by Calculated Risk on 9/23/2013 10:16:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses June closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: LPS Home Price Index Report: July Transactions, U.S. Home Prices Up 0.6 Percent for the Month; Up 8.7 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on July 2013 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The LPS HPI is off 14.7% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 46.1% from the peak in Las Vegas, off 38.8% in Orlando, and 36.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices were at new peaks in Austin, Dallas, Denver, Houston and San Antonio.

Note: Case-Shiller for July will be released tomorrow.

by Calculated Risk on 9/23/2013 08:30:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Economic Growth Picked Up in August

The Chicago Fed National Activity Index (CFNAI) increased to +0.14 in August from –0.43 in July.

The index’s three-month moving average, CFNAI-MA3, increased to –0.18 in August from –0.24 in July, marking its sixth consecutive reading below zero. August’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued 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 was below the historical trend in August (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 9/22/2013 09:59:00 PM

From Jon Hilsenrath at the WSJ: Yellen Would Bring Tougher Tone to Fed

Janet Yellen, the lead candidate to succeed Federal Reserve Chairman Ben Bernanke, brings a demanding and harder-driving leadership style to the central bank, in contrast to Mr. Bernanke's low-key and often understated approach.

Ms. Yellen, the Fed vice chairwoman, is highly regarded by many central bank staff members, who call her an effective leader with a sharp mind. But she has clashed with others and left some hard feelings in the wake of those confrontations, according to interviews with more than a dozen current and former staff members and officials who worked with her directly in recent years.

Most agree that Ms. Yellen—who has climbed the ranks from Fed researcher to Fed governor and regional Fed bank president, in between stints outside the central bank—is exacting and exceptionally detail-oriented.

I believe Yellen will be an excellent Fed Chair.

Monday:
• 8:30 AM ET, the Chicago Fed National Activity Index for August. This is a composite index of other data.

• At 9:00 AM, the Markit US PMI Manufacturing Index Flash for September. The consensus is for an increase to 54.0 from 53.9 in August.

Weekend:
• Schedule for Week of September 22nd

• Preliminary annual Employment benchmark revision to be released Thursday

The Nikkei is down about 0.2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are flat and DOW futures are up slightly (fair value).

Oil prices are mostly unchanged with WTI futures at $104.59 per barrel and Brent at $109.02 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are below $3.50 per gallon again.  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 9/22/2013 02:20:00 PM

On Thursday the BLS will release the preliminary annual Benchmark Revision for the Current Employment Statistics. The final revision will be published next February when the January 2012 employment report is released. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:

Each year, the Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. On September 26, 2013 at 10:00 a.m. the Bureau of Labor Statistics (BLS) will release the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series.

With the release of the final benchmark estimate in February, total payroll employment in March 2013 will changed by the amount of the revision. The number is then "wedged back" to the previous revision (March 2012).

For details on the benchmark revision process, see from the BLS Benchmark Article.

The following table shows the benchmark revisions since 1979. The BLS employment estimate tends to miss turning points - as an example the benchmark revisions were down in 2007 through 2010, and have been up for the last two years.   We see a similar pattern for previous recessions (like in the early '80s and early '90s).    My guess is the revision will be small this year.

A few months ago Josh Lehner looked at state level data and he thinks the revision will be positive again this year. Although he thinks the revision for government employees may be larger than normal due to the sequester. According to MarketWatch, economists at BNP Paribas expect a negative revision.

Year	Percent benchmark revision	Benchmark revision (in thousands)
1979	0.5	447
1980	-0.1	-63
1981	-0.4	-349
1982	-0.1	-113
1983	*	36
1984	0.4	353
1985	*	-3
1986	-0.5	-467
1987	*	-35
1988	-0.3	-326
1989	*	47
1990	-0.2	-229
1991	-0.6	-640
1992	-0.1	-59
1993	0.2	263
1994	0.7	747
1995	0.5	542
1996	*	57
1997	0.4	431
1998	*	44
1999	0.2	258
2000	0.4	468
2001	-0.1	-123
2002	-0.2	-313
2003	-0.2	-122
2004	0.2	203
2005	-0.1	-158
2006	0.6	752
2007	-0.2	-293
2008	-0.1	-89
2009	-0.7	-902
2010	-0.3	-378
2011	0.1	162
2012	0.3	424
2013	NA	NA
* less than 0.05%

by Calculated Risk on 9/22/2013 10:21:00 AM

I was hoping to avoid writing about this dumb idea, but readers keep asking ...

Mike Konczal writes in the WaPo: Is Richmond’s mortgage seizure scheme even legal?

The short answer is No (Although Konczal apparently disagrees).

