by Calculated Risk on 7/12/2015 11:43:00 AM

From the Financial Times: France and Germany split over bid to break Greece deadlock

While Paris is backing Greek plans for a deal, Berlin is leading a group of sceptical countries that insist that Athens first passes significant reform laws in the next few days before negotiations can begin on a new rescue programme.
excerpt with permission

From the WSJ: Greek Deal Prospects Slim as Eurozone Leaders Convene

Finance ministers from the currency area convened earlier in the day, and discussed a draft statement that contains a “timeout” for Greece from the eurozone as a potential option, two European officials said Sunday. The statement, which may still change, will form the basis for crisis talks of eurozone leaders later Sunday, these officials said.

The statement says that “in case no agreement [on a new bailout program] could be reached, Greece should be offered swift negotiations on a timeout from the euro area, with possible debt restructuring,” one official said. The sentence is still in brackets, indicating that it doesn’t have the backing of all 19 eurozone countries.

However, French President François Hollande later said, “There is no temporary Grexit. There is only Grexit or not Grexit.”

Too funny. Offered "debt resturcturing" if Grexit? It is called bankruptcy.

From Bloomberg: Tsipras Calls for Honest Compromise With EU Struggling to Trust

“The situation is extremely difficult if you consider the economic situation in Greece and the worsening in the last few months, but what has been lost also in terms of trust and reliability,” German Chancellor Angela Merkel told reporters as she arrived.

by Calculated Risk on 7/11/2015 08:11:00 AM

The key economic reports this week are June Housing Starts on Friday, and June Retail sales on Tuesday.

For manufacturing, the June Industrial Production and Capacity Utilization report, and the July NY Fed (Empire State) and Philly Fed surveys, will be released this week.

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

Fed Chair Janet Yellen will present the Semiannual Monetary Policy Report to the Congress on Wednesday and Thursday.

----- Monday, July 13th -----
2:00 PM ET: The Monthly Treasury Budget Statement for June.

----- Tuesday, July 14th -----
8:30 AM ET: Retail sales for June will be released.

This graph shows retail sales since 1992 through May 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were up 1.2% from April to May (seasonally adjusted), and sales were up 2.7% from May 2014.

The consensus is for retail sales to increase 0.3% in June, and to increase 0.6% ex-autos.

9:00 AM: NFIB Small Business Optimism Index for June.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for June.  The consensus is for a 0.2% increase in inventories.

----- Wednesday, July 15th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM ET: The Producer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices, and a 0.1% increase in core PPI.

8:30 AM: NY Fed Empire State Manufacturing Survey for July. The consensus is for a reading of 3.5, up from -2.0 last month (above zero is expansion).

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

This graph shows industrial production since 1967.

The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to be unchanged at 78.1%.

10:00 AM: Testimony by Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, July 16th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 282 thousand from 297 thousand.

10:00 AM: the Philly Fed manufacturing survey for July. The consensus is for a reading of 11.5, down from 15.2 last month (above zero indicates expansion).

10:00 AM: The July NAHB homebuilder survey. The consensus is for a reading of 59, unchanged from 59 last month.  Any number above 50 indicates that more builders view sales conditions as good than poor.

10:00 AM: Testimony by Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

----- Friday, July 17th -----
8:30 AM: The Consumer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices, and a 0.2% increase in core CPI.

8:30 AM: Housing Starts for June.

Total housing starts decreased to 1.036 million (SAAR) in May. Single family starts decreased to 680 thousand SAAR in May.

The consensus is for total housing starts to increase to 1.125 million (SAAR) in June.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 96.2, up from 96.1 in June.

by Calculated Risk on 7/10/2015 06:15:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 4 July

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 28 June through 4 July 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy increased 3.6 percent to 68.3 percent. Average daily rate for the week was up 6.2 percent to US$119.20. Revenue per available room increased 10.1 percent to finish the week at US$81.45.
emphasis added

For the same week in 2009, ADR (average daily rate) was $95.16 and RevPAR (Revenue per available room) was $54.94. ADR is up 25% since June 2009, and RevPAR is up almost 50%!

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate will be high during the summer travel season.

The red line is for 2015, dashed orange is 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and above last year.

Right now 2015 is above 2000 (best year for hotels), and this year will probably be the best year ever for hotels.

The summer season will probably be strong with lower gasoline prices.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/10/2015 03:08:00 PM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For a few years, not much changed. But over the last 3 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 and 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 June, total sales were up 21.7% from June 2014, and conventional equity sales were up 25.4% compared to the same month last year.

In June, 10.7% of all resales were distressed sales. This was up from 9.8% last month, and down from 13.3% in June 2014.

The percentage of REOs was at 4.8% in June, and the percentage of short sales was 5.8%. Note: It has been some time since there were more short sales than REO sales in a given month.

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 (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 10.0% year-over-year (YoY) in June.  This was the second consecutive monthly YoY decrease in inventory in Sacramento (a big change).

Cash buyers accounted for 16.0% of all sales (frequently investors).

Summary: This data suggests a healing market with fewer distressed sales, more equity sales, and less investor buying.

by Calculated Risk on 7/10/2015 12:34:00 PM

From Fed Chair Janet Yellen: Recent Developments and the Outlook for the Economy Excerpt:

My own outlook for the economy and inflation is broadly consistent with the central tendency of the projections submitted by FOMC participants at the time of our June meeting. Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years.

