by Calculated Risk on 4/21/2010 08:07:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume, increased 13.6 percent on a seasonally adjusted basis from one week earlier. ...

“Treasury rates fell last week causing a decline in mortgage rates. As a result, refinance applications picked up over the week, as some borrowers took advantage of this recent rate volatility to lock in a low fixed-rate loan,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Purchase applications continued to increase coming out of the Easter holiday, as we approach the end of the homebuyer tax credit, and are up modestly over last month.”

The Refinance Index increased 15.8 percent from the previous week and the seasonally adjusted Purchase Index increased 10.1 percent from one week earlier. ...

The refinance share of mortgage activity increased to 60.0 percent of total applications from 58.9 percent the previous week. ...

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.04 percent from 5.17 percent, with points increasing to 0.98 from 0.91 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

So far the increase in activity because of the expiration of the tax credit has been "modest". I expect any increase this year to be less than the increase last year ...

by Calculated Risk on 4/20/2010 10:18:00 PM

Jennifer Schonberger at Motley Fool interviews Professor Robert Shiller: Shiller: The Housing Recovery Could Be on Shaky Ground.

A couple of comments from Shiller, first on house prices:

Robert Shiller: Home prices have been going up for nearly a year now, according to our data, the S&P/Case-Shiller indices ... Normally we could extrapolate that kind of upward trend because historically home prices have shown a lot of momentum. But I think we're in a very unusual circumstance because of the massive bailouts, the homebuyer tax credits, the Fed's purchase of mortgage-backed securities -- and these things are coming to an end. So it's an unusual period. So I don't trust the trend that we have. I'm worried that it might get reversed.

And on asset prices:

Shiller: We have had kind of a mini-bubble in the stock market and the housing market. It wasn't just because of rate cuts. It was also because of government stimulus and bailouts. So the question is: Are we at risk for even more price increases, and another bubble? I think we are at risk, but I'm not predicting it. I think it's more likely we don't do so well from here.

by Calculated Risk on 4/20/2010 06:48:00 PM

From Tamar Lewin and Sam Dillon at the NY Times: School Districts Warn of Even Deeper Teacher Cuts (ht Ann)

School districts around the country ... are warning hundreds of thousands of teachers that their jobs may be eliminated in June.

... their usual sources of revenue — state money and local property taxes — have been hit hard by the recession. In addition, federal stimulus money earmarked for education has been mostly used up this year.
...
Districts in California have pink-slipped 22,000 teachers. Illinois authorities are predicting 17,000 public school job cuts. And New York has warned nearly 15,000 teachers that their jobs could disappear in June.

Secretary of Education Arne Duncan estimated that state budget cuts imperiled 100,000 to 300,000 public school jobs. In an interview on Monday, he said the nation was flirting with “education catastrophe.”

These cuts will make the employment situation worse. This is also a reminder that the Federal stimulus spending peaks in Q2, and then starts to decline in Q3.

by Calculated Risk on 4/20/2010 04:00:00 PM

As a followup to the previous post, here is some more data from DataQuick:

"We are seeing signs that the worst may be over in the hard-hit entry-level markets, while problems are slowly spreading to more expensive neighborhoods. We're also seeing some lenders become more accommodating to work-outs or short sales, while others appear to be getting stricter about delinquencies. It's very noisy out there," [John Walsh, DataQuick president] said.

The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for 47.5 percent of all default activity a year ago. In first-quarter 2010 that fell to 40.9 percent.

California's mid- to high-end housing markets were more likely to have seen a rise in mortgage defaults last quarter, though the concentration of default activity - measured by defaults per 1,000 homes - remained relatively low in those areas.

For example, zip codes statewide with median home sale prices of $500,000-plus saw mortgage defaults buck the overall trend and rise 1.5 percent last quarter compared with the prior quarter, while year-over-year the decline was 19 percent (versus a 40.2 percent marketwide annual decrease). Collectively, these zips saw 4.5 default notices filed for every 1,000 homes in the community, compared with the overall market's rate of 9.3 NODs for every 1,000 homes statewide.

In zip codes with medians below $500,000, mortgage default filings fell 5.8 percent from the prior quarter and declined nearly 43 percent from a year earlier. However, collectively these zips saw 10.5 NODs filed for every 1,000 homes - more than double the default rate for the zips with $500,000-plus medians.

