by Calculated Risk on 11/12/2012 02:51:00 PM

A few comments and a table from economist Tom Lawler:

D.R. Horton and Beazer Homes released their operating results for the quarter ended September 30th today. Here is a table showing some summary stats for nine large publicly-traded home builders. The net orders and settlements figures include results from “discontinued operations.”

The combined order backlog of the builders on September 30th, 2012 was 30,461, up 44.6% from last September.

CR Note: I broke Tom's table into two sections - the first for orders and settlements, and the second for prices.

This increase in net orders was about the same as last quarter (year-over-year), and the backlog is continuing to increase.

	Net Orders			Settlements
Qtr. Ended:	9/30/2012	9/30/2011	% Chg	9/30/2012	9/30/2011	% Chg
D.R. Horton	5,276	4,241	24.4%	5,575	4,987	11.8%
PulteGroup	4,544	3,564	27.5%	4,418	4,198	5.2%
NVR	2,558	2,218	15.3%	2,656	2,255	17.8%
The Ryland Group	1,507	1,008	49.5%	1,322	1,015	30.2%
Beazer Homes	1,110	1,023	8.5%	1,608	1,404	14.5%
Standard Pacific	989	764	29.5%	861	697	23.5%
Meritage Homes	1,204	906	32.9%	1,197	840	42.5%
MDC Holdings	1,008	595	69.4%	1,039	707	47.0%
M/I Homes	757	587	29.0%	746	582	28.2%
Total	18,953	14,906	27.2%	19,422	16,685	16.4%

	Average Closing Price
Qtr. Ended:	9/30/2012	9/30/2011	% Chg
D.R. Horton	$231,085	$215,300	7.3%
PulteGroup	$279,000	$262,000	6.5%
NVR	$321,700	$308,900	4.1%
The Ryland Group	$264,000	$249,000	6.0%
Beazer Homes	$228,600	$228,100	0.2%
Standard Pacific	$369,000	$346,000	6.6%
Meritage Homes	$280,000	$259,000	8.1%
MDC Holdings	$308,600	$289,800	6.5%
M/I Homes	$266,000	$238,000	11.8%
Total	$271,027	$254,436	6.5%

by Calculated Risk on 11/12/2012 01:38:00 PM

It is always difficult to guess what policymakers will do!

On Friday I outlined the major components of the "fiscal cliff" and provided my initial guess at a compromise (actually more of a slope, hillock or bluff since Jan 1st is not a drop dead date). The components include expiring Bush tax cuts for high, middle and low income earners, the expiring 2% payroll tax cut, expiring Alternative Minimum Tax (AMT) relief, expiring emergency unemployment benefits, and scheduled defense spending cuts (aka "sequestration").

According to the updated CBO analysis, this fiscal tightening would cut the deficit in half, but would probably also lead to a new recession in 2013 (the CBO is forecasting unemployment would rise to 9.1% in Q4 2013).

My initial guess was a compromise would be reached and there will be no recession in 2013.  My guess is the compromise would include allowing the tax cuts for high income earners and the payroll tax cut to expire, however the tax cuts for low and middle income earners would be extended, the AMT relief would be extended, and the defense cuts would be scaled back.  Of course there are many more details.

My initial guess on timing was early in 2013. That was based on a two assumptions:
1) the tax cuts for high income earners would be allowed to expire, and
2) the GOP would not vote for any package that included a tax rate increase.

Since the tax cuts expire on Jan 1st, I figured the GOP could then vote for tax cuts for the middle class. But it is also possible that this agreement could be reached this year, and the bill could be written so there are no tax rate increases (since the tax increases will happen automatically, the bill doesn't have to include the increases).

So it is possible that some agreement will be reached this year.  My baseline forecast is that some agreement will be reached and that there will be some Federal fiscal tightening, but the tightening will not lead to a new recession.

by Calculated Risk on 11/12/2012 12:08:00 PM

From Chris Flanagan and Michelle Meyer at Merrill Lynch: Another upward revision to home prices

Back in March, we called the bottom in national home prices. It appears that while we are correct on the timing, we understated the magnitude of the turn. We revised up our forecast in August, but did not go far enough and hence are revising our trajectory again. We now look for S&P Case Shiller prices to be up 5.0% YoY this year (Q4/Q4), compared to our prior forecast of 2.0%. ... Taking a longer perspective, we look for average home price appreciation of 3.3% over the next ten years or a cumulative gain of about 36%. This will modestly outpace the rate of inflation.

Our forecast still assumes some slowing in home prices into the end of the year. We forecast S&P Case Shiller national prices to be up 5.6% q/q saar in Q3, following a 9.3% gain in Q2. We look for essentially flat prices in Q4 and a decline of 1.6% in Q1 before prices resume their upward trend. It is important to remember that the housing market is subject to volatility in the best of times; in this distorted market, we cannot expect a smooth pattern.

