by Calculated Risk on 1/15/2013 04:00:00 PM

Note: I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

Recently there has been a dramatic shift from REO to short sales, and the percentage of distressed sales has generally been declining (the percent distressed increased in December for seasonal reasons). This data would suggest some improvement in the Sacramento market.

Note on seasonal pattern: Conventional sales follow a seasonal pattern with more sales in the spring and summer than in the fall and winter. Distressed sales happen all year, so the percent of distressed sales typically increases in the winter.

In December 2012, 51.5% of all resales (single family homes and condos) were distressed sales. This was up from 47.6% last month, and down from 64.1% in December 2011. The is the lowest percentage of distressed sales for the month of December - and therefore the highest percentage of conventional sales - since the association started tracking the data.

The percentage of REOs stayed at 11.5%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 40.0%, the highest percentage recorded.

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 an increase in conventional sales this year, and there were almost four times as many short sales as REO sales in December (the highest recorded). The gap between short sales and REO sales is increasing.

Total sales were down from December2011, but conventional sales were up 22% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, but an increase in conventional sales.

Active Listing Inventory for single family homes declined 57.1% from last December.

Cash buyers accounted for 39.9% of all sales (frequently investors), and median prices were up sharply year-over-year (the mix has changed).

This seems to be moving in the right direction, although the market is still in distress. A "normal" market would be mostly blue on the graph, and this market is a long way from "normal".

We are seeing a similar pattern in other distressed areas, with a move to more conventional sales, and a shift from REO to short sales.

by Calculated Risk on 1/15/2013 01:58:00 PM

This is another key market that I've been following closely. According to DataQuick, the "move-up market" is starting to "wake up". From DataQuick: Southland Closes 2012 With Higher Sales and Prices

Southern California's housing market ended 2012 with the highest December home sales in three years, the result of robust investment activity, a record level of cash buyers and more sales gains in move-up markets. ... A total of 20,274 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 5.1 percent from 19,285 sales in November, and up 5.3 percent from 19,247 sales in December 2011, according to San Diego-based DataQuick.

A rise in sales from November to December is normal for the season. Last month’s sales were the highest for the month of December since 22,328 homes sold in December 2009, though they were 17.2 percent below the December average of 24,488 sales since 1988, when DataQuick’s statistics begin. The low for December sales was 13,240 in 2007, while the high was 36,865 in 2003.
...
“Last year should also be remembered as the year the move-up market awoke. If these upward trends hold, which requires a sustained economic recovery, we should eventually see more inventory hit the market. More would-be sellers will be satisfied with what their homes can fetch, and fewer people will owe more than their homes are worth, freeing them up to move. The rise in inventory would at least tame price appreciation.” [said John Walsh, DataQuick president]

Last month foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 14.8 percent of the Southland resale market. That was down from 15.4 percent the month before and 32.4 percent a year earlier. Last month’s level was the lowest since foreclosure resales were 13.6 percent of the resale market in September 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 25.6 percent of Southland resales last month. That was down slightly from an estimated 26.5 percent the month before and 26.0 percent a year earlier. However, the number (rather than percentage) of short sales last month was up 7.4 percent from December 2011.

The median price is being impacted by the mix, with fewer low end distressed sales pushing up the median. This is why I focus on the repeat sales indexes.

The percent distressed is still high, but falling with 40.4% distressed. Note the shift from foreclosures to short sales (almost twice as many short sales as foreclosures in December).

The NAR is scheduled to report December existing home sales and inventory next week on Tuesday, January 22nd.

by Calculated Risk on 1/15/2013 12:38:00 PM

As I noted earlier this year, there are three short term fiscal deadlines this year: 1) the Debt Ceiling, 2) the "sequester", and 3) the “continuing resolution". I'm convinced the debt ceiling will be increased, and something will be worked out on the "sequester", but there is strong possibility the “continuing resolution" will lead to a government shutdown.

Here are some comments from Alec Phillips at Goldman Sachs this morning:

A government shutdown -- modest effects but increasingly likely: Congress opted in September 2012 to extend spending authority for six months, until March 27, 2013. This has been done frequently in recent years when lawmakers cannot agree on full-year spending levels. If spending authority is not extended further, the Obama administration will lose its authority to carry out activities funded by appropriations and will be forced to shut down non-essential government operations. This is not as bad as it sounds, for a few reasons: first, only 40% of federal spending relies on congressional appropriations; the remainder is unaffected by a failure to extend spending authority. Second, about two-thirds of that 40% is deemed "essential" and continues even without a renewal of spending authority. This includes defense functions and services "essential to protect life and property." The upshot is that a one-week shutdown of these activities would reduce federal spending by $8bn to $12bn (annualized). Since a shutdown that begins on March 27 would straddle the end of Q1 and the start of Q2, the effect on quarterly growth is hard to estimate but might be around 0.1pp in each quarter.