On average, homes foreclosed on last quarter spent 7.5 months winding their way through the formal foreclosure process, beginning with an NOD. A year ago it was 6.8 months. The increase could reflect, among other things, lender backlogs and extra time needed to pursue possible loan modifications and short sales.

Foreclosure resales accounted for 42.6 percent of all California resale activity last quarter. It was up from a revised 40.6 percent the prior quarter, and down from 57.8 percent a year ago, the peak.

The foreclosure rates in the mid-to-high end areas will never be as high as in the low end areas, but the percentage of total foreclosures will probably continue to increase. I also expect the average time in the foreclosure process to start to decrease this year as the lenders start clearing out the backlog.

by Calculated Risk on 4/20/2010 02:06:00 PM

Click on graph for larger image in new window.

This graph shows the Notices of Default (NOD) by year through 2009, and for Q1 2010, in California from DataQuick.

Although the pace of filings has slowed, it is still very high by historical standards.

From Alejandro Lazo at the LA Times: California foreclosures drop 4.2% as lenders work with troubled borrowers

Across California, a total of 81,054 homes received a notice of default in the first quarter compared with 84,568 in the fourth quarter of 2009 and a record 135,431 in the first quarter of 2009.

In terms of new NOD filings, the peak was probably in 2009. A few key points:

There are a record number of homes in the foreclosure process and the timeline from the filing of the initial NOD to REO has been extended significantly. There are so many homes in the pipeline the number of distressed sales (foreclosures and short sales) will probably increase sharply throughout 2010 - even if NODs decline.

Many of these NODs are probably in mid-to-high end areas (as opposed to the flood of low end foreclosures in 2008). As I've been noting for over a year, prices have probably bottomed in some low end areas, but we will probably see further price declines in many mid-to-high end areas.

Although NODs will probably decline in 2010, the number will still be very high. The number of filings in Q1 alone would be a normal year.

by Calculated Risk on 4/20/2010 11:05:00 AM

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. Seventeen states are showing declining three month activity. The index increased in 31 states, and was unchanged in 2.

Here is the Philadelphia Fed state coincident index release for March.

In the past month, the indexes increased in 35 states, decreased in 10, and remained unchanged in five (Georgia, Illinois, South Dakota, Utah, and Vermont) for a one-month diffusion index of 50. Over the past three months, the indexes increased in 31 states, decreased in 17, and remained unchanged in two (Arkansas and Idaho) for a three-month diffusion index of 28.

The second graph is of the monthly Philly Fed data of the number of states with one month increasing activity. Based on this indicator, most of the U.S. was in recession in early 2008.

The last time the index was higher was in December 2007.

Note: this graph includes states with minor increases (the Philly Fed lists as unchanged).

by Calculated Risk on 4/20/2010 08:52:00 AM

The Department of Transportation (DOT) reported today that vehicle miles driven in February were down from February 2009:

Travel on all roads and streets changed by -2.9%(-6.3 billion vehicle miles) for February 2010 as compared with February 2009. Travel for the month is estimated to be 212.9 billion vehicle miles.

Cumulative Travel for 2010 changed by -2.3% (-10.1 billion vehicle miles).

Click on graph for larger image in new window.

This graph shows the percent change from the same month of the previous year as reported by the DOT.

As the DOT noted, miles driven in February 2010 were down -2.9% compared to February 2009.

The second graph shows the moving 12 month total of miles driven (to remove seasonality).

The moving 12 month total peaked in November 2007. The impact on vehicle miles of the gasoline shortages in the '70s are clear - in the late '70s and early '80s, it took 40 months before vehicle miles returned to the peak of April 1979.

Blame it on the snow - except this is the 2nd month in a row with a year-over-year decline in miles driven. If vehicle miles continues to decline on a year-over-year basis, it might suggest high gasoline prices are starting to impact the economy.

by Calculated Risk on 4/19/2010 07:21:00 PM

An update on Greece: The IMF team was delayed arriving in Greece because of the ash from the Iceland volcano, meanwhile the Bundesbank president was quoted as saying Greece may need more aid.

Also the German Finance Minister was quoted in Der Spiegel: "We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers."