The key factor driving the increase in home prices is a better alignment of housing supply and demand. Inventory of homes for sale has declined markedly. On an absolute level, listed inventory is at the lowest since 1Q05. And even after accounting for the slow pace of sales, it only takes 5.9 months to clear inventory. Supply is even lower for new construction homes ...

While the initial turn higher in demand was driven by investors, it appears that more recent gains can be attributable to primary homebuyers. The latest results from the Campbell HousingPulse survey shows an increase in the share of sales to current homeowners and a decline in investor share over the past few months ...

And on the economic impact:

The gain in home prices will support economic growth. The traditional way we think about the link between home prices and the economy is through the "wealth effect." The wealth effect captures the amount of additional spending power created (lost) from an increase (decrease) in household wealth. The conventional wisdom is that the marginal propensity to consume out of housing wealth is about 3 to 5 cents per dollar over a three year period. This suggests that the gain in housing wealth will only be a gradual tailwind for the economy.

There is also another important link which can show up more quickly – consumer confidence. The turn in home prices, although modest at the start, will help to boost consumer confidence. Simply believing that prices have stopped falling should provide a sense of relief to households. It will also allow households to have greater mobility, generating a more efficient labor market and greater churn in the housing stock. We have already seen a turn higher in consumer sentiment, which is likely correlated with the gain in home prices.

CR Note: Merrill Lynch analysts are using the quarterly Case-Shiller National index (most reporting uses the monthly Case-Shiller Composite 20 index). The Case-Shiller National Index was up 1.1% in Q2 (compared to Q2 2011).   Looking at the recent monthly data, Merrill's forecast for 2012 appears about right.

Merrill analysts are expecting prices to increase 3% in 2013. My guess is most of the sharp decline in inventory is now behind us, and I think there are many potential sellers waiting for a better market, and slightly higher prices will probably mean a little more inventory keeping prices from rising quickly.

Note: I wrote about The economic impact of a slight increase in house prices back in August.

Also note the comment about more "primary homebuyers" - that is an important transition along with more conventional sales (as opposed to foreclosures and short sales).

by Calculated Risk on 11/12/2012 09:14:00 AM

D.R. Horton continues to see strong sales growth and expect sales to increase in 2013. Beazer is a laggard, but also expects sales to increase next year. I'll have more on the builders in a couple weeks.

From RTTNews.com: D.R. Horton Q4 Profit Climbs, Tops View

Homebuilder D.R. Horton Inc. Monday reported a sharp increase in fourth-quarter profit, that exceeded analysts' view, as the company benefited from continued improvement in housing market ...

Homebuilding revenues for the quarter climbed 21 percent to $1.3 billion, while analysts estimated $1.35 billion. The company closed 5,575 homes in the period, up 12 percent from a year earlier.

Net sales orders increased 24 percent and value of net sales orders were up 35 percent from the preceding year.

As at September 30, D.R. Horton sales order backlog of homes under contract jumped 49 percent to 7,240 homes and the value of the backlog increased 61 percent to $1.7 billion.

Quote from Donald R. Horton, Chairman of the Board:

“We are positioned for a strong start to fiscal 2013, with our highest year-end backlog since fiscal 2007. We have continued to see strong sales demand through October and into November. With 13,000 homes in inventory and 60,000 finished lots controlled, we have the home and lot position to continue to grow our market share and meet increasing customer demand. We look forward to continued improvement in our operating metrics and increased profitability in fiscal 2013.”

And from MarketWatch: Beazer Homes's loss widens, sales up double-digits

Beazer Homes fiscal fourth-quarter loss widened as the home builder recorded a large debt extinguishment loss that overshadowed a double-digit revenue rise.
...
Revenue rose 11% to $370.9 million as home construction and land sales climbed. Analysts polled by Thomson Reuters expected a loss of $1.22 a share on $335.1 million in revenue.

The builder's cancellation rate was down at 31.1% from 34.2%. Total home closings were up 17% to 1,608.

New orders rose 10% to 1,110 homes, a rate that is slower than many of the homebuilder's peers. Total backlog units rose 31% from the year-ago quarter.

by Calculated Risk on 11/11/2012 08:21:00 PM

Monday:
• Bond markets and banks will be closed in observance of Veterans Day. The stock market will be open.

• 4:00 AM ET: Eurozone Finance Ministers Meeting

On Greece, from the Financial Times: Greece battles to avert €5bn default

Greece is battling to raise funds to avoid defaulting on a €5bn debt repayment this week ...