As Phillips notes, this will not be catastrophic (like not paying the bills), but it will be disruptive. A "government shutdown" is just a stunt since most of the government expenditures will continue.

Note: Much of the data I rely on is from the Bureau of Labor Statistics (BLS), Census Bureau, and the Bureau of Economy Analysis (BEA) and other agencies that will probably be impacted. This includes the monthly employment report, housing starts, new home sales and much more. This data is very useful, and I think the value far outweighs the cost.

Here is a repeat of what I wrote earlier: Question #1 for 2013: US Fiscal Policy

[T]here are still several fiscal issues remaining for this year. The "sequester" (automatic spending cuts) still needs to be resolved, the "debt ceiling" needs to be raised, and a “continuing resolution” needs to be passed or the government will be shut down.

The so-called "debt ceiling" is really just about paying the bills. Here are a few things to know:
1) The House will raise the debt ceiling before the deadline, and the US will pay the bills.

2) The House majority has no leverage on the "debt ceiling"; as I've noted before, the House majority holds a losing hand and everyone knows it. The sooner they fold (and raise the debt ceiling) the better for everyone. As we saw in 2011, there are real world consequences for waiting until the last minute.

3) Those thinking there are no consequences for missing the deadline, I suggest reading the new (January 7th) Debt Limit Analysis by analysts at the Bipartisan Policy Center. From a political perspective, missing the deadline will, in the words of Republican Senator Mitch McConnell, make the "Republican brand toxic".  It would be political suicide, so it will not happen.

Hopefully the House will fold their losing hand soon. If they are planning on taking the country to the brink, and betting voters will forget like after 2011, I think that is another losing bet.

Although the negotiations on the "sequester" will be tough, I suspect something will be worked out (remember the goal is to limit the amount of austerity in 2013).  The issue that might blow up is the “continuing resolution", and that might mean a partial shut down of the government.  This wouldn't be catastrophic (like the "debt ceiling"), but it would still cause problems for the economy and is a key downside risk.

And a final prediction: If we just stay on the current path - and the "debt ceiling" is raised, and a reasonable agreement is reached on the "sequester", and the “continuing resolution" is passed - I think the deficit will decline faster than most people expect over the next few years.  Eventually the deficit will start to increase again due to rising health care costs (this needs further attention), but that isn't a short term emergency.

Click on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next three years based on current policy (Jan Hatzius at Goldman Sachs estimates the deficit will 3% of GDP in 2015).  Note: With 7.8% unemployment, there is a strong argument for less deficit reduction in the short term, but that doesn't seem to be getting any traction.

As David Wessel at the WSJ recently noted: Putting the Brakes on Cutting the Deficit

In the depths of the most recent recession, the fiscal year that ended Sept. 30, 2009, the deficit was 10.1% of gross domestic product, the value of all the goods and services produced. Since then, the deficit has declined to 9% of GDP in 2010, 8.7% in 2011 and 7.0% in fiscal 2012. Private analysts predict the deficit will be between 5.5% and 6.0% of GDP in fiscal 2013 ...

Over the next few years the deficit will probably be steadily decreasing as a percent of GDP. We don't want to reduce the deficit much faster than this path, because that will be too much of a drag on the economy.

However, later this decade, the deficit will probably start to increase again, mostly due to rising health care expenditures.  Health care spending is a long term issue and needs to be addressed to put the long term debt on a sustainable path long term.

The key points are: the cyclical deficit will slowly decline, and there is a long term issue, mostly related to health care costs that we need to start to address in the next few years.

Final note: I'm convinced the house will fold soon on "paying the bills" (the sooner the better for everyone), but we might see a government shutdown at the end of March.

by Calculated Risk on 1/15/2013 09:55:00 AM

Notes: This CoreLogic House Price Index report is for November. The recent Case-Shiller index release was for October. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Rises 7.4 Percent Year Over Year in November

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 7.4 percent in November 2012 compared to November 2011. This change represents the biggest increase since May 2006 and the ninth consecutive increase in home prices nationally on a year-over-year basis. On a month-over-month basis, including distressed sales, home prices increased by 0.3 percent in November 2012 compared to October 2012. The HPI analysis shows that all but six states are experiencing year-over-year price gains.
...
Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 6.7 percent in November 2012 compared to November 2011. On a month-over-month basis excluding distressed sales, home prices increased 0.9 percent in November 2012 compared to October 2012. Distressed sales include short sales and real estate owned (REO) transactions.