From the NY Times: Greek Debt Unsettles Bond Market

Yields on Greek bonds pushed to fresh highs on Monday ... as investors continued to worry about the country’s near-term ability to finance its debt. ... The yield on benchmark 10-year Greek government bonds closed in Europe at 7.63 percent — the highest since Greece joined the euro. That widened the spread, or difference, with equivalent German bonds to 4.55 percentage points.

From Bloomberg: Weber Said to Tell German Lawmakers Greece May Need More Aid

Bundesbank President Axel Weber told German lawmakers that Greece may need more aid than the 30 billion euros ($40 billion) promised by the European Union as the government in Athens struggles to push through planned spending cuts, two people present at the briefing said.

An interview with German Finance Minister Wolfgang Schäuble in Der Speigel: 'We Cannot Allow Greece to Turn into a Second Lehman Brothers'

Schäuble: [W]e have experienced a financial crisis from which we in Europe must draw a clear lesson: We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers.

SPIEGEL: You are exaggerating. In past years, it's happened again and again that a country couldn't pay its debts, and yet that hasn't led to a collapse of the global financial system. Why should this be different in Greece's case?

Schäuble: Because Greece is a member of the European monetary union. Greece's debts are all denominated in euros, but it isn't clear who holds how much of those debts. For that reason, the consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank.

by Calculated Risk on 4/19/2010 03:27:00 PM

From Austin Kilgore at HousingWire: Fannie Shortens Wait for Some Distressed Borrowers to Get New Loans

Fannie Mae announced it is reducing the wait time for some borrowers between when they complete a short sale or deed-in-lieu of foreclosure transaction and when they can obtain a new mortgage.

Previously, a borrower was required to wait four years before getting a new mortgage, or two years if their home sold in a short sale. Under the new guidelines, a borrower that previously completed a deed-in-lieu of foreclosure transaction can get a new mortgage in two years, provided the borrower has a 20% down payment.

If the borrower has a 10% down payment, the wait period is still four years.

Here is the update from Fannie Mae. For other loans (mostly higher risk loans), the period has been increased to seven years (per the eligibility matrix).

A couple notes: Several reports are mentioning the shorter waiting period (2 years instead of 4 years), but that is just for borrowers who put 20% down. This update also makes the policy consistent for short sales and deed-in-lieu of foreclosure transactions - and for the first time explicitly mentions short sales (since these are becoming much more common).

by Calculated Risk on 4/19/2010 11:43:00 AM

Moody's reported this morning that the Moody’s/REAL All Property Type Aggregate Index declined 2.6% in February. This is a repeat sales measure of commercial real estate prices.

Moody's noted that the share of distressed sales has increased sharply. In 2008 distressed sales were only 4% of all sales, in 2009 nearly 20% of all the repeat sales transaction were classified as distressed. In February 2010, the percent of distressed sales jumped to a record 32%.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.

Notes: Beware of the "Real" in the title - this index is not inflation adjusted. Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales - and that can impact prices.

Click on graph for larger image in new window.

CRE prices only go back to December 2000.

The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

Commercial real estate values are now down 25.8% over the last year, and down 41.8% from the peak in August 2007.

by Calculated Risk on 4/19/2010 10:58:00 AM

Back in 2006, we discussed that the hardest hit areas, in the then coming housing bust, would be the communities most dependent on residential construction employment. Last week, I posted a follow up focused on California: The Housing Bust and Construction Employment

Zach Fox at SNL Interactive writes about the impact on Cape Coral, a construction dependent community in Florida: A generation of wealth lost

With so little commercial space in Cape Coral, the metro area became especially reliant on construction for employment. By June 2006, 16.8% of all jobs in the metro area came from the mining, logging and construction sector (the Bureau of Labor Statistics does not break out construction jobs for the Cape Coral-Fort Myers, MSA). By contrast, the national average reliance on the sector that month was 6.3%. Even the notoriously growth-dependant Phoenix-Mesa-Glendale, Ariz., MSA (the U.S. Office of Management and Budget changed the name of the MSA from Phoenix-Mesa-Scottsdale, Ariz., in December 2009), was far less reliant on development, with 10.1% of its jobs coming from mining, logging and construction in June 2006.

"I can remember driving up the west [Florida] coast and saying, 'Where are all these people going to work?'" [Andrea Heuson, a professor of finance at the University of Miami] said.

