by Calculated Risk on 8/12/2013 05:13:00 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 in 2013. 

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 Realtor (NAR) data is monthly and released with a lag (the most recent data was for June).  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 increased more than the normal seasonal pattern, and finished the year up 7%. 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.

Click on graph for larger image.

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

So far in 2013, inventory is up 18.1%, and I expect some further increases over the next month or two.

It now seems likely that inventory bottomed early this year. 

It is important to remember that inventory is still very low, and is down 8.9% from the same week last year according to Housing Tracker. 

by Calculated Risk on 8/12/2013 01:03:00 PM

Several years ago I started following the Sacramento market to look for changes in the mix of houses sold (conventional, REOs, and short sales). Note: I used Sacramento because the data was available!

For a long time, not much changed. But over the last 2 years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market, although some of this is due to investor buying.  Other distressed markets are showing similar improvement.

Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In July 2013, 23.1% of all resales (single family homes) were distressed sales. This was down from 26.5% last month, and down from 54.4% in July 2012. This 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 was at 5.1% (the lowest since the data was tracked), and the percentage of short sales decreased to 17.9%. (the lowest percentage for short sales since July 2009).

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 a sharp increase in conventional sales recently (blue). 

Active Listing Inventory for single family homes increased 54.3% year-over-year in July.  This is the third consecutive month with a year-over-year increase in inventory - the first three months in two years - and strongly suggests inventory has bottomed in Sacramento. 

Cash buyers accounted for 25.5% of all sales, down from 29.9% last month (frequently investors).  It appears investors are becoming less of a factor in Sacramento.

Total sales were down 9% from July 2012, but conventional sales were up 53% 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, and conventional sales increasing.

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.  

Possibly the most important number in the release this month was the strong year-over-year increase in active inventory.  This suggests price increases will slow in Sacramento, and I expect to see a similar pattern in other areas.

If this data is a hint at what will happen in other areas, we can expect: 1) Flat or declining overall existing home sales, 2) but increasing conventional sales. 3) Less investor buying, 4) more inventory, and 5) slower price increases.

by Calculated Risk on 8/12/2013 12:07:00 PM

S&P's David Blitzer was on CNBC this morning and said:

"The big issue is the debt ceiling, the budget deficit, the U.S. Congress," Blitzer said in a "Squawk Box" interview. "It's the whole fiscal policy side that's the huge problem. ... I don't think we're going to default but I think we're going to have one of these crazy 11th-hour skirmishes."

"Everybody will decide the U.S. Congress is even worse than their worst nightmare and the markets will get hit as a result," Blitzer added. "It'll be worse than the J.C. Penney board situation because there will be 535 of them."

At the beginning of the year, I wrote Question #1 for 2013: US Fiscal Policy "[U.S. fiscal policy] is probably the biggest downside risk for the US economy in 2013." If anything I was too optimistic. I thought there would be some sort of compromise on the sequester budget cuts - I was wrong, although I was correct on the debt ceiling. Now here we go again ...

If we all lived in a sane world, the "debt ceiling" would be eliminated (see discussion here), we'd all recognize that the deficit is declining quickly (probably too quickly), and that the sequestration cuts are crazy (OK, on the last one, just about everyone admits the cuts are dumb).

The negotiations this year should be easy - eliminate the sequestration cuts and don't do anything else in the short term (there are long term issues, but I doubt we will see progress there).

Unfortunately we live in the real world, and politics trump reality.  Note: For a discussion of many of the budget issues this year, see Stan Collender's Budget Bedlam This Fall

Still - even in the insane world of politics - the debt ceiling is a fake issue (the House will cave again - they have no choice).  And hopefully we will not see a government shutdown, but I expect the negotiations will go down to the wire. My guess is we will see another "continuing resolution", but you never know with politics.

The good news is these showdowns mostly happen in odd years with the hope that the voters will forget the congressional shenanigans by the next election.    So IF we can get through the fall, fiscal policy will probably not be a big downside risk in 2014.  Unfortunately that is a big "if".

by Calculated Risk on 8/12/2013 09:53:00 AM

From the WSJ: Spending Cuts in Line With Commitments to Creditors But Economy Continues to Contract. First the good news:

Budget data from Greece's central government showed Monday a primary surplus for the first seven months of the year, turning around a steep deficit seen the previous year, according to the country's Finance Ministry.

The data showed that the primary surplus reached €2.6 billion ($3.47 billion) against a deficit of €3.1 billion a year earlier.

