by Calculated Risk on 1/16/2013 08:37:00 PM

James Hamilton quotes several economists (Republican and Democrat): Debt-ceiling economics and politics. Hamilton concludes:

The real purpose of the debt ceiling is political-- it gives the minority party an opportunity to grandstand as if they're somehow holding the line on the deficits that are the necessary mathematical result of previous spending and tax legislation. The political game is to force the majority party to push through the debt-ceiling increase and then try to embarrass them for their votes, relying on the stupidity of voters not to see the posturing for what it really is. But when different parties control the two houses of Congress, the only chumps in this game are the legislators who still try to play the same hand.

Thursday would be a good day to vote to pay the bills!  Sooner is better than later ...

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 368 thousand from 371 thousand last week.

• Also at 8:30 AM, Housing Starts for December will be released. The consensus is for total housing starts to increase to 887 thousand (SAAR) in December, up from 861 thousand in November.

• At 10:00 AM, the Philly Fed Manufacturing Survey for January. The consensus is for a reading of 6.0, down from 8.1 last month (above zero indicates expansion).

by Calculated Risk on 1/16/2013 04:01:00 PM

From Realtor.com: December 2012 Real Estate Trend Data

The total U.S. for-sale inventory of single family homes, condos, townhomes and co-ops (SFH/CTHCOPS) in December dropped to its lowest point since Realtor.com has been collecting these data, with 1,565,425 units for sale, down 17.32% compared to a year ago and roughly half its peak of 3.1 million units in September 2007. The median age of the inventory also decreased 9.01% on a year-over-year basis.
...
On a year-over-year basis, the for-sale inventory declined in all but one of the 146 markets tracked by Realtor.com, while list prices increased in 66 markets, held steady in 31 markets and declined in 49 markets.

Note: Realtor.com only started tracking inventory in September 2007, but this is probably the lowest level in a decade.  On a month-over-month basis, inventory declined 6.5%. Some of the decline in December is seasonal because some sellers take their homes off the market for the holidays.

Going forward, I expect to see smaller year-over-year declines simply because inventory is already very low.

Tom Lawler sent me this note today:

"Realtor.com’s monthly numbers reflect the daily average number of listings in a month, as opposed to most local realtor reports and the NAR’s existing home inventory number, which are end-of-month estimates."

Click on graph for larger image.

"Here is a comparison of Realtor.com’s for-sale inventory numbers and the NAR’s existing home inventory estimate.

As noted above, the Realtor.com data reflect monthly average listings, while the NAR estimates are end-of-month listings. Given the “normal” tendency for listings at the end of December to be well below the monthly average, the NAR December inventory number is likely to show a significantly larger monthly decline that the Realtor.com number."

The NAR is scheduled to report December existing home sales and inventory on Tuesday, January 22nd.

by Calculated Risk on 1/16/2013 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all twelve Districts characterizing the pace of growth as either modest or moderate. ... Overall, holiday sales were reported as being modestly higher than in 2011, though sales were below expectations for contacts in many of the Districts.

Since the previous Beige Book, consumer spending increased to some degree in all twelve Districts. Across the nation, holiday sales grew modestly compared with last year but came in below expectations in the New York, Cleveland, Atlanta, Chicago, and San Francisco Districts. ... Citing concerns that consumers will spend cautiously due to ongoing fiscal uncertainty, retail contacts and auto dealers reported a slightly dimmer, though positive, outlook for future sales.

And on real estate:

Existing residential real estate activity expanded in all Districts that reported; growth rates were described as moderate or strong in nine Districts. Contacts in the Boston District attributed their strong sales growth to low interest rates, affordable prices, and rising rents. All Districts reporting on price levels saw increases; New York and Chicago reported only very minor increases. The five Districts that reported on housing inventories all reported falling levels. New residential construction (including repairs) expanded in all but one District of those Districts that reported. Contacts in the Kansas City District reported that increased lumber and drywall costs limited construction, causing a slight decline this period. Hurricane Sandy disrupted construction activity initially in New York, but this has since led to increased work for subcontractors on repairs and reconstruction.

Though a little weaker than residential real estate, reports on sales and leasing of nonresidential real estate are still mostly positive--described as modest on average. The Boston District reported a drop in leasing beyond normal seasonal trends; contacts cited fiscal cliff uncertainty as a factor. Minneapolis and Kansas City reported increased demand and tightening commercial real estate markets. Philadelphia, St. Louis, and Dallas all reported more modest increases in nonresidential real estate activity. Nonresidential construction is weaker than residential, with only slight to modest growth.

