by Calculated Risk on 3/26/2013 08:15:00 AM

According to the First Look report for February to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in February compared to January, and declined about 6.5% year-over-year. Also the percent of loans in the foreclosure process declined further in February and were down significantly over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80% from 7.03% in January. Note: the normal rate for delinquencies is around 4.5% to 5%.

 The percent of loans in the foreclosure process declined to 3.38% in February from 3.41% in January. 

The number of delinquent properties, but not in foreclosure, is down about 8% year-over-year (301,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 21% or 449,000 properties year-over-year.

The percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high, but the number of loans in the foreclosure process is now steadily declining.

LPS will release the complete mortgage monitor for February in early April.

LPS: Percent Loans Delinquent and in Foreclosure Process
	Feb 2013	Jan 2013	Feb 2012
Delinquent	6.80%	7.03%	7.28%
In Foreclosure	3.38%	3.41%	4.20%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,927,000	1,974,000	2,002,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,483,000	1,531,000	1,709,000
Number of properties in foreclosure pre-sale inventory:	1,694,000	1,703,000	2,143,000
Total Properties	5,104,000	5,208,000	5,854,000

by Calculated Risk on 3/25/2013 08:16:00 PM

This will be an interesting case to watch, from Reuters: Stockton, California bankruptcy eligibility trial starts

As the biggest U.S. city to file for bankruptcy, the outcome for Stockton will be an important test case for the $3.7 trillion U.S. municipal debt market. The hearing is expected to last most of this week.

Stockton, along with Jefferson County in Alabama and smaller San Bernardino, California, has said its bondholders will be asked to take losses.
...
Lawyers for bondholders and insurers, which will have to repay investors for any capital losses, argue the decision by Stockton to not seek to impair its largest creditor, the California Public Employees' Retirement System, shows a lack of good faith - a reason that should block Stockton's request for bankruptcy protection under federal bankruptcy law.

Usually employees, including pensions, come before bondholders and insurers in a bankruptcy case.  But I don't know all the details of this case and I'm looking forward to reading the ruling.

Tuesday economic releases:
• At 8:30 AM ET, Durable Goods Orders for February from the Census Bureau. The consensus is for a 3.5% increase in durable goods orders.

• At 9:00 AM, the S&P/Case-Shiller House Price Index for January will be released. The consensus is for a 8.2% year-over-year increase in the Composite 20 index (NSA) for January. The Zillow forecast is for the Composite 20 to increase 8.0% year-over-year, and for prices to increase 0.8% month-to-month seasonally adjusted.

• At 10:00 AM, New Home Sales for February from the Census Bureau. The consensus is for a decrease in sales to 425 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 437 thousand in January. Even with the forecast decline in sales rate, this would be a 16% year-over-year increase in sales.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for March. The consensus is for a reading of 5.5 for this survey, down from 6.0 in February (Above zero is expansion).

• Also at 10:00 AM, the Conference Board's consumer confidence index for March. The consensus is for the index to decrease to 69.0.

by Calculated Risk on 3/25/2013 03:57:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this year.

In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far - through March 25th - inventory is increasing faster than in 2011 and 2012. Housing Tracker reports inventory is down -21.2% compared to the same week in 2012 - still a rapid year-over-year decline.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

In 2010, inventory was up 15% by the end of March, and close to 20% by the end of April.

For 2011 and 2012, inventory only increased about 5% at the peak and then declined for the remainder of the year.

So far in 2013, inventory is up 7.5% (above the peak percentage increase for 2011 and 2012) Right now I think inventory will not bottom until 2014, but it is still possible that inventory will bottom this year.

by Calculated Risk on 3/25/2013 01:23:00 PM

This is a response to some analysts who think central bankers are currently following a "beggar-thy-neighbor" policy. Fed Chaiman Bernanke disagrees (so do I).

From Fed Chairman Ben Bernanke: Monetary Policy and the Global Economy. A few excerpts:

The uncoordinated abandonment of the gold standard in the early 1930s gave rise to the idea of "beggar-thy-neighbor" policies. According to this analysis, as put forth by important contemporary economists like Joan Robinson, exchange rate depreciations helped the economy whose currency had weakened by making the country more competitive internationally.5 Indeed, the decline in the value of the pound after 1931 was associated with a relatively early recovery from the Depression by the United Kingdom, in part because of some rebound in exports. However, according to this view, the gains to the depreciating country were equaled or exceeded by the losses to its trading partners, which became less internationally competitive--hence, "beggar thy neighbor." Over time, so-called competitive depreciations became associated in the minds of historians with the tariff wars that followed the passage of the Smoot-Hawley tariff in the United States. Both types of policies were decried--and in some textbooks, still are--as having prolonged the Depression by disrupting trade patterns while leading to an ultimately fruitless and destructive battle over shrinking international markets.

Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression. However, modern research on the Depression, beginning with the seminal 1985 paper by Barry Eichengreen and Jeffrey Sachs, has changed our view of the effects of the abandonment of the gold standard.6 Although it is true that leaving the gold standard and the resulting currency depreciation conferred a temporary competitive advantage in some cases, modern research shows that the primary benefit of leaving gold was that it freed countries to use appropriately expansionary monetary policies. By 1935 or 1936, when essentially all major countries had left the gold standard and exchange rates were market-determined, the net trade effects of the changes in currency values were certainly small. Yet the global economy as a whole was much stronger than it had been in 1931. The reason was that, in shedding the strait jacket of the gold standard, each country became free to use monetary policy in a way that was more commensurate with achieving full employment at home. Moreover, and critically, countries also benefited from stronger growth in trading partners that purchased their exports. In sharp contrast to the tariff wars, monetary reflation in the 1930s was a positive-sum exercise, whose benefits came mainly from higher domestic demand in all countries, not from trade diversion arising from changes in exchange rates.

The lessons for the present are clear. Today most advanced industrial economies remain, to varying extents, in the grip of slow recoveries from the Great Recession. With inflation generally contained, central banks in these countries are providing accommodative monetary policies to support growth. Do these policies constitute competitive devaluations? To the contrary, because monetary policy is accommodative in the great majority of advanced industrial economies, one would not expect large and persistent changes in the configuration of exchange rates among these countries. The benefits of monetary accommodation in the advanced economies are not created in any significant way by changes in exchange rates; they come instead from the support for domestic aggregate demand in each country or region. Moreover, because stronger growth in each economy confers beneficial spillovers to trading partners, these policies are not "beggar-thy-neighbor" but rather are positive-sum, "enrich-thy-neighbor" actions.

by Calculated Risk on 3/25/2013 10:45:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity increased in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 6.2 to 9.9, indicating a slightly faster pace of output growth. The share of manufacturers noting a decrease in production fell to its lowest level in two years.

Other survey measures also suggested a pickup in manufacturing activity, with the new orders and shipments indexes moving up strongly in March after dipping in February. The new orders index came in at 8.7, up from 2.8, and the shipments index rose 8 points to 10.6.

Perceptions of broader business conditions improved in March. The general business activity index rose from 2.2 to 7.4, reaching its highest level in a year. The company outlook index moved up from 6.3 to 9.6.

Labor market indicators remained mixed. The employment index has been in positive territory so far in 2013 and edged up to 2.6 in March. ... The hours worked index remained slightly negative but ticked up to from –3 to –2.4.
emphasis added

All of the regional manufacturing surveys released so far have indicated expansion in March, and this suggests a pickup in overall manufacturing following a weak period over the last 6 to 8 months.

by Calculated Risk on 3/25/2013 08:43:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Economic Activity Improved in February

Led by gains in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.44 in February from –0.49 in January. All four broad categories of indicators that make up the index increased from January, and three of the four categories made positive contributions to the index in February.

The index’s three-month moving average, CFNAI-MA3, decreased to +0.09 in February from +0.28 in January, marking its fourth consecutive reading above zero. February’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity improved in February, and growth was somewhat above its historical trend (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 3/24/2013 09:16:00 PM

Cyprus and the "troika" have reached a deal tonight. Reports are the euro zone finance ministers have also approved the plan. Preliminary reports are that there will be no tax on depositors, and apparently this means approval from the Cypriot Parliament is not required.

Update: Eurogroup statement: Eurogroup Statement on Cyprus

A few details from CyprusMail: Bailout deal reached

Deposits below 100,000 euros in Laiki will be transferred to Bank of Cyprus. Deposits above 100,000 euros, which under EU law are not insured, will be frozen and will be used to resolve debt. It remains unclear how large the writedown on those funds will be. Some reports suggested it might be as high as 40 per cent. Sources told Reuters that the proposal involved shifting deposits below 100,000 euros from the Popular Bank of Cyprus (also known as Laiki) to the Bank of Cyprus to create a "good bank".