The country’s debt management office has announced plans to cover the full amount through a treasury bill auction on Tuesday, but Greek banks expected to buy the issue can only raise about €3.5bn of collateral acceptable to the European Central Bank ...

Senior EU officials, however, said they remain doubtful a deal can be struck at Monday’s meeting of finance ministers in Brussels ...
excerpt with permission

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 1 and DOW futures are slightly down.

Oil prices are down slightly with WTI futures at $85.96 per barrel and Brent at $109.03 per barrel. Gasoline prices have been falling.

Weekend:
• Summary for Week Ending Nov 9th
• Schedule for Week of Nov 11th

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

by Calculated Risk on 11/11/2012 04:54:00 PM

From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for October

The Association of American Railroads (AAR) today reports U.S. rail traffic continues to show mixed results in monthly rail data, and that impacts from Hurricane Sandy can be seen in decreased traffic for week 44.

“The fundamentals of U.S. rail traffic remained roughly the same in October as in recent months: weakness in coal, remarkable growth in petroleum and petroleum products, a slight slowing of growth in intermodal and autos, and mixed results for everything else,” said AAR Senior Vice President John T. Gray.

Intermodal traffic in October saw an increase for the 35th straight month, totaling 1,233,475 containers and trailers, up 1.5 percent (18,710 units) compared with October of 2011. Carloads originated in October totaled 1,422,654 carloads, down 6.1 percent (92,601 carloads) compared with the same month last year. Carloads excluding coal were up 1.9 percent for the month, or 15,609 carloads, compared with the same month last year.

Click on graph for larger image.

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

Total U.S. rail carload traffic fell 6.1% (92,601 carloads) to 1,422,654 in October 2012 from October 2011 on a non-seasonally adjusted basis (see charts below). That’s the largest year-over-year carload percentage decline since November 2009.

As was the case last month too, coal alone more than accounted for the total carload decline in October. Coal carloads were down 16.0% (108,210 carloads) in October 2012 from October 2011.
...
Hurricane Sandy negatively affected rail traffic in the last week of October in the East. As is always the case when bad weather affects rail traffic, some of the lost traffic will be made up, some will not, and it is not possible to precisely determine how much falls into each category.

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

Graphs reprinted with permission.

On Intermodal traffic:

U.S. rail intermodal traffic rose 1.5% (18,710 containers and trailers) in October 2012 over October 2011 to 1,233,475 units. That’s the 35th straight year-over-year monthly increase, though it was the smallest percentage gain in 14 months.

This is more evidence of sluggish growth.

Yesterday:
• Summary for Week Ending Nov 9th
• Schedule for Week of Nov 11th

by Calculated Risk on 11/11/2012 11:14:00 AM

Note: I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

Recently there has been a dramatic shift from REO to short sales, and the percentage of distressed sales has been declining. This data would suggest some improvement in the Sacramento market.

In October 2012, 47.7% of all resales (single family homes and condos) were distressed sales. This was down from 50.8% last month, and down from 64.1% in October 2011. The is the lowest percentage of distressed sales - and therefore the highest percentage of conventional sales - since the association started tracking the data.

The percentage of REOs fell to 12.0%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 35.7%, the highest percentage recorded.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been an increase in conventional sales this year, and there were almost three times as many short sales as REO sales in October. The gap between short sales and REO sales is increasing.

Total sales were up 7% from October 2011, and conventional sales were up 55% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, but an increase in conventional sales.

Active Listing Inventory for single family homes declined 60.4% from last October, although listings were up 4% in October compared to the previous month.

Cash buyers accounted for 36.9% of all sales (frequently investors), and median prices were up 4.1% from last October.

This seems to be moving in the right direction, although the market is still in distress. We are seeing a similar pattern in other distressed areas to more conventional sales, and a shift from REO to short sales.

by Calculated Risk on 11/11/2012 09:09:00 AM

Here is another possible tool for predicting financial stress. From Scott Brave, senior business economist, and R. Andrew Butters, graduate student, Kellogg School of Management, Northwestern University: Detecting early signs of financial instability. A few excerpts:

Following the financial crisis, policymakers and researchers have sought to identify new indicators that may be useful in gauging the relationship between the financial and nonfinancial sectors of the economy in the hope of detecting early signs of financial instability. The ratio of private credit to gross domestic product (GDP) has received a lot of attention in this regard.1 This leverage ratio serves as an early warning indicator of financial instability, insofar as it captures instances where the nonfinancial sector’s financial obligations form an outsized share of the broader economy’s resources.