There are some confusing passages in Konczal's piece. The key issue is if there is a public interest for the city of Richmond to use eminent domain. Konczal writes:

It is very likely Richmond will argue that preventing blight is a major, legitimate public purpose, and the courts agree. Abandoned homes result in increased crime and significant public costs, in addition to destabilizing neighborhoods. ... The banks argue that the loans are performing (more on their argument about this in a minute), and as such don’t serve a public purpose. But there’s also a public purpose in solving problems in the coordination of mortgage servicers to writedown and deal with failing mortgages. There’s also the public purpose of allowing people to move as well as refinance allowing for the movement of individuals as well as the ability to refinance. These are all legitimate purposes of eminent domain ...

First, blight is a legitimate issue for eminent domain, but blight doesn't apply in the Richmond case. Most of these homes are owner occupied and the owners are current on their mortgages. The "abandoned homes" is mostly irrelevant in this case (there might be a few abandoned). Drive down any street in Richmond with one of the houses in question, and there is no evidence of "blight". Note: For any house that is not maintained, the city has alternatives to eminent domain - so we can rule this one out.

Konczal also writes "there’s also a public purpose in solving problems in the coordination of mortgage servicers to writedown and deal with failing mortgages". But once again, most of these loans are current and the mortgages are not "failing".  (I don't buy the public interest argument for a city with coordination).

Konczal also writes: "There’s also the public purpose of allowing people to move as well as refinance allowing for the movement of individuals as well as the ability to refinance." A public purpose in "allowing people to move"?  Clearly Konczal is suggesting that someone underwater on their mortgage will have difficulty moving for employment. That may be true - they may have to lose their home in foreclosure or do a short sale to move from say Richmond to Texas - but helping someone move might be in the national public interest, but not in the interest of the city of Richmond. And a public purpose to "refinance"?  That is a stretch.

Also even if there is a little public interest, most of the benefits accrue to individual homeowners - and that violates the spirit of eminent domain.

I think there is no clearly stated public purpose for using eminent domain. And this is how I expect the courts to rule.

Konczal writes about valuation.

One way to evaluate these mortgages would be to compare them to bonds of mortgages containing similar instruments and see what discount is used. Given the still high levels of foreclosures, this would generate a significant discount. This is a common technique to evaluate risk and valuations when markets aren’t available, say for understanding the credit risk of a brand new company, as they aren’t in high foreclosure areas.

The banks also argue that the fact that a majority of homeowners are current on their loans means that they aren’t relevant to either public purpose or subject to a steep discount.

I won't discuss the difference between the mortgage and the promissory note, but the first key here is that the valuation is for the note, not the underlying property.

Pop quiz: Say someone with excellent credit buys a new car for $30,000 with 100% financing. They drive the car home, and the car is now "used" and only worth $25,000 (I'm making up numbers for this example). What is the value of the note (the loan)? Of course the value is $30,000 even though the car is now only worth $25,000.

The same idea applies to loans on houses. If the outstanding principal balance is $400,000, but the house is only worth $250,000, the starting point for the value of the note is $400,000. As Konczal writes the value could be discounted because of the possibility of foreclosure, but these loans are current and well seasoned (the borrowers have been paying for eight years or so). The value might be less than $400,000, but the value is clearly more than $250,000 - so the scheme doesn't work since the intention is to "seize the mortgage" and refinance at less than the current property value - but that will be far below fair value for the note.

The bottom line is I expect the courts to rule against this scheme (little or no public interest) - and it wouldn't work anyway (can't pay fair value).

by Calculated Risk on 9/21/2013 11:47:00 AM

The key reports this week are August New Home sales on Wednesday, Case-Shiller house prices for July on Tuesday, the third estimate of Q2 GDP on Thursday, and the August Personal Income and Outlays report on Friday.

Also the Fed will release the Q2 Flow of Funds report this week, and the Pending Home Sales index for August might show a sharp decline.

For manufacturing, the Richmond and Kansas City regional manufacturing surveys for September will be released this week.

Note: My guess is Janet Yellen will be nominated as Fed Chair this week, perhaps on Monday.

----- Monday, September 23rd -----
8:30 AM ET: Chicago Fed National Activity Index for August. This is a composite index of other data.

9:00 AM: The Markit US PMI Manufacturing Index Flash for September. The consensus is for an increase to 54.0 from 53.9 in August.

----- Tuesday, September 24th -----
9:00 AM: S&P/Case-Shiller House Price Index for July. Although this is the July report, it is really a 3 month average for closings in May, June and July.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through June 2012 (the Composite 20 was started in January 2000).

The consensus is for a 12.4% year-over-year increase in the Composite 20 index (NSA). The Zillow forecast is for the Composite 20 to increase 12.5% year-over-year, and for prices to increase 1.2% month-to-month seasonally adjusted.

9:00 AM: FHFA House Price Index for July 2013. This was original a GSE only repeat sales, however there is also an expanded index that deserves more attention. The consensus is for a 0.7% increase.

10:00 AM: Conference Board's consumer confidence index for September. The consensus is for the index to decrease to 80.0 from 81.5.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for September. The consensus is for a reading of 10.5 for this survey, down from 14 in August (Above zero is expansion).