Source: Graph from SNL Financial.

Unsurprisingly, with construction jobs falling off a cliff, Cape Coral-Fort Myers has posted a towering unemployment rate, hitting 13.9% in February, according to a preliminary report; the national average was 10.4% in February, non-seasonally adjusted. Whatever housing market metric one picks, Cape Coral-Fort Myers is near the top — in a bad way. The metro area has seen prices fall 49.5% from the 2006 first quarter through the 2009 fourth quarter, larger than the 42.0% drop posted by California's infamous Inland Empire and the 49.3% decline seen in Nevada's eviscerated Las Vegas-Paradise MSA, according to the FHFA's all-transactions index. With unemployment shooting up and prices tumbling, it comes as little surprise that Cape Coral-Fort Myers is also one of the nation's most foreclosure-prone neighborhoods. The metro posted the second-highest foreclosure rate of any metro area in the nation during 2009, according to RealtyTrac.

This was so easy to predict ...

by Calculated Risk on 4/19/2010 08:42:00 AM

To follow up on the stories from last night, the Financial Times reported in January: SEC subpoenas big banks over CDOs

The Securities and Exchange Commission sent subpoenas [in December 2009] to banks including Goldman Sachs, Credit Suisse, Citigroup, Bank of America/Merrill Lynch, Deutsche Bank, UBS, Morgan Stanley and Barclays Capital, these people said. Requests for information were also made by the Financial Industry Regulatory Authority, which oversees broker-dealers.

The regulators are seeking information about the sale and marketing of so-called synthetic collateralised debt obligations during the financial crisis.
except with permission

So that is a starting list.

And a key story from Jesse Eisinger and Jake Bernstein at ProPublica: The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going

by Calculated Risk on 4/18/2010 10:03:00 PM

Several articles tonight ...

From Gretchen Morgenson and Landon Thomas Jr. at the NY Timmes: A Glare on Goldman, From U.S. and Beyond

“We request that S.E.C., with all due haste, pursue investigations into the remaining 24 Abacus transactions for securities fraud, evaluate the extent of any receipt, by Goldman Sachs, of fraudulently generated A.I.G.-issued credit default swap payments, and vigorously pursue the recovery of such payments on behalf of the U.S. taxpayer,” the [Representatives Elijah E. Cummings and Peter DeFazio] wrote to Mary L. Schapiro, the head of the [S.E.C.], in a letter dated April 19. Mr. Cummings and Mr. DeFazio are still gathering signatures from other members of Congress to add to their letter, so it has not yet been sent.

From Trish Regan at CNBC: Pursuing Banking Fraud is 'Top Priority': SEC'S Khuzami

In the Securities and Exchange Commission's first public statement since its press conference announcing charges against Goldman Sachs on Friday, S.E.C. Enforcement Director Robert Khuzami told CNBC, "We have brought and will continue to pursue cases involving the products and practices related to the financial crisis." ... a wide range of cases are currently being investigated.

From Carrick Mollenkamp, Serena Ng, Scott Patterson, and Gergory Zuckerman the WSJ: SEC Investigating Other Soured Deals

The Securities and Exchange Commission ... is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors.

From Edward Wyatt at the NY Times: S.E.C. Puts Wall St. on Notice

In the last few years, the Securities and Exchange Commission seemed like the cop in the doughnut shop, sitting idly by while the likes of Lehman Brothers and Bernard L. Madoff ran amok.
...
In interviews this weekend, Mary L. Schapiro, the commission’s chairwoman, and Robert Khuzami, its new director of enforcement, said the agency was stepping up both its rule-making and its investigations in the wake of the financial crisis.