The data, which don't include payments on debt interest, local government and social security fund budgets, show that Greece is likely to secure a primary budget surplus for the year, for the first time in more than a decade.

And then the bad:

Greece's improving fiscal performance, however, has taken a toll on its economy, which is contracting for a sixth straight year under the weight of austerity.
...
Greece expects the economy to shrink by 4.2% this year, though government officials have indicated that a stronger-than-expected tourism season this summer could provide some relief to the economy and result in a milder contraction of some 4% for the year. Many private-sector economists believe that this is too optimistic and that the economy could shrink for another year after the country's jobless rate hit 27.6% in May.

Maybe there will be a change in plans after the German election in September, but right now they are creating an economic wasteland and calling it progress.

by Calculated Risk on 8/11/2013 09:52:00 PM

Monday:
• 2:00 PM ET, the Monthly Treasury Statement for July. The CBO has projected a deficit of $96 billion in July 2013, down $10 billion from July 2012 after accounting for "quirks of the calendar".

Weekend:
• Schedule for Week of August 11th (busy week!)

• U.S. Population Distribution by Age, 1900 through 2060 (hopefully cool graphic!)

The Nikkei is down about 0.9%, and the Shanghai up 0.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 4 and DOW futures are down 30 (fair value).

by Calculated Risk on 8/11/2013 06:34:00 PM

As I follow up to my earlier post on the number of births in 2012, here is an animation of the U.S population distribution, by age, from 1900 through 2060. The population data and estimates are from the Census Bureau (actual through 2010 and projections through 2060).

In 1900, the graph was fairly steep, but with improving health care, the graph has flattened out over the last 100 years.

Note: Prior to 1940, the oldest group was 75+.  From 1940 through 1985, the oldest group was 85+.  Starting in 1990, the oldest group is 100+.

Watch for:
1) the original baby bust preceding the baby boom (the decline in births prior to and during the Depression). Those are the people currently in retirement.

2) the Baby Boom is obvious.

3) By 2020 or 2025, the largest cohorts will all be under 40.

Animation updates every second.

by Calculated Risk on 8/11/2013 11:28:00 AM

This provisional data for 2012 was released in June and shows a possible impact of the great recession ...

From the National Center for Health Statistics: Recent Trends in Births and Fertility Rates Through December 2012. The NCHS reports:

The provisional count of births in the United States for the 12-month period ending December 2012 was 3,958,000, essentially unchanged from the 3,953,593 births (preliminary total) for 2011. The trend in the number of births was down, having declined steadily from the historic high of 4,316,233 in 2007 through 2011 but slowing from 2010 to 2011, and is essentially flat from 2011 to 2012.

The provisional fertility rate in the United States for 2012 was 63.2 births per 1,000 women aged 15–44, unchanged from the rate in 2011. Like the number of births, the trend in the fertility rate was down, having declined steadily from the recent high of 69.3 in 2007 through 2010 but slowing from 2010 to 2011, and is unchanged from 2011 to 2012.

Here is a long term graph of annual U.S. births through 2012 ...

Click on graph for larger image.

Births had declined for four consecutive years, and are about 8.3% below the peak in 2007 (births in 2007 were at the all time high - even higher than during the "baby boom"). I suspect certain segments of the population were under stress before the recession started - like construction workers - and even more families were in distress in 2008 through 2012. And this led to fewer babies.

Notice that the number of births started declining a number of years before the Great Depression started. Many families in the 1920s were under severe stress long before the economy collapsed. By 1933 births were down by almost 23% from the early '20s levels.

Of course economic distress isn't the only reason births decline - look at the huge decline following the baby boom that was driven by demographics. But it is not surprising that the number of births slow or decline during tough economic times - but that appears to be ending now.

My guess is births will increase further in 2013 as confidence slowly improves.

by Calculated Risk on 8/10/2013 06:24:00 PM

From USA Today: Relief at the pump: Gas prices on the decline

The federal Energy Information Administration forecasts 2014 will average $3.37 a gallon vs. an estimated $3.52 a gallon in 2013. That would be the lowest national average since 2010, when gasoline averaged about $2.80.

"Once we get to mid-September, we'll see prices drop 10 to 20 cents a gallon,'' says Tom Kloza, chief oil analyst for price tracker Gasbuddy.com. "Typically, demand drops the last 100 days of the year and bottoms out in December."

