by Calculated Risk on 12/30/2013 05:46:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

6) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  Even with the recent increases, RI is still at a historical low level. How much will RI increase in 2014?

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2013.

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish so far. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2014.

The second graph shows total and single family housing starts through November 2013.

Housing starts are on pace to increase about 20% in 2013. And even after the sharp increase over the last two years, the approximately 938 thousand housing starts in 2013 will still be the 6th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the five lowest years were 2008 through 2012).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 60% over the next few years from the 2013 level.

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
20131	938.0	20%	625.0	17%
12013 estimated

The third graph shows New Home Sales since 1963 through November 2013. The dashed line is the current sales rate.

Just like for RI as a percent of GDP, and housing starts, new home sales were up in 2013, but are still near the low historically.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2014.   However, unlike last year when I reported that some builders were land constrained (not enough finished lots in the pipeline), land should be less of an issue this year.  Even with the foreclosures, I expect another solid year of growth for new home sales. 

Here are some recent forecasts for housing in 2014. I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013. That would still make 2014 the tenth weakest year on record for housing starts (behind 2008 through 2012 and few other recession lows). So I expect further growth in 2015 too.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/30/2013 11:45:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

7) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 12% or so in 2013. What will happen with house prices in 2014?

Calling the bottom for house prices in 2012 was correct, but I underestimated how quickly prices would increase in 2013.

Click on graph for larger image.

This graph shows the year-over-year change in the Case-Shiller Composite 10 and Composite 20 indexes.

The Composite 10 SA was up 13.2% YoY in September, and the Composite 20 SA was also up 13.2% year-over-year. Other house price indexes have indicated lower gains (see table below).

Note: the year-over-year gain in 2010 was related to the homebuyer tax credit.  However, in 2010, prices were still too high based on fundamentals.   However, when prices started increasing in 2012, prices were more in line with fundamentals based on price-to-income, price-to-rent and real house prices.

Although I use Case-Shiller, I do think the index overstates national prices due to the inclusion of foreclosures and the weighting of certain coastal areas. The following table shows the year-over-year change for several house prices indexes.  Clearly prices were up in 2013, but there was a pretty significant difference between the various measures of prices:

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Sep-13	13.2%
Case-Shiller National	Q3	11.2%
CoreLogic	Oct-13	12.5%
Zillow	Oct-13	5.2%
LPS	Oct-13	8.8%
FNC	Oct-13	6.5%
FHFA Purchase Only	Oct-13	8.8%

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.

In some areas, like Phoenix, there appeared to be a bounce off the bottom - but that bounce appears to be slowing. CoreLogic economist Sam Khater wrote today: Low-End Home Price Correction Over, Portends a Substantial Slowdown in Prices

Analyzing low-end versus high-end price trends reveals two stylized facts. First, low-end price changes and levels lead high-end prices and levels by six months to a year. The low-end price trough in March 2011 was clearly foreshadowing that the market was set to recover. Second, low-end prices are much more volatile than high end prices, which sometimes makes turning points easier to catch.

While there are some caveats, clearly lower-end home prices are decelerating, especially in the former boom/bust markets of the Southwest. More importantly, the magnitude of the declines presages lower growth for prices overall.

In 2014, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. This suggests more house price increases in 2014, but probably at a slow pace.

As Khater noted, some of the "bounce back" in certain areas is probably over, also suggesting slower price increases going forward.  And investor buying appears to have slowed.  A positive for the market will probably be a little looser mortgage credit.

All of these factors suggest further prices increases in 2014, but at a slower rate than in 2013.   There tends to be some momentum for house prices, and I expect we will see prices up mid-to-high single digits (percentage) in 2014 as measured by Case-Shiller.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/30/2013 10:00:00 AM

From the NAR: Pending Home Sales Edge Up in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched up 0.2 percent to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6 percent below November 2012 when it was 103.3. The data reflect contracts but not closings
...
The PHSI in the Northeast declined 2.7 percent to 82.6 in November, but is 1.9 percent above a year ago. In the Midwest the index fell 3.1 percent to 100.6 in November, but is 0.4 percent higher than November 2012. Pending home sales in the South rose 2.3 percent to an index of 116.1 in November, and are 0.1 percent above a year ago. The index in the West increased 1.8 percent in November to 95.0, but is 8.7 percent below November 2012, in part from inventory constraints.
emphasis added

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

by Calculated Risk on 12/30/2013 08:47:00 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 the current month 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: October Transactions, U.S. Home Prices Up 0.1 Percent for the Month; Up 8.8 Percent Year-Over-Year

Lender Processing Services ... based on October 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 year-over-year increase was slightly less in October than in September. The LPS HPI is off 14.1% from the peak in June 2006.

