13.6%	49.4%	58.4%	72.9%
Reno	41.0%	29.0%	12.0%	38.0%	53.0%	67.0%
Phoenix	27.0%	27.0%	12.9%	37.1%	39.9%	64.1%

by Calculated Risk on 10/09/2012 12:49:00 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.

From the GLVAR: GLVAR reports local home prices, short sales continuing to climb

According to GLVAR, the total number of local homes, condominiums and townhomes sold in September was 3,298. That’s down from 3,688 in August and down from 4,108 total sales in September 2011.
...
GLVAR reported a total of 3,805 condos and townhomes listed for sale on its MLS at the end of September, down 0.7 percent from 3,830 condos and townhomes listed for sale on its MLS at the end of August and down 7.8 percent from one year ago.

The number of available homes listed for sale without any sort of pending or contingent offer also fell from the previous month and year. By the end of September, GLVAR reported 3,943 single-family homes listed without any sort of offer. That’s down 1.0 percent from 3,981 such homes listed in August and down 63.1 percent from one year ago.
...
Meanwhile, 44.8 percent of all existing local homes sold during September were short sales. That’s up from 43.7 percent in August, up from 23.5 percent one year ago, and the highest short sale percentage GLVAR has ever recorded.

Continuing a trend of declining foreclosure sales in recent months, bank-owned homes accounted for 13.6 percent of all existing home sales in September, down from 16.9 percent in August.

A few key points:
• Inventory declined slightly in September, and total inventory is down 7.8% from September 2011. However, for single family homes without contingent offers, inventory is still down sharply from a year ago (down 63.1% year-over-year).

• Short sales are more than triple foreclosures now. The GLVAR reported 44.8% of sales were short sales, and only 13.6% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).

• The percent distressed sales was extremely high at 58.4% in September (short sales and foreclosures), but down from 60.6% in August.

• There is a push to complete short sales, from the article:

[H]omeowners have been rushing to short-sell their homes by the end of 2012, when the Mortgage Forgiveness Debt Relief Act is set to expire unless Congress acts to extend it. If Congress does not extend this law by Dec. 31, she said any amount of money a bank writes off in agreeing to sell a home as part of a short sale will become taxable when sellers file their income taxes.

by Calculated Risk on 10/09/2012 10:49:00 AM

From Fannie Mae: Consumer Attitudes on Housing Continue Summer Season's Gradual Upward Trend

Results from Fannie Mae’s September 2012 National Housing Survey show Americans’ optimism about the recovery of the housing market and with regard to homeownership continued its gradual climb, bolstered by a fseries of mortgage rate decreases experienced throughout the summer. Consumer attitudes about the economy also improved substantially last month, breaking the progression of waning confidence seen during much of this year.

“Consumers are showing increasing faith in the nascent housing recovery,” said Doug Duncan, senior vice president and chief economist of Fannie Mae. “Home price change expectations have remained positive for 11 straight months, and the share expecting home price declines has stabilized at a survey low of only 11 percent. Furthermore, the Federal Reserve’s latest round of quantitative easing has caused a large drop in mortgage rate expectations. Friday's September jobs report, including the strong upward revisions for prior months, a sizable increase in earnings, and a sharp decline in the unemployment rate, should provide further impetus for improving consumer confidence in the housing market.”

Keeping a relatively steady pace with recent periods, survey respondents expect home prices to increase an average of 1.5 percent in the next year. The share who say mortgage rates will increase in the next 12 months dropped 7 percentage points to 33 percent. Nineteen percent of those surveyed say now is a good time to sell, marking the highest level since the survey began in June 2010. Tying the June 2012 level (and the all-time high since the survey’s inception), 69 percent of respondents said they would buy if they were going to move.

With regard to the economy overall, 41 percent of consumers now believe the economy is on the right track, up from 33 percent last month, while 53 percent believe the economy is on the wrong track, compared with 60 percent the prior month. Both the right track and wrong track figures mark the highest and the lowest readings, respectively, since the survey began in June 2010.