Monday economic releases:
• At 8:30 AM ET, Chicago Fed National Activity Index for February. This is a composite index of other data.

• At 10:30 AM, Dallas Fed Manufacturing Survey for March. The consensus is an increase to 3.4 from 2.2 in February (above zero is expansion).

• At 1:15 PM, Speech by Fed Chairman Ben Bernanke, Monetary Policy and the Global Economy, At the London School of Economics and Political Science, London, United Kingdom

Weekend:
• Summary for Week Ending March 22nd
• Schedule for Week of March 24th

The Asian markets opened green tonight with the Nikkei up 1.4%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 8 and Dow futures are up 70 (fair value).

Oil prices are up with WTI futures at $94.02 per barrel and Brent at $107.95 per barrel.

by Calculated Risk on 3/24/2013 08:10:00 PM

From CNBC: Cyprus, European Union Reach Draft Bailout Deal

Cyprus and its international lenders have reached a draft deal to rescue Cyprus, sources told CNBC.

No levy will be imposed on any deposits in Cypriot banks, but there will be a 'bail in' of Laiki depositors.

From the Peter Spiegel of the Financial Times:

All Laiki deposits over €100k will be whacked. Total of haircut at BoC has not been decided.

The Eurogroup still needs to meet, and then the Cyprus Parliament.

Update: CyprusMail: Bailout deal reached

Acting president Yiannakis Omirou has confirmed that a deal has been struck between Cyprus and international lenders.

Government sources suggest that the deal provides for a 30 per cent haircut on deposits of over €100,000 at Bank of Cyprus while reports said Popular Bank would be resolved.

Laiki deposits under 100,000 will be transferred to a ‘good bank,’ reports said.

by Calculated Risk on 3/24/2013 02:05:00 PM

By request, here is an update to a graph that I've been posting for several years.  This shows single family housing starts (through February 2013) and the unemployment rate (inverted) also through February. Note: there are many other factors impacting unemployment, but housing is a key sector.

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts (blue) increased a little in 2009 with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing steadily near the end of 2011. This was one of the reasons the unemployment rate remained elevated.

Click on graph for larger image.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recover.  However this time, with the huge overhang of existing housing units, this key sector didn't participate for an extended period. 

The good news is single family starts have been increasing steadily for over a year, and that should mean more construction employment this year, and that the unemployment rate should decline further in 2013.

by Calculated Risk on 3/24/2013 09:50:00 AM

Updates at 1:45 PM ET: Meeting now scheduled for 3 PM ET. Cyprus central bank is now limiting cash withdrawals to 100 euros per day.

Cypriot President Nicos Anastasiades is in Brussels to hold talks with the "troika" and the Eurogroup meeting is scheduled to start at 1700 GMT (1 PM ET). Of course these meetings always start and run late ...

From the NY Times: As Deadline Nears, Cyprus Scrambles to Devise a Bailout

The Cypriot president, Nicos Anastasiades, flew to Brussels on Sunday after mapping out a tentative outline of a deal late Saturday with representatives of the troika of negotiators involved in the bailout: the European Central Bank, the European Commission and the International Monetary Fund.

His first order of business was a meeting with Mario Draghi, the president of the central bank; Christine Lagarde, the managing director of the monetary fund; and José Manuel Barroso, the president of the commission. Herman Van Rompuy, the president of the European Council, which represents European Union leaders, was expected to preside over the meeting.

Mr. Anastasiades had also briefed Cypriot political leaders on the outline...

The revised bailout terms now under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at one of the nation’s biggest banks, the Bank of Cyprus, which has the largest number of savings accounts on the island. ...

A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

Under the plan, savings under 100,000 euros would not be touched ...

From the CyprusMail: Cyprus seeks 11th-hour deal to avert financial collapse

Without a deal on Monday, the ECB says it will cut off emergency funds to Cypriot banks, spelling certain collapse and potentially pushing the country out of the euro zone.

Finance Ministers of the 17-nation euro zone will meet at 1700 GMT Sunday. ...
A senior Cypriot official said Nicosia had agreed with its lenders on a 20 per cent levy over and above €100,000 at the island's largest lender, Bank of Cyprus, and four per cent on deposits above the same level at other banks.

Media reports suggested talks were stuck on a demand by the IMF that Bank of Cyprus absorb the good assets of competitor Popular Bank and take on its nine billion euro debt to the central bank as well.