And from John Emshwiller at the WSJ: Countrywide Probe Shows Signs of Life

Federal criminal investigators looking into the collapse of Countrywide Financial Corp. have been calling witnesses before a grand jury, say people familiar with the matter. Such a step suggests that the investigation of the one-time mortgage giant, which has been continuing for about two years, could be moving closer to a resolution.

by Calculated Risk on 4/18/2010 07:00:00 PM

Ryan Avent discusses the Minsky Conference in The Economist: First, define the problem

I HAVE been meaning to summarise my thoughts on financial regulatory reform in the wake of the Hyman Minsky conference on same. I have to say, it has left me with a sense of resigned cycnicism.
...
On to more specific thoughts. The Federal Reserve is very unhappy with the prospect of losing its regulatory authority over all but the largest financial institutions. ... I found this all to be exasperating. None of the attending presidents adequately explained how a Fed that completely failed to prevent dangerous consolidation before the crisis should now be viewed as a credible enemy of too-big-to-fail after the crisis. None of the attending presidents provided tangible evidence of internal changes designed to make the Fed a more credible regulator. Each was asked about the odd disconnect between the Fed's pre-crisis actions and its post-crisis rhetoric, and each responded by saying little more than "we've learned our lesson, now trust us".... If it believes it can regulate most effectively, [the Fed] should be explicit about how it might do that. ... If the incentives were in place to turn a blind eye before, and little has changed, then "we've learned our lesson" will not make for a sustainable model of competent regulation.

... several of the conference's speakers made the point that regulators had about 90% of the tools they needed to prevent a serious crisis before the crisis hit. They just didn't use them. A lack of needed tools is a convenient excuse for everyone who failed to do their job before the crash, which is everyone, and so you see the reform debate focusing on which new rules or institutions or regulators or authorities are needed that weren't previously around. In some cases, the new tools argument makes sense, but most of the time the real problem was that the people in charge were unwilling to do their jobs.

I think we need an explanation of how the financial reform would have caught the bubble earlier.

by Calculated Risk on 4/18/2010 11:50:00 AM

There will be two key housing reports released at the end of this week: Existing Home sales on Thursday and New Home sales on Friday.

Early in the week, the LoanPerformance house price index (for February) will be released. This will probably show further price declines in February (not seasonally adjusted). Other reports that will be released this week include the Moodys/REAL Commercial Property Price Index (for February), DOTs Vehicle Miles Driven for February, and the DataQuick's Q1 Notice of Defaults (NODs) report for California.

On Monday, the Conference Board's index of leading indicators for March will be released at 10 AM.

On Wednesday, the AIA's Architecture Billings Index for March will be released (a leading indicator for commercial real estate). Also the weekly MBA Mortgage Purchase Applications index will be released.

On Thursday the closely watched initial weekly unemployment claims will be released at 8:30 AM. The consensus is for a decline to 460K this week from 484K last week. The NAR will release Existing Home sales for March at 10 AM. The consensus is for an increase in sales to 5.25 million (SAAR) from 5.02 million (SAAR) in February. The FHFA house price index will be released on Thursday (although Case-Shiller and LoanPerformance are probably the most followed).

On Friday, March Durable Goods Orders will be released at 8:30 AM. The consensus is for a 0.4% increase. New Home sales for March will be released at 10 AM, and consensus is for an increase to 330 thousand (SAAR) from the record low 308 thousand SAAR in February.

Also on Friday the FDIC might close several more banks ...

And a summary of last week:

Housing Starts in March

Click on graph for larger image in new window.

Total housing starts were at 626 thousand (SAAR) in March, up 1.6% from the revised February rate, and up 30% from the all time record low in April 2009 of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 531 thousand (SAAR) in March, down 0.9% from the revised February rate, and 49% above the record low in January and February 2009 (357 thousand).

Here is the Census Bureau report on housing Permits, Starts and Completions

NAHB Builder Confidence increases in April

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) was at 19 in April. This is an increase from 15 in March. The increase this month was driven by traffic of prospective buyers and current sales - and this was the last month that buyers can take advantage of the housing tax credit - so this increase was no surprise.

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

Industrial Production, Capacity Utilization increase in March

From the Fed: Industrial production and Capacity Utilization

This graph shows Capacity Utilization. This series is up 7.2% from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 73.2% is still far below normal - and 9.1% below the the pre-recession levels of 80.5% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

Also - this is the highest level for industrial production since Dec 2008, but production is still 9.6% below the pre-recession levels at the end of 2007.

Retail Sales increase sharply in March

On a monthly basis, retail sales increased 1.6% from February to March (seasonally adjusted, after revisions), and sales were up 7.6% from March 2009 (easy comparison).

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

The red line shows retail sales ex-gasoline and shows the increase in final demand ex-gasoline has been sluggish.

