by Calculated Risk on 12/13/2012 05:30:00 PM

From CoStar: Commercial Property Prices Show Little Movement in October Amid Economic Uncertainty

The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the equal-weighted U.S. Composite Index and the value-weighted U.S. Composite Index—saw very little change in the month of October 2012, dipping -0.1% and -0.8%, respectively, although both improved over quarter and year-ago levels. Recent pricing fluctuations likely signify a more cautious attitude among investors stemming from uncertainty over U.S. fiscal policy heading into 2013.
...
The number of distressed property trades in October fell to 14.8%, the lowest level witnessed since the first quarter of 2009. This reduction in distressed deal volume should result in higher, more consistent pricing, and lead to enhanced market liquidity, giving lenders more confidence to finance deals.

Click on graph for larger image.

This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes. As CoStar noted, the Value-Weighted index is up 35.0% from the bottom (showing the demand for higher end properties) and up 6.1% year-over-year. However the Equal-Weighted index is only up 10.0% from the bottom, and up 5.9% year-over-year.

Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

by Calculated Risk on 12/13/2012 02:44:00 PM

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 November 2012, 47.6% of all resales (single family homes and condos) were distressed sales. This was down slightly from 47.7% last month, and down from 64.1% in November 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 11.5%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 36.1%, 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 more than three times as many short sales as REO sales in November (the highest recorded). The gap between short sales and REO sales is increasing.

Total sales were up slightly from November 2011, and conventional sales were up 46% 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 56.7% from last November, although listings were up 2% in November compared to October.

Cash buyers accounted for 37.1% of all sales (frequently investors), and median prices were up sharply year-over-year (the mix has changed).

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 12/13/2012 11:55:00 AM

Economist Jed Kolko at Trulia writes: Housing in 2013: What’s In, What’s Out. Kolko discusses five predictions for 2013, the first is on inventory:

1. OUT: Will Home Prices Bottom? IN: Will Inventories Bottom? The big question this year was whether home prices had finally hit bottom. We now know the answer is a resounding “Yes”: every major index shows asking and sales prices rising in 2012. The key question in 2013, though, is whether prices will rise enough so that for-sale inventory–which has fallen 43% nationally since the summer of 2010–will hit bottom and start expanding again. The sharp decline in inventory was a necessary correction to the oversupply of homes after the bubble, but now inventory is below normal levels and holding back sales, particularly in California and the rest of the West. Rising prices should lead to more inventory, for two reasons: (1) rising prices encourage new construction, and (2) rising prices encourage some homeowners to sell. The big question for 2013 is whether today’s price gains will continue strongly enough to encourage builders to build and homeowners to sell. Why it matters: more inventory will lead to more sales and give buyers more homes to choose from.

This is a very important question for 2013. This graph shows nationwide inventory for existing homes through October.

Click on graph for larger image.

According to the NAR, inventory declined to 2.14 million in October down from 2.17 million in September. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

If we see the usually seasonal decline in December and January, then NAR reported inventory will probably fall to the 1.80 to 1.85 million range. That would be the lowest level since January 2001.

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. When we compare inventory to earlier periods, we need to remember there were essentially no "short sale contingent" listings prior to 2006.

The second 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 21.9% year-over-year in October from October 2011. This was the 20th consecutive month with a YoY decrease in inventory. It appears that inventory will be down sharply YoY in November too.

Months of supply declined to 5.4 months in October and is now in the normal range.  I expect months-of-supply will be under 5 in December and January for the first time since early 2005.

Whenever I talk with real estate agents, I ask why they think inventory is so low. A common answer is that people don't want to sell at the bottom. In a market with falling prices, sellers rush to list their homes, and inventory increases. But if sellers think prices have bottomed, then they believe they can be patient, and inventory declines. Another reason is that many homeowners are "underwater" on their mortgage and can't sell.

If prices increase enough (probably around 5% in 2012) then some of the potential sellers will come off the fence, and some of these underwater homeowners will be able to sell. It might be enough for inventory to bottom in 2013.

Another issue is if the Mortgage Debt Relief Act of 2007 is allowed to expire at the end of 2012. If the act isn't extended, many of the contingent short sales will be pulled off the market. Although this doesn't impact active inventory directly, it might have an indirect impact.

Right now my guess is active inventory will bottom in 2013.

by Calculated Risk on 12/13/2012 09:00:00 AM

On a monthly basis, retail sales increased 0.3% from October to November (seasonally adjusted), and sales were up 3.7% from November 2011. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.4 billion, an increase of 0.3 percent from the previous month and 3.7 percent above November 2011. ... The September to October 2012 percent change was unrevised from -0.3 percent.