In this Chicago Fed Letter, we propose an alternative early warning indicator to the private-credit-to-GDP ratio. Our measure is constructed as a subindex made up of two nonfinancial leverage measures used in the Chicago Fed’s National Financial Conditions Index (NFCI). We show that this subindex has performed well as a leading indicator for historical periods of financial stress and their accompanying recessions in the United States; we also demonstrate that it has been more accurate than the private-credit-to-GDP ratio in predicting both at longer forecast horizons.

Click on graph for larger image.

The solid black line is the nonfinancial leverage subindex of the Chicago Fed’s National Financial Conditions Index, and the solid blue line is the ratio of private credit to gross domestic product (GDP) detrended as explained in note 4. For ease of comparison, both measures have been scaled to have a mean of zero and a standard deviation of one over the period 1973–2012.

The horizontal (time) axis is measured in weeks. We assign the quarterly private-credit-to-GDP ratio to the last week of each quarter to be able to plot it on the same figure panel as the weekly nonfinancial leverage subindex. The shaded regions in panel A correspond with historical periods of financial stress based on the analysis in Brave and Butters (2012).

The dashed black line is the two-year-ahead prediction threshold for a financial crisis (panel A) ... calculated for the nonfinancial leverage subindex, as explained in the text.

And their conclusion:

Our nonfinancial leverage indicator signals both the onset and duration of financial crises and their accompanying recessions more reliably at longer lead times than the private-credit-to-GDP ratio.

Beginning with the November 15, 2012, NFCI release, we will include the nonfinancial leverage subindex in the publicly available materials for the NFCI at www.chicagofed.org/nfci.

This might be useful some time in the future. The Chicago Fed will include this as part of the NFCI release.

by Calculated Risk on 11/10/2012 05:11:00 PM

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining recently.

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Nov 9, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Only one action termination this week for the Unofficial Problem Bank List. The Federal Reserve terminated the Written Agreement against Community First Bank, Boscobel, WI ($217 million). After the change, the list holds 860 institutions with assets of $328.2 billion. A year ago, the list held 981 institutions with assets of $405.9 billion.

Next week, activity should pick-up as the OCC will publish it actions through mid-October and perhaps the FDIC will execute a few closings to get ahead of the Thanksgiving Day holiday.

Earlier:
• Summary for Week Ending Nov 9th
• Schedule for Week of Nov 11th

by Calculated Risk on 11/10/2012 01:10:00 PM

Earlier:
• Summary for Week Ending Nov 9th

Several economic reports this week will be impacted by Hurricane Sandy including retail sales, weekly unemployment claims, and the regional NY and Philly Fed manufacturing surveys.

The key report for the week is retail sales for October. For manufacturing, the November NY Fed (Empire state) and Philly Fed surveys, and the October Industrial Production and Capacity Utilization report will all be released this week.

On prices, CPI for October will be released on Thursday.

Also Fed Chairman Ben Bernanke speaks Thursday on "Housing and Mortgage Markets".

----- Monday, Nov 12th----- Bond markets and banks will be closed in observance of Veterans Day. The stock market will be open.

4:00 AM ET: Eurozone Finance Ministers Meeting

----- Tuesday, Nov 13th ----- 7:30 AM ET: NFIB Small Business Optimism Index for October.

----- Wednesday, Nov 14th ----- 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:30 AM: Producer Price Index for October. The consensus is for a 0.1% increase in producer prices (0.1% increase in core).

8:30 AM ET: Retail sales for October will be released.  Note: Retail sales (especially auto sales) were impacted by Hurricane Sandy.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 24.6% from the bottom, and now 9.0% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to decrease 0.2% in October, and for retail sales ex-autos to increase 0.1%.

10:00 AM: Manufacturing and Trade: Inventories and Sales for September (Business inventories). The consensus is for 0.6% increase in inventories.

2:00 PM: FOMC Minutes for Meeting of October 23-24, 2012.

----- Thursday, Nov 15th ----- 8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 388 thousand from 355 thousand.  Note:  Claims are expected to increase following Hurricane Sandy.

8:30 AM: Consumer Price Index for October. The consensus is for CPI to increase 0.1% in October and for core CPI to increase 0.1%.

8:30 AM: NY Fed Empire Manufacturing Survey for November. The consensus is for a reading of minus 9, down from minus 6.2 in October (below zero is contraction).

10:00 AM: Philly Fed Survey for November. The consensus is for a reading of minus 1.0, down from 5.7 last month (above zero indicates expansion).

1:20 PM: Speech, Fed Chairman Ben Bernanke, Housing and Mortgage Markets, At the HOPE Global Financial Dignity Summit, Atlanta, Georgia

----- Friday, Nov 16th ----- 9:15 AM: The Fed will release Industrial Production and Capacity Utilization for October.

This shows industrial production since 1967.

The consensus is for no change in Industrial Production in October, and for Capacity Utilization to decrease to 78.2%.