I usually don't these survey results, but it does appear consumers are gaining confidence in the housing market.

by Calculated Risk on 10/09/2012 08:39:00 AM

From CoreLogic: CoreLogic® Reports Shadow Inventory Continues to Decline in July 2012

CoreLogic ... reported today that the current residential shadow inventory as of July 2012 fell to 2.3 million units, representing a supply of six months. This was a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units, which is approximately the same level the country was experiencing in March 2009. Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.
...
“The decline in shadow inventory has recently moderated reflecting the lower outflow of distressed sales over the past year,” said Mark Fleming, chief economist for CoreLogic. “While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time.”
...
CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure and held as real estate owned (REO) by mortgage servicers but not currently listed on multiple listing services (MLSs). Roll rates are the transition rates of loans from one state of performance to the next. Beginning with this report, cure rates are factored in as well to capture the rise in foreclosure timelines and further enhance the accuracy of the shadow inventory analysis. Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed non-listed properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official metrics of unsold inventory.
...
Of the 2.3 million properties currently in the shadow inventory, 1 million units are seriously delinquent (2.9 months’ supply), 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).

Click on graph for larger image.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category.

Note: The "shadow inventory" could be higher or lower using other numbers and methods; the key is that their estimate of the shadow inventory is declining.

by Calculated Risk on 10/08/2012 09:26:00 PM

Tuesday: Nixon goes to China (uh, Merkel goes to Greece). There are no US economic data releases scheduled on Tuesday.

Last year I wrote Labor Force Participation Rate: The Kids are Alright. I linked to some data on the impact of the phase out of lead in gasoline and paint, and how this could be leading to more enrollment in school. Of course higher school enrollment is the mirror image of a falling participation rate for young people (see graph below).

From Brad Plumer at the WaPo: Study: Getting rid of lead does wonders for school performance

Over the past 50 years, after scientists realized that even minute doses of lead can have harmful effects, policymakers have been steadily pushing to eradicate the stuff from the environment. In the United States, no one uses lead-based paint or fills up their cars with leaded gasoline anymore—those were phased out back in the 1970s and 1980s. Lead levels in the air have dropped 92 percent since then.

By most accounts, this was a savvy investment. There’s ample evidence that lead exposure is extremely damaging for young children. Kids with higher lead levels in their blood tend to act more aggressively and perform more poorly in school. Economists have pegged the value of the leaded gasoline phase-out in the billions or even trillions of dollars. Some criminologists have even argued that the crackdown on lead was a major reason why U.S. crime rates plunged so sharply during the 1990s.

Click on graph for larger image.

This graph uses data from the BLS on participation rate (through September), and the National Center for Education Statistics (NCES through 2010) on enrollment rates.

This graph shows the participation and enrollment rates for the 18 to 19 year old age group. These two lines are a "mirror image".

If reducing lead exposure is the reason for the higher enrollment rate - and lower participation rate - that would be a great success! In the long run, more education is a positive for the economy (although I am concerned about the surge in student loans).

by Calculated Risk on 10/08/2012 04:49:00 PM

From economist Tom Lawler:

The Arizona Regional MLS reported that residential home sales by realtors in the Greater Phoenix, Arizona area totaled 6,478 in September, down 17.9% from last September’s pace. REO properties were just 12.9% (835) of last month’s sales, down from 37.1% (2,931) last September, while last month’s short-sales share was 27.0%, unchanged from a year ago. Active listings in September totaled 22,862, up 9.2% from August but down 15.2% from a year ago. The median home sales price last month was $150,000, up 30.5% from last September. Citing data from the Cromford Report, the ARMLS also reported that foreclosures pending in Maricopa County totaled 14,584 in September, down 38.1% from a year ago.

Click on graph for larger image.

Here is a chart showing active listings in the Greater Phoenix area (from ARMLS) from January 2002 through September 2012 (note: the ARMLS reports available to the public only show active listings “rightly defined” back to April 2005. The data from January 2002 through March 2005 in the chart below were derived from a chart from a realtor with direct access to ARMLS data).

