by Calculated Risk on 10/19/2012 05:07:00 PM

Private, quietly
Hours before SmartBank arrived
Smarter cash made off.
by Soylent Green is People
From the FDIC: SmartBank, Pigeon Forge, Tennessee, Assumes All of the Deposits of GulfSouth Private Bank, Destin, Florida

As of June 30, 2012, GulfSouth Private Bank had approximately $159.1 million in total assets and $151.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $36.1 million. ... GulfSouth Private Bank is the 44th FDIC-insured institution to fail in the nation this year, and the sixth in Florida.

The FDIC gets back to work.

Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 04:01:00 PM

Economist Tom Lawler sent me his comments on the NAR report:

The National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 4.75 million in September, down 1.7% from August’s slightly upwardly revised (to 4.83 million from 4.82 million) pace. The upward revision to August’s seasonally-adjusted pace was puzzling/mildly amusing, as unadjusted sales were revised downward to 476,000 from 477,000! The NAR’s September seasonally-adjusted sales estimate was close to consensus and just a tad higher than my estimate based on regional tracking, though all of my “miss” was in the seasonal factor for September – my unadjusted sales estimate was “right on.” While seasonally adjusted sales in September were up 11.0% from last September’s pace, unadjusted sales showed a YOY gain of just 2.2% (mainly but not totally reflecting the lower business day count).

The NAR’s estimate of the inventory of existing homes for sale at the end of September was 2.32 million, down 3.3% from August’s downwardly revised (by a hefty 2.8% to 2.40 million from 2.47 million) level and down 20.0% from last September.

According to the NAR, the median existing US home sales price last month was $183,900, up 11.3% from last September, and the median existing SF home sales price was $184,300, up 11.4% from a year ago. August’s median home sales price was revised down by 1.3%, and August’s median SF home sales price was revised down by 1.7% -- resulting in a revised YOY increase of 8.4%, vs. last month’s estimate of 10.2%. The NAR’s median sales price numbers continued to come in higher than what state and local realtor reports would suggest, for unknown reasons.

In its press release the NAR misleading said that “(d)istressed homes3 - foreclosures and short sales sold at deep discounts - accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011.” A footnote in the press release notes that the distressed sales shares are from a monthly survey of realtors (for the Realtor Confidence Index), generally taken from the last week of a given report month through the first week of the subsequent month. The sample size is small and varies over time; is voluntary; and the results often do not represent trends in the market as a whole. Based on available data from various regional reports, the short-sale share of home sales was higher this September than last September, while the foreclosure-sale share was down sharply.

If, in fact, the “distressed” sales share of total home sales had been 24% last month and 30% last September, and if the NAR unadjusted sales estimates AND seasonal factors were correct, then “non-distressed” home sales last month were up about 10.9% from a year ago on an unadjusted basis, and up about 20.5% from a year ago on a seasonally adjusted basis.

Of course, in many markets, especially some hard-hit ones, the distressed share of total sales last month fell by a lot more than that implied by the NAR’s survey. Here’s an updated table for selected markets.

	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%
Minneapolis	10.1%	13.1%	25.2%	32.9%	35.3%	46.0%
Mid-Atlantic (MRIS)	12.4%	12.6%	9.4%	14.4%	21.8%	27.0%
California*	27.0%	23.8%	17.7%	33.8%	44.7%	57.6%
Orlando	28.0%	25.6%	24.0%	35.9%	52.0%	61.5%
Sacramento	35.4%	26.1%	15.4%	37.9%	50.8%	64.0%
King Co. WA**	16.0%	10.0%	10.0%	22.0%	25.0%	32.0%
Lee County, FL***	21.4%		15.9%		37.3%	54.0%
Charlotte					15.3%	20.9%
Chicago					40.6%	40.0%
Hampton Roads VA					25.4%	31.6%
Northeast Florida					44.7%	49.0%
Memphis*			26.3%	30.8%
Houston			16.1%	19.4%
Birmingham AL			26.6%	31.8%
*share of existing home sales, based on property records
** Third Quarter: total may not add up due to rounding
*** SF Only

The “big” story in the above table, of course, was the huge decline in foreclosure sales this September vs. last September. Foreclosure sales, of course, tend to be “uber-distressed”/”highly motivated.” Short sales, in contrast, are more “mixed” in terms of urgency and distress.

Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 02:38:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally lower in September. Forty-one states and the District of Columbia recorded unemployment rate decreases, six states posted rate increases, and three states had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 11.8 percent in September. Rhode Island and California posted the next highest rates, 10.5 and 10.2 percent, respectively. North Dakota again registered the lowest jobless rate, 3.0 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement - obviously Michigan and Ohio have seen the most improvement - New Jersey and New York are the laggards.

The states are ranked by the highest current unemployment rate. Only three states still have double digit unemployment rates: Nevada, Rhode Island, and California. In early 2010, 18 states and D.C. had double digit unemployment rates.

I expect the unemployment rate in California to fall below 10% very soon.