Retail sales are up 8.3% from the bottom, but still off 4.4% from the peak.

Trade Deficit increases in February


The Census Bureau reports:

[T]otal February exports of $143.2 billion and imports of $182.9 billion resulted in a goods and services deficit of $39.7 billion, up from $37.0 billion in January, revised.

The graph shows the monthly U.S. exports and imports in dollars through February 2010.

On a year-over-year basis, exports are up 14% and imports are up 20%. This is an easy comparison because of the collapse in trade at the end of 2008 and into early 2009. This is the first time since late 2008 that imports are up a greater percentage than exports on a YoY basis as export growth appears to have slowed.

March State Unemployment Rates

From the BLS: Regional and State Employment and Unemployment Summary

This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

Fifteen states and D.C. now have double digit unemployment rates. New Jersey and Indiana are close.

Four states and set new series record highs: California, Florida, Nevada and Georgia.

Other Economic Stories ...

From the SEC: SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages

From Kirsten Grind and Alwyn Scott at Puget Sound Business Journal: Federal regulators testify about seizing WaMu

From the National Federation of Independent Business: Small Business Optimism Declines in March

From UCLA Anderson Forecast and Ceridian March PCI Increase Indicates U.S. Economy on 4 Percent Growth Track

Official report on Iceland Bank Failures.

From RealtyTrac: Foreclosure Activity Increases 7 Percent in First Quarter

From Tom Lawler: BoA and Chase on Second Mortgages

Unofficial Problem Bank List hits 698

Best wishes to all.

by Calculated Risk on 4/18/2010 09:28:00 AM

From Reuters: UK's Brown wants investigation into Goldman Sachs (ht jb)

Prime Minister Gordon Brown said on Sunday he wanted Britain's financial watchdog to investigate U.S. bank Goldman Sachs ...

"I want a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened," Brown told BBC television.

"There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority (FSA) to investigate it immediately," he said.

"I know that the banks themselves will be considering legal action," Brown said, apparently referring to European banks that lost money ...

From Bloomberg: Germany to Review Possible Legal Steps Against Goldman: Wilhelm

Germany may take legal action against Goldman Sachs Group Inc., German government spokesman Ulrich Wilhelm said today by phone.

Piling on begins ...

by Calculated Risk on 4/17/2010 07:54:00 PM

If we look at a long term graph of housing starts, we notice that there were more starts at the peak in the '70s than during the recent housing bubble. If we plotted housing starts per capita, or per total households, the surge in housing starts during the last decade would not look extraordinary at all (ht Dave).

But it was extraordinary ...

Click on graph for larger image in new window.

First, here is the long term graph of both total housing starts and single unit starts. Obviously there were many more multi-unit housing starts in the '70s - and that is a clue.

The key is household formation.

Household formation is a function of changes in population, and also of changes in household size. During the '70s, the baby boomers started moving out of their parents' homes, and there was a dramatic decrease in the number of persons per household. And that lead to a huge demand for apartments (the surge in total starts).

The second graph shows the persons per household since 1947. Persons per household has been declining for over a century, but there was a fairly sharp decline starting in the late '60s and all through the '70s.

More recently persons per household had been fairly flat. And there has been some recent research that suggests the household formation was lower, and therefore persons per household might even be higher, than the Census Bureau estimates. See from Amy Hoak at MarketWatch: Number of U.S. households falls by 1.2 million

Caveat: All of this data is rough, and it is difficult to get an accurate count of the housing stock.

Using the Census Bureau data we can calculate the impact the number of households needed because of 1) population growth, and 2) changes in household size:

Households Added due to Population Growth and Changes in Household Size
Decade	Due to Population Growth (millions)	Due to Change in Household Size (millions)	Persons per household, ending
50s	8.4	1.0	3.34
60s	8.0	2.5	3.19
70s	8.0	9.4	2.78
80s	8.5	4.9	2.62
90s	12.2	0.4	2.61
00s	11.0	1.7	2.57
Source: Persons per Household, Census Bureau XLS file

Because of the changes in household size, the U.S. needed far more additional housing units in the '70s and '80s than in the '90s and '00s. If we could normalize the housing start chart by household formation, we would see that the last decade was indeed extraordinary!

by Calculated Risk on 4/17/2010 03:12:00 PM

From Christina Romer, Chairman Council of Economic Advisers: Back to a Better Normal: Unemployment and Growth in the Wake of the Great Recession

My first and most fundamental point is that when it comes to the economy we are very far from normal. The unemployment rate is currently 9.7 percent. I find it distressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find ways to address the problem. Behind this fatalism, there seems to be a view that perhaps the high unemployment reflects structural changes or other factors not easily amenable to correction. High unemployment in this view is simply “the new normal.” I disagree.