Here is the current EIA forecast:

The U.S. Energy Information Administration (EIA) expects that the Brent crude oil spot price, which averaged $108 per barrel over the first half of 2013, will average $104 per barrel over the second half of 2013, and $100 per barrel in 2014.
...
EIA expects the WTI discount to widen to $6 per barrel by the end of 2013 as crude oil production in Alberta, Canada, recovers following the heavy June flooding and as midcontinent production continues to grow.
...
EIA expects the regular gasoline retail price to average $3.59 per gallon in the third quarter of 2013, and the annual average price to decline from an average of $3.63 per gallon in 2012 to $3.52 per gallon in 2013 and to $3.37 per gallon in 2014.

U.S. crude oil production increased to an average of 7.5 million barrels per day (bbl/d) in July 2013, the highest monthly level of production since 1991.

WTI oil prices have been moving sideways over the last month after increasing in early July, with WTI at $105.97 per barrel.  Brent is at $108.22. A year ago, WTI was in the low $90s, and Brent was around $113 per barrel - so the spread has narrowed considerably, although the EIA expects the spread to widen a little later this year.

Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.54 per gallon. That is just below the current level according to Gasbuddy.com.

The following graph is from gasbuddy.com. Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 8/10/2013 01:05:00 PM

This will be a busy week for economic data. A key report will be July retail sales to be released on Tuesday.  Also there are two key housing reports that will be released later in the week; housing starts on Friday, and the homebuilder confidence survey on Thursday.

For manufacturing, the July Industrial Production survey, and the August NY Fed (Empire State) and Philly Fed surveys will be released this week. 

For prices, PPI will be released on Wednesday, and CPI on Thursday.

----- Monday, August 12th -----
2:00 PM ET: Monthly Treasury Statement for July. The CBO has projected a deficit of $96 billion in July 2013, down $10 billion from July 2012 after accounting for "quirks of the calendar".

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

8:30 AM ET: Retail sales for July will be released.

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 27.5% from the bottom, and now 11.8% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to increase 0.4% in July, and to increase 0.4% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for June.  The consensus is for a 0.3% increase in inventories.

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

8:30 AM: Producer Price Index for July. The consensus is for a 0.3% increase in producer prices (0.2% increase in core).

11:00 AM: The Q2 2013 Quarterly Report on Household Debt and Credit will be released by the Federal Reserve Bank of New York.

----- Thursday, August 15th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 340 thousand from 333 thousand last week.

8:30 AM: Consumer Price Index for July. The consensus is for a 0.2% increase in CPI in July and for core CPI to increase 0.2%.

8:30 AM: NY Fed Empire Manufacturing Survey for August. The consensus is for a reading of 10.0, up from 9.5 in July (above zero is expansion).

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for July.

This graph shows industrial production since 1967.

The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.9%.

10:00 AM ET: The August NAHB homebuilder survey. The consensus is for a reading of 57, the same as in July. Any number above 50 indicates that more builders view sales conditions as good than poor.

10:00 AM: the Philly Fed manufacturing survey for August. The consensus is for a reading of 15.8, down from 19.8 last month (above zero indicates expansion).

----- Friday, August 16th -----
8:30 AM: Housing Starts for July.

Total housing starts were at 836 thousand (SAAR) in June. Single family starts were at 591 thousand SAAR in June.

The consensus is for total housing starts to increase to 904 thousand (SAAR) in July.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for August). The consensus is for a reading of 85.5, up from 85.1 in July.

by Calculated Risk on 8/10/2013 08:34:00 AM

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

Here is the unofficial problem bank list for August 9, 2013.

Changes and comments from surferdude808:

Not that many changes were made to the Unofficial Problem Bank List this week as anticipated. In all, there were three removals that lower the institution count to 723 with assets of $255.0 billion. Assets declined this week by $4.1 billion with $3.1 billion of the decline coming from updating assets through the second quarter. A year ago, the list held 900 institutions with assets of $348.6 billion.

Removals include the failed Bank of Wausau, Wausau, WI ($49 million). The Federal Reserve terminated the action against Belt Valley Bank, Belt, MT ($62 million) and The First National Bank of Shelby, Shelby, NC ($716 million) departed through an unassisted merger.

This week Capitol Bancorp, Ltd was in the news as they "lashed out at the FDIC" in an August 2nd filing with the bankruptcy court for not granting cross-guaranty waivers that supposedly prevented the sale of some units before they failed according to a report published by SNL Securities (A Capitol offense? BHC blasts FDIC for 'undermining' sale efforts, 'unnecessary' seizures). Perhaps the resolution of the remaining units is nearing an end.

Next week we anticipate the OCC will release its action through mid July 2013.

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 since then.