This suggests sluggish growth overall, with "moderate or strong" growth for real estate.

by Calculated Risk on 1/16/2013 11:59:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.9% annualized rate) in December. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.1% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was virtually flat 0.0% (-0.2% annualized rate) in December. The CPI less food and energy increased 0.1% (1.2% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for December here.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.9%, the CPI rose 1.7%, and the CPI less food and energy rose 1.9%. Core PCE is for November and increased 1.5% year-over-year.

On a monthly basis, median CPI was at 1.9% annualized, trimmed-mean CPI was at 1.1% annualized, and core CPI increased 1.2% annualized. Also core PCE for November increased 1.6% annualized. These measures suggest inflation is below the Fed's target of 2% on a year-over-year basis.

With this low level of inflation and the current high level of unemployment, the Fed will keep the "pedal to the metal".

by Calculated Risk on 1/16/2013 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was unchanged in January at 47. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Holds Steady in January

Builder confidence in the market for newly built, single-family homes was unchanged in January, remaining at a level of 47 on the National Association of Home Builders/Wells Fargo Housing Market Index, released today. This means that following eight consecutive monthly gains, the index continues to hold at its highest level since April of 2006.
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“Builders’ sentiment remains very close to the index’s tipping point of 50, where an equal number of builders view conditions as good and poor, and fundamentals indicate continued momentum in housing this year,” said NAHB Chief Economist David Crowe. “However, persistently tight mortgage credit conditions, difficulties in obtaining accurate appraisals and the ongoing stalemate in Washington over critical economic concerns continue to impede the housing recovery.”
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The index’s components were mixed in January. The component gauging current sales conditions remained unchanged at 51. Meanwhile, the component gauging sales expectations in the next six months fell one point to 49 and the component gauging traffic of prospective buyers gained one point to 37.

The HMI three-month moving average was up across all regions, with the Northeast and Midwest posting a two-point gain to 36 and 50, respectively. The South registered a three-point gain to 49 and the West posted a four-point increase to 51.

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the January release for the HMI and the November data for starts (December housing starts will be released tomorrow). This was slightly below the consensus estimate of a reading of 48.

Housing Investment and Construction Graphs

by Calculated Risk on 1/16/2013 09:28:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.3 percent in December after having risen 1.0 percent in November when production rebounded in the industries that had been negatively affected by Hurricane Sandy in late October. For the fourth quarter as a whole, total industrial production moved up at an annual rate of 1.0 percent. Manufacturing output advanced 0.8 percent in December following a gain of 1.3 percent in November; production edged up at an annual rate of 0.2 percent in the fourth quarter. The output at mines rose 0.6 percent in December, and the output of utilities fell 4.8 percent as unseasonably warm weather held down the demand for heating. At 98.1 percent of its 2007 average, total industrial production in December was 2.2 percent above its year-earlier level. Capacity utilization for total industry moved up 0.1 percentage point to 78.8 percent, a rate 1.5 percentage points below its long-run (1972--2011) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 12 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.8% is still 1.5 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in December to 98.1. This is 17.5% above the recession low, but still 2.6% below the pre-recession peak.

Both Industrial Production and Capacity Utilization were slightly above expectations.

All current manufacturing graphs

by Calculated Risk on 1/16/2013 08:39:00 AM

From the Bureau of Labor Statistics (BLS): Consumer Price Index - December 2012

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. The gasoline index declined again in December, but other indexes, notably food and shelter, increased, resulting in the seasonally adjusted all items index being unchanged.
...
The index for all items less food and energy increased 0.1 percent in December, the same increase as in November. ... The index for all items less food and energy rose 1.9 percent over the last 12 months, the same figure as last month.

On a year-over-year basis, CPI is up 1.7 percent, and core CPI is up 1.9 percent.  Both below the Fed's target. This was at the consensus forecast of no change for CPI, and a 0.1% increase in core CPI.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 1/15/2013 08:30:00 PM

Former Republican Senator Alan Simpson was on CNBC today. Here was the Q&A on the debt ceiling:

Maria Bartiromo: "Do you believe the GOP should be using the debt ceiling as leverage point to get the President to agree to the cuts?"