----- Wednesday, September 25th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for August from the Census Bureau. The consensus is for a 0.5% decline in durable goods orders.

10:00 AM: New Home Sales for August from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the July sales rate.

The consensus is for an increase in sales to 425 thousand Seasonally Adjusted Annual Rate (SAAR) in August from 394 thousand in July. Based on the various reports, sales were probably weak again in August.

12:00 PM: Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Thursday, September 26th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 330 thousand from 309 thousand last week.

8:30 AM: Q2 GDP (third estimate). This is the second estimate of Q2 GDP from the BEA. The consensus is that real GDP increased 2.6% annualized in Q2, revised up from the second estimate of 2.5% in Q2.

10:00 AM ET: Pending Home Sales Index for August. The consensus is for a 1.0% decrease in the index.  Economist Tom Lawler is estimating the NAR will report a decline of "about 5%" in this index.

10:00 AM: 2013 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS: "[T]he Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. ... The final benchmark revision will be issued with the publication of the January 2014 Employment Situation news release in February."

11:00 AM: Kansas City Fed Survey of Manufacturing Activity for August. The consensus is for a reading of 9 for this survey, up from 8 in August (Above zero is expansion).

----- Friday, September 27th -----
8:30 AM ET: Personal Income and Outlays for August. The consensus is for a 0.4% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for September). The consensus is for a reading of 78.0, up from the preliminary reading of 76.8, but down from the August reading of 82.1.

by Calculated Risk on 9/21/2013 09:33:00 AM

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

Here is the unofficial problem bank list for September 20, 2013.

Changes and comments from surferdude808:

As anticipated, the OCC released its actions through mid-August this week, which led to many changes to the Unofficial Problem Bank List. In all, there were nine removals and one addition that leave the list with 692 institutions and assets of $242.9 billion. It is the first time the list has under 700 institutions since April 2010. A year ago, the list held 878 institutions with assets of $327.4 billion.

Bank of St. Augustine, Saint Augustine, FL ($164 million), found its way off the list by finding a merger partner. Actions were terminated against Far East National Bank, Los Angeles, CA ($1.2 billion); First Community Bank, Santa Rosa, CA ($678 million); CBC National Bank, Fernandina Beach, FL ($399 million); MidSouth Bank, N. A., Dothan, AL ($372 million); First National Bank South, Alma, GA ($309 million); The Camden National Bank, Camden, AL ($110 million); Peoples Community National Bank, Bremen , GA ($73 million); and The National Bank of Harvey, Harvey, ND ($46 million). The banking regulators have picked-up the pace on action terminations this quarter, which are now above any prior quarter in total or removal rate since publication of the first list in 2009. More info will be included in an updated transition matrix next week.

The First National Bank of Russell Springs, Russell Springs, KY ($192 million) was added to the list this week.

Next week, we anticipate the FDIC will release its enforcement action activity through August 2013. There is nothing new to report on the status of banks controlled by Capitol Bancorp, Ltd.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. Less than two years later the list peaked at 1,002 institutions. Now, more than two years after the peak, the list is down to 692 (the list increased faster than it is decreasing - but it is steadily decreasing as regulators terminate actions and close a few banks).

by Calculated Risk on 9/20/2013 07:03:00 PM

From the WSJ: Yellen Speech Canceled as White House Weighs Fed Pick

The Economic Club of New York has canceled a coming speech by Fed Vice Chairwoman Janet Yellen as the White House moves closer to selecting a new head of the central bank.

The group said Friday that the Oct. 1 speech by Ms. Yellen had been called off but gave no reason.

My guess is the nomination will be announced Monday.

by Calculated Risk on 9/20/2013 01:39:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for August since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.7% in August compared to the rolling 12 months ending in July.   Outbound traffic increased 0.6% compared to July.

In general, inbound traffic has been increasing slowly, and outbound traffic had been declining slightly (but picked up in August).

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

This suggests an increase in the trade deficit with Asia for August - and possibly fairly strong retailer buying for the holiday season. 

by Calculated Risk on 9/20/2013 11:24:00 AM

From the BLS: Regional and state unemployment rates were little changed in August

Regional and state unemployment rates were little changed in August. Eighteen states and the District of Columbia had unemployment rate increases, 17 states had decreases, and 15 states had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada had the highest unemployment rate among the states in August, 9.5 percent. The next highest rate was in Illinois, 9.2 percent. North Dakota continued to have the lowest jobless rate, 3.0 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement - Michigan and Nevada have seen the largest declines and many other states have seen significant declines (California, Florida and more).

The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in four states: Nevada, Illinois, Rhode Island and Michigan.

The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 9 states with an unemployment rate above 11% (red).

Currently four states have an unemployment rate above 9% (purple), seventeen states above 8% (light blue), and 30 states above 7% - the most in a year (blue).