Click on graph for larger image.

The change in sales for October was unrevised at a 0.3% decline.

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 24.5% from the bottom, and now 8.8% above the pre-recession peak (not inflation adjusted)


The second graph shows the same data, but just since 2006 (to show the recent changes). Most of the decline in October was due to fewer auto sales - a direct impact of Hurricane Sandy. Retail sales ex-autos were unchanged in November - so only autos bounced back.

Excluding gasoline, retail sales are up 21.3% from the bottom, and now 8.9% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.0% on a YoY basis (3.7% for all retail sales).

This was at the consensus forecast of no change ex-autos, but below the consensus forecast for total retail sales of a 0.6% increase in November. Retail sales are still sluggish, but generally trending up.

by Calculated Risk on 12/13/2012 08:37:00 AM

The DOL reports:

In the week ending December 8, the advance figure for seasonally adjusted initial claims was 343,000, a decrease of 29,000 from the previous week's revised figure of 372,000. The 4-week moving average was 381,500, a decrease of 27,000 from the previous week's revised average of 408,500.

The previous week was revised up from 370,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.


Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined to 381,500.

The recent sharp increase in the 4 week average was due to Hurricane Sandy as claims increased significantly in NY, NJ and other impacted areas. Now, as expected, the 4-week average is almost back to the pre-storm level.

Weekly claims were lower than the 370,000 consensus forecast.


And here is a long term graph of weekly claims:

Note: We use the 4-week average to smooth out noise, but following an event like Hurricane Sandy,  the 4-week average lags the event. It looks like the average should decline next week to around 370,000 or so.


All current Employment Graphs

by Calculated Risk on 12/12/2012 09:31:00 PM

The big story today was the Federal Open Market Committee (FOMC) of the Federal Reserve announcing thresholds for the unemployment rate and inflation that will guide Fed Funds rate policy in the future. I think this significantly improves Fed communication. Also the FOMC - as expected - announced that they will expand QE3 by $45 billion per month starting in January after the expiration of Operation Twist.

Going forward, the Fed will adjust the amount of monthly QE3 purchases based on their evolving economic outlook.

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 370 thousand. The 4-week of claims should start to decline back towards the pre-Hurricane Sandy level.

• Also at 8:30 AM, Retail sales for November will be released. October retail sales (especially auto sales) were impacted by Hurricane Sandy, and auto sales bounced back in November. The consensus is for retail sales to increase 0.6% in November, and to be unchanged ex-autos.

• Also at 8:30 AM, the Producer Price Index for November will be released. The consensus is for a 0.5% decrease in producer prices (0.2% increase in core).



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

by Calculated Risk on 12/12/2012 06:53:00 PM

From DataQuick: More Year-Over-Year Gains for Southland Home Sales and Prices

Southern California’s housing market continued its gradual recovery last month, logging the highest November sales in six years amid strong demand from investors and move-up buyers. ... total of 19,285 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 8.5 percent from 21,075 sales in October, and up 14.2 percent from 16,884 sales in November 2011, according to San Diego-based DataQuick.

A decline in sales from October to November is normal for the season. Last month’s sales were the highest for the month of November since 23,005 homes sold in November 2006, though they were 11.3 percent below the November average of 21,730 since 1988, when DataQuick’s statistics begin.
...
Lower-cost areas again posted the weakest sales compared with last year. The number of homes that sold below $200,000 fell 18.7 percent year-over-year, while sales below $300,000 dipped 7.8 percent. Sales in the more affordable markets have been hampered by the slowdown in foreclosure activity, which results in fewer foreclosed properties listed for sale. Also, lower-cost markets typically have a relatively high percentage of homeowners who owe more than their homes are worth, meaning they can’t sell and move.

Last month foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 15.3 percent of the Southland resale market. That was down from 16.3 percent the month before and 31.6 percent a year earlier. Last month’s level was the lowest since foreclosure resales were 13.6 percent of the resale market in September 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 26.6 percent of Southland resales last month. That was down slightly from an estimated 27.6 percent the month before and up from 25.4 percent a year earlier.

The median price is being impacted by the mix, with fewer low end distressed sales pushing up the median. This is why I focus on the repeat sales indexes.

Sales are declining in the high foreclosures areas because the number of foreclosed properties is declining, but sales are now picking up in other areas, and these are mostly conventional sales - a positive sign for the housing market.  