All current employment graphs
Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 11:36:00 AM

This was a solid report, not because of sales, but because of the level of inventory. Based on historical turnover rates, I think "normal" sales would be in the 4.5 to 5.0 million range. So, existing home sales at 4.75 million are in the normal range.

Of course a "normal" market would have very few distressed sales, so there is still a long ways to go, but the market is headed in the right direction. Note: No one should expect existing home sales to go back to 6 or 7 million per year. Instead the key to returning to "normal" are more conventional sales and fewer distressed sales.

From the NAR this morning:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011

I'm not confident in the NAR distressed sales measurement (it is from an unscientific survey of Realtors), but other sources also suggest distressed sales have fallen in many areas.

Some quick calculations: According to the NAR, existing home sales in September were at a 4.75 million annual rate with 24% distressed sales. That would suggest conventional sales at a 3.61 million annual rate.

In September 2011, sales were at a 4.28 million annual rate with 30% distressed. That would suggest conventional sales were at a 3.0 million annual rate in September 2011. So conventional sales in September 2012 were up about 20% from a year ago.

Also, according to the NAR, the percent of distressed sales peaked in March 2009 at just under 50% when total sales were at a 3.94 million sales rate. That would suggest conventional sales were at a 2.0 million sales rate in March 2009, and that conventional sales are up about 80% from the bottom! If we were confident in the NAR data, this would be the number to watch.

Of course what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory will keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales.

The NAR reported inventory decreased to 2.32 million units in September, down from 2.40 million in August. This is down 20.0% from September 2011, and down 16% from the inventory level in September 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level for the month of September since 2002.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Click on graph for larger image.

This graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

This year (dark red for 2012) inventory is at the lowest level for the month of September since 2002, and inventory is below the level in September 2005 (not counting contingent sales). All year I've been arguing months-of-supply would be below 6 towards the end of the year, and months-of-supply fell to 5.9 months in September (a normal range).

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in September (red column) are only slightly above last year (there were 2 fewer selling days). Sales are well below the bubble years of 2005 and 2006, and also below 2007.

Earlier:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 10:00:00 AM

The NAR reports: September Existing-Home Sales Down but Prices Continue to Improve

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 1.7 percent to a seasonally adjusted annual rate of 4.75 million in September from an upwardly revised 4.83 million in August, but are 11.0 percent above the 4.28 million-unit pace in September 2011.
...
Total housing inventory at the end September fell 3.3 percent to 2.32 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, down from a 6.0-month supply in August. Listed inventory is 20.0 percent below a year ago when there was an 8.1-month supply.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2012 (4.75 million SAAR) were 1.7% lower than last month, and were 11.0% above the September 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 2.32 million in September down from 2.40 million in August. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.0% year-over-year in September from September 2011. This is the 19th consecutive month with a YoY decrease in inventory.

Months of supply declined to 5.9 months in September.

This was at expectations of sales of 4.75 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...

All current Existing Home Sales graphs

by Calculated Risk on 10/19/2012 08:36:00 AM

Each year I track seasonal retail hiring during October, November and December. This usually provides an early clue on holiday retail sales. Currently the NRF is forecasting about the same level of seasonal hiring as last year.

From the National Retail Federation: Expect Solid Growth This Holiday Season

Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase 4.1 percent to $586.1 billion. NRF’s 2012 holiday forecast is higher than the 10-year average holiday sales increase of 3.5 percent.
...
According to NRF, retailers are expected to hire between 585,000 and 625,000 seasonal workers this holiday season, which is comparable to the 607,500 seasonal employees they hired last year.

Last year was the highest level of seasonal hiring since 2007 (seasonal hiring was especially weak in 2008, and then improved some in 2009). There is also a shift towards online buying that is keeping down seasonal hiring.

by Calculated Risk on 10/18/2012 08:37:00 PM

The most important numbers in the existing home sales report, to be released Friday morning, are inventory and percent conventional sales - not total sales (although that will be the focus of most of the media).

Inventory is important because this is "visible inventory" (as opposed to "shadow inventory"), and visible inventory that has the largest impact on prices. The percent of conventional sales is important because this gives a hint as to the health of the overall market.

Imagine if sales move mostly sideways for the next few years, but the number of distressed sales steadily declines. That would be a sign of an improving market.

Unfortunately I'm not very confident in the NAR methodology for estimating the percent of distressed sales. This data comes from a monthly survey for the Realtors® Confidence Index and is an unscientific sample. However the regional data Tom Lawler and I have been tracking suggests the percent of conventional sales is increasing.

In August 2012, the NAR reported "Distressed homes ... accounted for 22 percent of August sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in July and 31 percent in August 2011" and last year, the NAR reported "Distressed homes ... accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from ... 35 percent in September 2010." 

So it appears the percent of distressed sales is declining (the percent of conventional sales is increasing), and I'd expect the NAR to report distressed sales in the low 20 percent range.

Housing economist Tom Lawler estimates the NAR will report sales of 4.70 million and a monthly decline in the inventory of existing homes for sale of about 3.2% in September.