Let me also stress that this initial increase in the federal funds rate, whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve. Because there are some factors, which I mentioned earlier, that continue to restrain the economic expansion, I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time. The projections of most of my FOMC colleagues indicate that they have similar expectations for the likely path of the federal funds rate. But, again, both the course of the economy and inflation are uncertain. If progress toward our employment and inflation goals is more rapid than expected, it may be appropriate to remove monetary policy accommodation more quickly. However, if progress toward our goals is slower than anticipated, then the Committee may move more slowly in normalizing policy.
emphasis added

by Calculated Risk on 7/10/2015 11:31:00 AM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their May 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.2% from April to May (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 1.2% in May, the 20-MSA RPI increased 1.3%, and the 30-MSA RPI increased 1.2%. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was lower in May than in April, with the 100-MSA composite up 5.4% compared to May 2014.

The index is still down 16.2% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through May 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are also showing the year-over-year change mostly steady at around 5% for the last several months.

Note: The May Case-Shiller index will be released on Tuesday, July 28th.

by Calculated Risk on 7/10/2015 08:41:00 AM

From A Evans-Pritchard: "Just spoke to senior Greek banker. Delighted. Sees 90% chance of deal. France + US saved hour. Still worried Schauble might throw spanner"

From the WSJ: Creditors Assess Greece’s Bailout Plan as Optimism Rises

Greece’s creditor institutions will make an assessment on the country’s eligibility for new bailout on Friday, as some leaders from the currency bloc voiced optimism about the latest Greek economic proposals.

However, a fight still looms about the level of debt relief that will have to accompany any new rescue deal for Greece.

Debt relief - and some hope for the future - are key elements to a successful plan.

From the NY Times: Is Greece Worse Off Than the U.S. During the Great Depression?  Great graphs.  Short answer: Yes.

by Calculated Risk on 7/09/2015 05:52:00 PM

Headlines on Greece - and a voice of reason:

Headline only from the WSJ: New Greek economic-reform proposals appear to be closer to creditor demands

From the Financial Times: Tsipras submits new plan to bailout monitors

From the WSJ: Greece Submits Reform Proposals as Pressure Mounts to Reach Rescue Deal

“The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” [said Donald Tusk, the European Council president]

No word from Wolfgang Schäuble yet, but I expect "Nein, nein, nein".

Friday:
• At 12:30 PM ET, Speech by Fed Chair Janet Yellen, U.S. Economic Outlook, at The City Club of Cleveland's Sally Gries Forum Honoring Women of Achievement, Cleveland, Ohio

by Calculated Risk on 7/09/2015 01:59:00 PM

From Freddie Mac today: Global Uncertainty Pushes U.S. Mortgage Rates Lower

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing an investor flight to safety for U.S. Treasuries is pushing average fixed mortgage rates lower and helping to keep buyer activity strong toward the close of the spring homebuying season. ...

30-year fixed-rate mortgage (FRM) averaged 4.04 percent with an average 0.6 point for the week ending July 9, 2015, down from last week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 4.15 percent.

15-year FRM this week averaged 3.20 percent with an average 0.5 point, down from last week when it averaged 3.24 percent. A year ago at this time, the 15-year FRM averaged 3.24 percent.

Click on graph for larger image.

This graph shows the 30 year and 15 year fixed rate mortgage interest rates from the Freddie Mac Primary Mortgage Market Survey®.  

30 year mortgage rates are up from the all time low of 3.35% in late 2012, but down from 4.15% a year ago. 

The Freddie Mac survey started in 1971. Mortgage rates were below 5% back in the 1950s.

by Calculated Risk on 7/09/2015 10:57:00 AM

Here is a new paper from FHFA Senior Economist Saty Patrabansh: The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment

During the housing bubble, there an increase in first time buyers as shown in the first graph below (from paper).

Also first time homebuyers defaulted at a higher rate than repeat buyers.

Patrabansh shows that the higher default rate for first-time homebuyers is related to borrower differences, and, after adjusting for these differences, first-time hombuyers defaulted at the same rate as repeat homebuyers.

 From the conclusion:

First-time homebuyer mortgages acquired by the Enterprises generally performed worse than repeat homebuyer mortgages. But fi rst-time homebuyers are also inherently diff erent from repeat homebuyers. For example, they are younger, and have lower credit scores, lower home equity, and less income and therefore are less likely to withstand fi nancial stress or take advantage of financial innovations available in the market than repeat homebuyers. In other words, in terms of many borrower, loan, and property characteristics that can be determined at the time of loan origination, the distributional make-up of fi rst-time homebuyers is somewhat weaker than that of repeat homebuyers.

Click on graph for larger image.

This graph from the paper shows the surge in first-time homebuying during the housing bubble.

Note: As I've noted before, this is one of the tragedies of the housing bubble - many people were lured into buying before they were really ready, and have soured on the homebuying experience.

Patrabansh presents several charts on the differences between first-time homebuyers and repeat buyers (see paper Appendix A). First time homebuyers are younger than repeat buyers, have lower monthly income, lower FICO scores, have a higher percentage of one borrower mortgages, took out higher LTV loans, and had a higher payment-to-income and debt-to-income ratios.

From the paper:

Once these distributional di fferences are accounted for in an econometric model, however, there appears to be virtually no di fference between the "average" first-time and repeat home- buyers in their probabilities of default. Therefore the di fference in the first-time and repeat homebuyer loan performance is due to the diff erence in distributional make-up of the two groups in terms of borrower, loan, and property characteristics and not because fi rst-time homebuyers are an inherently riskier group. As long as the borrower, property, and loan characteristics known at the time of origination are able to determine a borrower's ability to repay well and risk is priced accordingly, there should not be a concern that the average first-time homebuyer mortgages are inherently any riskier than the average repeat home- buyer mortgages once those characteristics are taken into account. Both types of mortgages can be expected to default at a similar rate if borrowers, loans, and properties are similar in all other regards.