One thing worth watching is the recent uptick in listings over the past few months – listings increased by 2.7% in both July and August, and jumped up by 9.2% last month. Over the past few years investor buying of residential properties on a low to no leverage basis with the intent to rent the properties out has been quite substantial.

In the middle of last decade, in contrast, Phoenix saw a surge in highly-leveraged real estate investment purchases by folks looking to make a “quick” flip – see 2nd graph.

However, over the past year home prices in Phoenix have rebounded sharply. The very recent jump up in listings may reflect some investors’ desire to “cash out” of their real estate investments, especially given the recent (though late in the cycle) increase in the number of “big-money” investors looking for SF rental properties.

CR Note: the increase in inventory hasn't been huge, and it could be sellers "waiting for a better market". More listings seems like a normal response to a sharp increase in prices.

by Calculated Risk on 10/08/2012 01:52:00 PM

I've been writing about the expected decline in the labor force participation rate for years. On Sunday, I posted another update: Employment: A decline in the participation rate was expected due to the aging population

I made a couple of key points on Sunday:
1) A decline in the participation rate was expected.
2) Although some of the recent decline in the participation rate has been to due to cyclical issues (severe recession), MOST of the decline in the overall participation rate has been due to changing demographics.

This morning Mish disagreed with me. His conclusion was: "While the Participation Rate trend is certainly down, and down was expected, most of the decline in participation rate since the start of the recession is due to economic weakness, not demographics."

I consider this progress! It wasn't long ago that I was still arguing with people that we should expect a decline in the participation rate. Now the question has shifted to what portion of the decline is cyclical (due to the recession) and what portion is due to demographics.

Mish looked at a paper I linked to on Sunday, written in 2002 by Austin State University Professor Robert Szafran, and Mish used Szafran's projection for the participation rate in 2015. However, as Szafran noted in his paper, for simplification purposes he assumed that the "age-specific participation rates do not change" after 2000.  However if we look at the 16-to-19 age group, the participation rate declined from 51% in 2000 to 42% in 2007 - before the recession started. Although Szafran's paper is very useful, the actual numbers (because of the simplifying assumptions) are clearly too high.

First, what are we talking about? The headline participation rate is the percentage of people 16 years old and over who are in the labor force. Here is a graph of the headline participation rate:

Click on graph for larger image.

The decline in the overall participation rate, especially since 2008, has been a cause of concern. But the headline number can be impacted by demographic changes (that is why Professor Szafran was estimating an "age adjusted" participation rate - his paper was titled: Age-adjusted labor force participation rates, 1960–2045).

Changing demographics makes projecting the overall participation rate very difficult. We do know that a fairly low percentage of people in the 16-to-19 age group participate in the labor force, this percentage increases for the 20-to-24 age group, and then remains high until people reach 55 or so. To project the overall rate, we need to know the trends for each age group, and we need to estimate how many people will be in each age group each year (this depends on mortality rates and immigration - and those change over time too).

Here is a graph based on BLS economist Mitra Toossi's projections (another paper I linked to on Sunday).

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

An increase in the participation rate for an age group (like the 60 to 64 group) is just one part of the equation. We also have to recognize that a large cohort is moving from the 55 to 59 age category into the 60 to 64 age group, and the participation rate for that cohort is falling.

This graphic is from the Census Bureau and shows the number of people by age and sex in the US based on the 2000 and 2010 Census. See: Age and Sex Composition: 2010

The baby boom generation is obvious. This graph is from two years ago, and shows that a large number of people are moving into the 55-to-65 age group now. Even though the participation rate is rising for the age group, it is lower than for the 45-to-55 age groups - so that pushes down the overall participation rate.

There are changes for other groups too. A fairly large group just moved into the 20-to-24 age group, and they will be moving into higher participation age groups soon (it isn't all bad news).