The NAR is scheduled to report November existing home sales and inventory next week on Thursday, December 20th.

by Calculated Risk on 12/12/2012 04:08:00 PM

From economist Tom Lawler: “Free” Data on Delinquency/Foreclosure Rates for First and Second Liens by State for Five “Mortgage Settlement” Servicers

On “The Office of Mortgage Settlement Oversight,” there is a report that can be downloaded that shows the first- and second-lien servicing portfolios for Ally, Bank of America, Citi, Chase, and Wells by delinquency status as of September 30th, 2012 – both nationally and by state.

Below are some summary stats (stated as a % of number of loan) for each servicer.

The data highlight how truly badly Bank of America’s servicing portfolio is performing, with the “DLQ 180+” and “in Foreclosure” %’s suggesting unusual “slowness” in resolving seriously-delinquent loans (Chase’s “in foreclosure” % suggests problems at that institution as well).

The reports (which, again, have data by state) are available here. (click on “servicer performance data”). Here is the spreadsheet.

1st Lien Portfolio	Bank of America	Chase	Ally	Citi	Wells
Current (0-29)	84.44%	87.29%	88.85%	89.43%	91.91%
DLQ 30-59	3.07%	3.62%	3.48%	3.14%	2.50%
DLQ 60-179	2.08%	2.07%	2.47%	2.11%	1.74%
DLQ 180+	3.27%	0.51%	0.49%	1.13%	0.70%
Bankruptcy	2.33%	1.46%	1.65%	1.69%	0.80%
Foreclosure	4.81%	5.06%	3.06%	2.50%	2.35%
Total Active Portfolio	100.00%	100.00%	100.00%	100.00%	100.00%
2nd Lien Portfolio	Bank of America	Chase	Ally	Citi	Wells
Current (0-29)	92.81%	95.19%	93.33%	93.18%	95.12%
DLQ 30-59	1.48%	1.31%	1.87%	1.64%	0.80%
DLQ 60-179	1.65%	1.27%	2.07%	1.96%	1.01%
DLQ 180+	1.71%	0.30%	0.46%	0.61%	0.42%
Bankruptcy	2.15%	1.49%	2.15%	2.30%	1.98%
Foreclosure	0.20%	0.45%	0.13%	0.31%	0.66%
Total Active Portfolio	100.00%	100.00%	100.00%	100.00%	100.00%

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

Here are the updated projections from the FOMC meeting.

Fed Chairman Ben Bernanke's press conference starts at 2:15 PM ET. Here is the video stream.


Live stream by Ustream

The FOMC is no longer presenting a "date-based guidance" for policy, and instead changed to announcing thresholds for raising the Fed Funds rate based on the unemployment rate and inflation. How this will work will be a key topic of the press conference today. Currently the thresholds are holding rates low "at least" until the unemployment rate is below 6 1/2%, and the inflation outlook "between one and two years ahead" is no more than 2 1/2%, as long as inflation expectations remain "well anchored" - this means inflation could increase to 3% or 4% without an increase in rates, as long as expectations remain anchored and the outlook one to two years ahead is at or below 2 1/2%. This is a significant change in policy guidance.

Another key question is: Which will come first, a rate hike or stopping or slowing QE3 (the FOMC will expand QE3 to $85 billion per month in January)? 

The four tables below show the FOMC December meeting projections, and the September projections to show the change.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014	2015
Dec 2012 Projections	1.7 to 1.8	2.3 to 3.0	3.0 to 3.5	3.0 to 3.7
Sept 2012 Projections	1.7 to 2.0	2.5 to 3.0	3.0 to 3.8	3.0 to 3.8

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

GDP projections have been revised down slightly for 2013.

The unemployment rate was at 7.7 in November, and the projection for 2012 has been revised down. The projection for 2014 was revised down too.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014	2015
Dec 2012 Projections	7.8 to 7.9	7.4 to 7.7	6.8 to 7.3	6.0 to 6.6
Sept 2012 Projections	8.0 to 8.2	7.6 to 7.9	6.7 to 7.3	6.0 to 6.6

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation show the FOMC is still not concerned about inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014	2015
Dec 2012 Projections	1.6 to 1.7	1.3 to 2.0	1.5 to 2.0	1.7 to 2.0
Sept 2012 Projections	1.7 to 1.8	1.6 to 2.0	1.6 to 2.0	1.8 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2012	2013	2014	2015
Dec 2012 Projections	1.6 to 1.7	1.6 to 1.9	1.6 to 2.0	1.8 to 2.0
Sept 2012 Projections	1.7 to 1.9	1.7 to 2.0	1.8 to 2.0	1.9 to 2.0

by Calculated Risk on 12/12/2012 12:30:00 PM

The thresholds are huge!

FOMC Statement:

Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.

The projections will be released at 2:00 PM, and the press conference will be at 2:15 PM.