The high unemployment that the United States is experiencing reflects a severe shortfall of aggregate demand. Despite three quarters of growth, real GDP is approximately 6 percent below its trend path. Unemployment is high fundamentally because the economy is producing dramatically below its capacity. That is, far from being "the new normal," it is “the old cyclical."

In this regard, I am reminded of a frustration I have felt many times when people write books and organize conferences about the unemployment problem in the Great Depression -- as if the high unemployment were somehow separate or distinct from the rest of the Depression. Then, as now, the economy had been through a wrenching crisis that had caused demand and production to plummet. Unemployment was a consequence of the collapse of demand, not a separate, coincident problem.

Now, to be fair, the unemployment rate has risen somewhat more during this recession than conventional estimates of the relationship between GDP and unemployment would lead one to expect. In this year’s Economic Report of the President, we presented estimates that suggest that the unemployment rate in the fourth quarter of 2009 was perhaps 1.7 percentage points higher than the behavior of GDP would lead one to expect. Some of that unexpected rise goes away when one takes a more sophisticated view of GDP behavior. The Bureau of Economic Analysis estimates GDP in two ways -- one by adding up everything that is produced in the economy and the other by adding up all of the income received. These two measures should be identical. But in this recession, the income-side estimates have fallen substantially more than the product-side ones. Therefore some, but not all, of the anomalous rise in unemployment may be due to the fact that the true decline in GDP may have been deeper than the conventional estimates suggest.

The reason that I have been emphasizing that the high unemployment we are experiencing is cyclical rather than structural is not to somehow minimize or downplay it. In fact, just the opposite. It is to shake people out of the complacency that says, "That’s just the way life is." It may be the way life is right now -- but it doesn’t have to be. We have the tools and the knowledge to counteract a shortfall in aggregate demand. We should be continuing to use them aggressively.

by Calculated Risk on 4/17/2010 11:30:00 AM

I've started an archive of large images for most of the graphs posted on this blog. You can access the archive when you click on a graph (the larger image is part of the archive), or by clicking on "Graph Archive" in the menu bar.

A few examples - here are the most recent graphs for: housing starts, percent job losses during recessions, and New Home sales (NSA).

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by Calculated Risk on 4/17/2010 08:48:00 AM

First from Reuters yesterday: Consumer mood unexpectedly worse in early April

U.S. consumer sentiment took a surprise negative turn in early April due to a persistently grim outlook on income and jobs, a private survey released on Friday showed.
...
The surveys' overall index on consumer sentiments slipped to 69.5 in early April -- the lowest in five months. This was below the 73.6 reading seen at the end of March and the 75.0 median forecast of analysts polled by Reuters.

The article says "consumer sentiment is seen as a proxy for consumer spending", but I'm not sure. In 2005, Dr. Dean Croushore of University of Richmond argued consumer confidence is "essentially useless for forecasting Americans' spending patterns. ... consumer confidence just reflects the past. You lose your job, your confidence falls. There's not really anything new there."

Every time I see "consumer confidence", I think employment and gasoline prices ... and here are a couple of graphs to show the relationship:

NOTE: On the following graphs, the unemployment rate and gasoline prices are inverted since they are inversely correlated to confidence.

Click on graph for larger image in new window.

The first graph shows consumer confidence and the unemployment rate (inverted).

There is a strong correlation, although it appears confidence leads the unemployment rate (probably because layoffs stop before the unemployment rate starts falling). Maybe a better graph would be monthly changes in employment vs. confidence (I'll look at that later).

The second graph shows consumer confidence and real gasoline prices (CPI adjusted).

Although there are periods when confidence doesn't track gasoline prices, it does appear there is a relationship.

So my guess is the weak confidence reading tells us what we already know - unemployment is high and gasoline prices are rising.