Note: The press release has data for the 20 largest states, and 40 MSAs. Prices declined slightly in eight of the 20 largest states in October, and 18 of the 40 largest MSAs. LPS shows prices off 44.6% from the peak in Las Vegas, off 37.4% in Orlando, and 35.4% off from the peak in Riverside-San Bernardino, CA (Inland Empire). "After months of setting new highs, Texas - and the major metropolitan areas of Austin and Dallas - saw a slight pullback in October."

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

by Calculated Risk on 12/29/2013 08:28:00 PM

From Nick Timiraos at the WSJ: Home Prices Back at Peaks in Some Areas

The 10 metro areas enjoying a full-scale rebound are based on figures for the entire region. The Wall Street Journal also analyzed Zillow price data individually in more than 4,400 cities and towns in the country's largest metro areas. Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. Nationally, values fell 23.8% between 2007 and 2011 before rebounding 9.9% after hitting bottom in late 2011; they are now 16.3% below the high of the last decade, according to Zillow.

The story has this example:

At the top of the housing bubble in 2006, Mr. Long paid $667,500 for a five-bedroom home in Lafayette, Colo., which is about 20 miles northwest of Denver. Prices then fell 12% through 2011. This summer, he sold the home for $710,000.

That is a price increase of about 6% over 7 years. Inflation was up 15% over the same period, so in real terms, Mr. Long sold at a loss (he probably also had significant transaction fees). But people think in nominal terms ... and prices are at new nominal highs in a few areas.

Monday:
• At 10:00 AM ET, the Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for December. The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

Weekend:
• Schedule for Week of December 29th, Happy New Year!

• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

The Nikkei is up about 0.6%.

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

Oil prices have been moving up with WTI futures at $100.23 per barrel and Brent at $112.22 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.29 per gallon.  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 12/29/2013 11:35:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

8) Housing Credit: Will we see easier mortgage lending in 2014? Will we see positive mortgage equity withdrawal (MEW) after six years of negative MEW?

There is no exact measure of the tightness of mortgage lending, and any change in lending may be hard to detect. During the bubble, there were essentially no standards ("fog a mirror, get a loan", "NINJA Loans: No income, jobs or assets", Alt-A, etc.). In recent years, lending has been very tight with only a few exceptions - and for the most part only the most credit worthy borrowers could get loans - and it was very difficult to do a cash out loan.  No one wants a return of NINJA and Alt-A loans, but a little looser mortgage credit would give the economy a boost.

Mortgage broker Lou Barnes wrote on Friday:

Credit: Next to incomes the most important thing to watch. We cannot accelerate, or even get off Fed life support without it. My very smart friend, Paul Kasriel, has detected an acceleration in bank credit, one strong enough to offset the gradual end of QE. I can't find it. I will look, early and often.
...
Mortgages. Under the heading, Everybody Gets Lucky, the White House has at last succeeded in replacing the Fannie-Freddie regulator. ... Now they've got their guy, Mel Watt [and] he may be just the man to lift the dead hand choking mortgage credit. At the top of the we'll-see list.

Even before taking over at the FHFA, Mel Watt has announced he will delay the recently announced fee hikes at Fannie and Freddie:

"I intend to announce that the FHFA will delay implementation" of the loan-fee increases "until such time as I have had the opportunity to evaluate fully the rationale for the plan,"

I suspect Watt will work to loosen lending standards a little at Fannie and Freddie.

Looser standards (combined with more confidence) might show up as positive mortgage equity withdrawal (MEW).   For Q3 2013, the Net Equity Extraction was minus $24 billion, or a negative 0.8% of Disposable Personal Income (DPI).   MEW has been negative for 22 consecutive quarters.