On Friday:
• At 10:00 AM, the National Association of Realtors (NAR) will releases Existing Home Sales for September. The consensus is for sales of 4.75 million on seasonally adjusted annual rate (SAAR) basis. Sales in August 2012 were 4.82 million SAAR.

• Also at 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for September 2012.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/18/2012 03:18:00 PM

Freddie Mac reported earlier today: Mortgage Rates Near Record Lows As Home Construction Builds Up Steam

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates edging slightly lower with the 30-year fixed averaging 3.37 percent, just above its all-time record low of 3.36 percent, and the average 15-year fixed dipping to a new all-time record low at 2.66 percent.

And the MBA reported yesterday that refinance activity decreased last week, but is still near the highest level since early 2009.

Here is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

UPDATE: left axis is MBA refinance index, 1990=100.

Click on graph for larger image.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and that is what we are seeing!

There has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie (see The HARP Refinance Boom Continued in August) .

The second graph shows the 15 and 30 year fixed rates from the Freddie Mac survey.

The Primary Mortgage Market Survey® started in 1971 (15 year in 1991). The 30 year rate is near a record low for the Freddie Mac survey, and rates for 15 year fixed loans is at a now low this week.

by Calculated Risk on 10/18/2012 12:12:00 PM

Occasionally, over the last several years, I've posted a list of downside risks to economic growth - and here is another one. Currently my forecast is still for sluggish and choppy growth, but I think there are reasons to expect US economic growth to pickup in the next year or two, perhaps to trend growth. As I noted last month in Two Reasons to expect Economic Growth to Increase, residential investment is now a tailwind for the economy, and the drag from state and local government cutbacks is mostly behind us.

There are always many downside risks (meteor strikes, major terrorist attack, war somewhere - possibly with Iran), but I think these are the most probable downside risks:

• The European financial crisis. The European crisis has been threatening to spill over into the US for several years. Looking back, I was writing about Greece, Ireland and Spain sovereign debt issues in 2009. This year the recession in Europe is hitting US exports, but so far there is little financial contagion.

The European situation could spin out of control at any time. Currently the unemployment rate is 25.1% in both Spain and Greece, and that is political unsustainable. There are decisions to made soon regarding Greece (another round of financial help) and Spain (when will they ask for a bailout?) - and also about fiscal union and easing back on austerity.

• The economic slowdown in China. The recession in Europe has spilled over into China, and has led to fears of a sharp slowdown. From the WSJ: China's Growth Continues to Slow

Growth in China's gross domestic product fell to 7.4% in the third quarter compared with a year earlier, China's National Bureau of Statistics said Thursday, down from 7.6% in the second quarter and the weakest since the beginning of 2009. The seventh consecutive deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China's households to pick up the slack.

Data for September showed some signs of stabilization. Industrial output growth rose to 9.2% year-over-year, from 8.9% in August. Exports also bounced back, up 9.9% year-over-year in September, after 2.7% in the previous month. And Chinese refineries processed a record high amount of crude oil, 7% more than a year earlier.

China reports GDP on a year-over-year basis (the US reports an annualized rate quarterly). A sharp slowdown in China might lead to a higher trade deficit with the US - and also might reveal some financial issues in China. As Warren Buffett said "It's only when the tide goes out that you learn who's been swimming naked."

Of course a slowdown in China might lead to lower commodity prices, and that would help many sectors in the US.

• The Fiscal Slope. This is commonly called the "fiscal cliff", but it is more of a slope. This refers to several federal tax increases and spending cuts that are scheduled to happen at the beginning of 2013. This includes ending the Bush-era tax cuts, ending the temporary payroll tax reduction, ending extended unemployment benefits, and some large budget cuts mostly for defense spending. No one expect this to be resolved before the election, but after the election this could become a significant issue. This doesn't have to be resolved immediately - policymakers could wait a few months - but this probably has to be resolved fairly early next year.

My assumption is that some sort of reasonable agreement will be reached and the fiscal slope will only have a minor impact on economic growth in 2012. My guess could be wrong, and policymakers might not be able to reach a deal.

Note: There is also the possibility of stronger than expected growth next year. This could lead to the Federal Reserve slowing or even stopping QE3 - but I think that would be considered a strong positive. Right now, sluggish growth with some pickup in 2013, seems most likely.

by Calculated Risk on 10/18/2012 10:00:00 AM

The Philly Fed manufacturing index showed expansion in October after five consecutive months of contraction. From the Philly Fed: October Manufacturing Survey

Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. The survey’s indicators for general activity returned to positive territory, while new orders and shipments recorded levels near zero. But firms reported continuing declines in employment and hours worked. Indicators for the firms’ expectations over the next six months remained positive.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April.

Labor market conditions at the reporting firms remained weak this month. The current employment index dipped 3 points, to ‐10.7, its lowest reading since September 2009.
emphasis added

Earlier in the week, the NY Fed reported:

The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys increased in October but was still slightly negative.  This suggests another weak reading for the ISM manufacturing index.