Alan Simpson: "I think that would be a grave mistake. I don’t think that would solve anything. I know they are going to try it, and how far you go with a game of chicken, I have no idea. But I can tell you … you can’t, you really can’t … This is stuff we’ve already indebted ourselves. If you’re a real conservative – a really honest conservative, without hypocrisy – you’d want to pay your debt. And that’s what this is, they are not running up anything new."

I disagree with Simpson on many issues, but I agree with this point. No honest conservative would vote against paying the bills.   So lets have a vote tomorrow.  Wednesday would be a good day to authorize paying the bills (aka raising the "debt ceiling") and put this nonsense behind us.

The real budget issues are the "sequester" and the "continuing resolution". See my earlier post: After the Debt Ceiling is increased ...  Make sure to check the graph of the deficit as a percent of GDP; it might surprise some people.

Wednesday economic releases:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, Consumer Price Index for December. The consensus is for no change in CPI in December and for core CPI to increase 0.1%.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for December. The consensus is for a 0.2% increase in Industrial Production in December, and for Capacity Utilization to increase to 78.5%.

• At 10:00 AM, The January NAHB homebuilder survey. The consensus is for a reading of 48, up from 47 in December. Although this index has been increasing sharply, any number below 50 still indicates that more builders view sales conditions as poor than good.

• At 2:00 PM, the Federal Reserve Beige Book will be released. This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 1/15/2013 04:00:00 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 generally been declining (the percent distressed increased in December for seasonal reasons). This data would suggest some improvement in the Sacramento market.

Note on seasonal pattern: Conventional sales follow a seasonal pattern with more sales in the spring and summer than in the fall and winter. Distressed sales happen all year, so the percent of distressed sales typically increases in the winter.

In December 2012, 51.5% of all resales (single family homes and condos) were distressed sales. This was up from 47.6% last month, and down from 64.1% in December 2011. The is the lowest percentage of distressed sales for the month of December - and therefore the highest percentage of conventional sales - since the association started tracking the data.

The percentage of REOs stayed at 11.5%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 40.0%, 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 four times as many short sales as REO sales in December (the highest recorded). The gap between short sales and REO sales is increasing.

Total sales were down from December2011, but conventional sales were up 22% 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 57.1% from last December.

Cash buyers accounted for 39.9% 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. A "normal" market would be mostly blue on the graph, and this market is a long way from "normal".

We are seeing a similar pattern in other distressed areas, with a move to more conventional sales, and a shift from REO to short sales.

by Calculated Risk on 1/15/2013 01:58:00 PM

This is another key market that I've been following closely. According to DataQuick, the "move-up market" is starting to "wake up". From DataQuick: Southland Closes 2012 With Higher Sales and Prices

Southern California's housing market ended 2012 with the highest December home sales in three years, the result of robust investment activity, a record level of cash buyers and more sales gains in move-up markets. ... A total of 20,274 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 5.1 percent from 19,285 sales in November, and up 5.3 percent from 19,247 sales in December 2011, according to San Diego-based DataQuick.

A rise in sales from November to December is normal for the season. Last month’s sales were the highest for the month of December since 22,328 homes sold in December 2009, though they were 17.2 percent below the December average of 24,488 sales since 1988, when DataQuick’s statistics begin. The low for December sales was 13,240 in 2007, while the high was 36,865 in 2003.
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“Last year should also be remembered as the year the move-up market awoke. If these upward trends hold, which requires a sustained economic recovery, we should eventually see more inventory hit the market. More would-be sellers will be satisfied with what their homes can fetch, and fewer people will owe more than their homes are worth, freeing them up to move. The rise in inventory would at least tame price appreciation.” [said John Walsh, DataQuick president]

Last month foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 14.8 percent of the Southland resale market. That was down from 15.4 percent the month before and 32.4 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 25.6 percent of Southland resales last month. That was down slightly from an estimated 26.5 percent the month before and 26.0 percent a year earlier. However, the number (rather than percentage) of short sales last month was up 7.4 percent from December 2011.

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.

The percent distressed is still high, but falling with 40.4% distressed. Note the shift from foreclosures to short sales (almost twice as many short sales as foreclosures in December).

The NAR is scheduled to report December existing home sales and inventory next week on Tuesday, January 22nd.