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $10.0 billion in Q3. This was the first increase in mortgage debt since Q1 2008. Since some mortgage debt is related to new home purchases, net negative equity extraction was still slightly negative in Q3.

This is an indirect measurement of mortgage standards (and other factors impact MEW), but if standards are loosened a little - and debt cancellation via foreclosures and short sales, and modifications decline - it is very possible MEW will turn positive in 2014.  

Bottom line: I expect lending standards to loosen a bit in 2014 from the tight level of the last few years.   It will be difficult to measure, but I'll be watching what Mel Watt says, what private lenders say, comments from mortgage brokers, and MEW.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/28/2013 02:58:00 PM

The key reports this week are October Case-Shiller house price index and December vehicle sales.

For manufacturing, the December ISM Manufacturing index, and the Dallas Fed December survey will be released this week.

Happy New Year to All!

----- Monday, December 30th -----
10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for December.  The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

----- Tuesday, December 31st -----
9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October.

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

The consensus is for a 13.7% year-over-year increase in the Composite 20 index (NSA) for October. The Zillow forecast is for the Composite 20 to increase 13.9% year-over-year, and for prices to increase 1.0% month-to-month seasonally adjusted.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a decrease to 61.3, down from 63.0 in November.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 76.8 from 70.4.

Fixed income market will close early.

----- Wednesday, January 1st -----
All US markets will be closed in observance of the New Year's Day Holiday.

----- Thursday, January 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 338 thousand.

9:00 AM ET: The Markit US PMI Manufacturing Index for December.  The consensus is for an decrease to 54.5 from 54.7 in November.

10:00 AM ET: ISM Manufacturing Index for December. The consensus is for a decrease to 57.0 from 57.3 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion in November at 57.3%. The employment index was at 56.5%, and the new orders index was at 63.6%.

10:00 AM: Construction Spending for November. The consensus is for a 1.0% increase in November construction spending.

----- Friday, January 3rd -----
All day: Light vehicle sales for November.

The consensus is for light vehicle sales to decrease to 16.0 million SAAR in December (Seasonally Adjusted Annual Rate) from  16.3 million SAAR in November.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

by Calculated Risk on 12/28/2013 11:16:00 AM

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

Here is the unofficial problem bank list for December 27, 2013.

Changes and comments from surferdude808:

As expected, the FDIC released its enforcement action activity through November 2013 this week. That release coupled with a periodic list review led to many changes to the Unofficial Problem Bank List. This week, there were 15 removals and one addition that leave the list at 619 institutions with assets of $205.7 billion. A year ago, the list held 838 institutions with assets of $313.1 billion. During December 2013, the list declined by a net 26 institutions and $7.7 billion in assets after 20 action terminations, six mergers, one failure, and one addition.

Removals included 14 action terminations; however, half of the total should have been removed earlier. Actions have been terminated against Cadence Bank, N.A., Birmingham, AL ($6.2 billion); Spirit of Texas Bank, SSB, College Station, TX ($542 million); Community Bank of Broward, Dania Beach, FL ($483 million); CoastalStates Bank, Hilton Head Island, SC ($378 million); Vantage Bank Texas, San Antonio, TX ($309 million); Terrabank, National Association, Miami, FL ($273 million); Lake Area Bank, Lindstrom, MN ($272 million); Southport Bank, Kenosha, WI ($257 million); The First National Bank & Trust Company of Rochelle, Rochelle, IL ($247 million); First State Bank and Trust, Tonganoxie, KS ($223 million); Synergy Bank, S.S.B., McKinney, TX ($119 million); University Bank, Pittsburg, KS ($111 million); First National Bank, Chisholm, MN ($82 million); and Peoples Bank, Lyons, GA ($49 million). Roma Bank, Robbinsville, NJ ($1.5 billion) found its way of the list through an unassisted merger.

The addition this week was Liberty Bell Bank, Marlton, NJ ($170 million Ticker: LBBB). Also, the FDIC issued a Prompt Corrective Action order against AztecAmerica Bank, Berwyn, IL ($79 million).