Here is the trend for men in the 16-to-19 age group. As I noted before, for his purposes, Szafran assumed this would stay at the 2000 rate. Instead the rate declined sharply from 2000 through 2007 - before the recession started.

How can we tell if the decline since 2008 was just a continuation of the trend, or if it was because of the severe recession? It is very difficult.

One idea is to look at a very narrow group (men in the 35-to-44 age group) and look for the impact of the recession.

These people aren't going back to school in large numbers, and they are not retiring early in large numbers.

What do we see? A long term down trend from about 97% participation in 1968 to about 91% participation now. If we look at a short term trend - from 1995 through 2007 - it appears there is about a 1% decline in the participation rate due to the recession (from 92% to 91%). But if we look at a long term trend, it appears the participation rate is about what we'd expect.

Other groups were probably impacted more by the recession than 35-to-44 year old males (younger groups tend to be impacted more), but I don't think there is evidence of a huge cyclical decline in the overall participation rate. I've looked at many age groups, and although I think some of the decline in the overall participation rate is due to the recession, it appears most of the recent decline in the participation rate is due to changing demographics.

by Calculated Risk on 10/08/2012 11:22:00 AM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation.

For Q2 2012, the Net Equity Extraction was minus $75 billion, or a negative 2.5% of Disposable Personal Income (DPI). This is not seasonally adjusted.

Click on graph for larger image in new window.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined sharply in Q2. Mortgage debt has declined by $1.05 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.

For reference:

Dr. James Kennedy also has a new method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 10/08/2012 09:13:00 AM

From the WSJ: Greece, Troika to Resume Talks This Week

Talks between Greece and a visiting troika of international inspectors made progress ... but no deal has yet been reached and the negotiations will resume next week.

The inspectors, from the European Commission, the International Monetary Fund and the European Central Bank, will depart Athens ... to attend a meeting of euro-zone finance ministers in Luxembourg Monday, the officials said.

"There has been progress on all fronts, fiscal and structural," one official, speaking to reporters after more than three hours of talks in the Greek capital, said. "The work will continue next week." ...
[As the talks drag on, overshooting their early October deadline, hopes of securing that aid by an Oct. 18 European summit--when European leaders were expected to sign off on Greece's latest aid tranche--now look dim.

And from the Athens News: Police announce ban on rallies during Merkel visit

The police on Monday announced that all open-air gatherings and rallies will be banned in large sections of central Athens between 9am and 10pm on Tuesday, as a security precaution to "preserve the peace" during a visit by German Chancellor Angela Merkel.

by Calculated Risk on 10/07/2012 09:44:00 PM

It appears gasoline prices in California have peaked following several refinery problems, see Jim Hamilton's California gas price spike. These refinery issues happened at a terrible time - just as the refineries were about to change to the winter blend.

From the LA Times: Gov. Brown takes emergency action to try to reduce gas prices

Gov. Jerry Brown took “emergency steps” Sunday to try to bring down record gas prices in the state.

He directed the California Air Resources Board to increase the fuel supply by allowing the immediate sale and import of cheaper and more available winter-blend gasoline.

The move would reduce the price of gas in California by 15 to 20 cents per gallon, probably within a few days, said energy expert Chris Faulkner of Dallas-based Breitling Oil and Gas.

The week will start with a focus on Europe. On Monday:
• Columbus Day Holiday: Banks will be closed in observance of Columbus Day. The stock market will be open.

• At 6:00 AM ET, Europe's European Stability Mechanism (ESM) will become active.

• Also at 6:00 AM, the "Troika" Report On Greece will be released.

• At 12:00 PM, the EU Finance Minsters meet in Luxembourg.

The Asian markets are mostly red tonight, with the Hang Seng down 0.3% and the Shanghai down 0.1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 2, and the DOW futures are down 17.

Oil prices are down with WTI futures down to $89.88 and Brent down at $111.69 per barrel.

Yesterday:
• Summary for Week Ending Oct 5th
• Schedule for Week of Oct 7th

Two more questions this week for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).