Several banks have undergone a name change including Independence Federal Savings Bank, Washington, DC now known as Colombo Bank, Rockville, MD; The Citizens Bank of East Tennessee, Rogersville, TN now known as Civis Bank; The Patterson Bank, Patterson, GA now known as First Southern Bank; White Rock Bank, Cannon Falls, MN now known as First Farmers & Merchants Bank; BNB Bank, National Association, Fort Lee, NJ now known as BNB Hana Bank, National Association; and First Carolina State Bank, Rocky Mount, NC now known as First Carolina Bank. Several banks have changed their headquarter city within their respective state but Frontier Bank, FSB, Park City, UT moved out of state to Palm Desert, CA.

With the close of the fourth quarter of 2013, we have updated the Unofficial Problem Bank List transition matrix. Full details may be found in the accompanying table and a visual of the trends may be found in accompanying chart.

Click on graph for larger image.

Since its inception, 1,662 institutions have made an appearance on the list. To date, about 63 percent or 1,043 of the banks that have appeared on the list have been removed. Action termination is the now the primary way banks are exiting the list as 495 banks have had their enforcement action terminated. During the fourth quarter of 2013, action terminations slowed a bit from the torrid pace last quarter, but there were the second highest quarterly amount at 54. At the start of the fourth quarter, the list had 685 banks, which means the terminations represented 7.9 percent of the starting balance.

While terminations have increased, the sum of the other ways to exit -- failure, voluntary liquidation, or merger, still exceed those leaving through action termination. At 370 institutions and $294.1 billion in assets, failures are not to be ignored as failed assets still greatly overshadow the $211.5 billion removed through action terminations. At 22.3 percent, the failure rate for the Unofficial Problem Bank List is still well above the low double digit failure rate cited by the media for banks that appear on the official list. Voluntary closings and mergers sum to nearly 11 percent of banks that have appeared on the list. The list was first published in August 2009 with 389 banks, so after more than four years, 81 still remain, indicating that its taking many banks a long time to rehabilitate themselves after experiencing difficulties during the Great Recession.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	123	(40,710,021)
	Unassisted Merger	30	(6,470,016)
	Voluntary Liquidation	4	(10,584,114)
	Failures	151	(183,816,648)
	Asset Change		(11,818,692)
Still on List at 12/31/2013		81	22,913,938
Additions after 8/7/2009		538	182,843,876
End (12/31/2013)		619	205,757,814
Intraperiod Deletions1
	Action Terminated	372	170,802,027
	Unassisted Merger	137	63,392,166
	Voluntary Liquidation	7	1,760,816
	Failures	219	110,286,710
	Total	735	346,241,719
1Institution not on 8/7/2009 or 12/31/2013 list but appeared on a weekly list.

by Calculated Risk on 12/27/2013 07:37:00 PM

Goldman Sachs chief economist Jan Hatzius writes: 10 Questions for 2014 (Here are the 10 questions at Business Insider: Goldman's Top Economists Just Answered The Most Important Questions For 2014 — And Boy Are His Answers Bullish)

A few excerpts from the research note:

We expect the US economy to accelerate to an above-trend growth pace in 2014, as the fiscal drag diminishes sharply but the private sector impulse remains positive. The acceleration is likely to be led by faster growth in personal consumption and business capital spending, with continued support from housing.

The unemployment rate is likely to fall about as fast as in 2013, with faster job growth offset by a flattening in labor force participation. But we expect the slack in the labor market to remain large enough in 2014 to keep wage growth subdued, profit margins high, and inflation well below the Fed’s 2% target.

The Federal Reserve is likely to conclude its QE3 program in late 2014. But we still see no hikes in short-term interest rates until early 2016 ...

Goldman is projecting around 3% GDP growth in 2014. A similar drop in the unemployment rate next year as in 2013 would put the rate in the low 6% range.

And on housing:

Barring another sharp increase in mortgage rates, we think that the upward trend should continue in 2014 because the longer-term fundamentals for housing activity remain very favorable. ... We are a bit less optimistic about house prices. ... we would expect somewhat slower growth of 5%-6% in 2014—still decent but no longer nearly as rapid as the double-digit rates seen over the past 12-18 months.

by Calculated Risk on 12/27/2013 02:55:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for November next week.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen from 0.82 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015. 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2+ years (mostly in judicial states).