The CoreLogic Pending HPI indicates that December 2012 home prices, including distressed sales, are expected to rise by 7.9 percent on a year-over-year basis from December 2011 and fall by 0.5 percent on a month-over-month basis from November 2012 reflecting a seasonal winter slowdown.
...
“As we close out 2012 the pending index suggests prices will remain strong," said Mark Fleming, chief economist for CoreLogic. “Given the recently released QM rules issued by the CFPB are not expected to significantly restrict credit availability relative to today, the gains made in 2012 will likely be sustained into 2013.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.3% in November, and is up 7.4% over the last year.

The index is off 26.8% from the peak - and is up 9.6% from the post-bubble low set in February 2012 (the index is NSA, so some of the increase is seasonal).

The second graph is from CoreLogic. The year-over-year comparison has been positive for nine consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

This is the largest year-over-year increase since 2006.

Since this index is not seasonally adjusted, it was expected to decline on a month-to-month basis in November - instead the index increased, and, considering seasonal factors, this month-to-month increase was very strong.

by Calculated Risk on 1/15/2013 08:44:00 AM

On a monthly basis, retail sales increased 0.5% from November to December (seasonally adjusted), and sales were up 4.7% from December 2011. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $415.7 billion, an increase of 0.5 percent from the previous month and 4.7 percent above December 2011. ... The October to November 2012 percent change was revised from +0.3 percent to +0.4 percent.

Click on graph for larger image.

Sales for November were revised up to a 0.4% gain.

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

Retail sales are up 25.4% from the bottom, and now 9.7% above the pre-recession peak (not inflation adjusted)


The second graph shows the same data, but just since 2006 (to show the recent changes).

 Retail sales ex-autos increased 0.3%.

Excluding gasoline, retail sales are up 22.5% from the bottom, and now 10.0% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 5.1% on a YoY basis (4.7% for all retail sales).

This was above the consensus forecast of a 0.3% increase, and suggests the initial "soft" reports for December were too pessimistic. 

by Calculated Risk on 1/14/2013 09:03:00 PM

From the NY Times: Obama Says G.O.P. Won’t Get ‘Ransom’ to Lift Debt Limit

“They will not collect a ransom in exchange for not crashing the American economy,” Mr. Obama vowed in the East Room, a week before his second inauguration. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”

CR note: The "debt limit" is not about spending - it is about paying the bills.

The key in the short term is to NOT reduce the deficit too quickly (the fiscal agreement will probably add a 1.5% drag to the economy in 2013).  The key in the long term is put the debt on a sustainable path. These are not contradictory, and right now we are on a path to reduce the deficit to about 3% of GDP in 2015.  That is about the right pace following the financial crisis.  That gives policymakers time to address the long run issues.

Tuesday economic releases:
• At 8:30 AM ET, Retail sales for December will be released. There have been a number of reports of "soft" holiday retail sales. The consensus is for retail sales to increase 0.2% in December, and to increase 0.3% ex-autos..

• Also at 8:30 AM, the BLS will release the Producer Price Index for December. The consensus is for a 0.1% decrease in producer prices (0.2% increase in core).

• Also at 8:30 AM, the NY Fed Empire Manufacturing Survey for January will be released. The consensus is for a reading of 0.0, up from minus 8.1 in December (below zero is contraction).

• Also at 8:30 AM, Corelogic will release their House Price Index for November 2012.

• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report will be released.

by Calculated Risk on 1/14/2013 05:35:00 PM

Fed Chairman Ben Bernanke was very clear. The "debt ceiling" is about paying the bills, not about new spending. He urged congress to do their job, raise the debt ceiling, and pay the bills. His preference was to abolish the "debt ceiling" since it is redundant.

From the WSJ: Bernanke Calls on Congress to Raise Debt Ceiling

"It’s very, very important that Congress take the necessary action to raise the debt ceiling to avoid the situation where the government doesn’t pay its bills,” said Mr. Bernanke ... “Raising the debt ceiling gives the government the ability to pay its existing bills–it doesn’t create new spending,” he said.

At another point, Bernanke said the "debt ceiling" has "symbolic value", but he prefers eliminating it. He was very clear that Congress should do their job and raise the debt ceiling.

Bernanke also expressed concern about the long run sustainability of the debt (over decades), but that we also shouldn't cut the deficit too quickly and impact the "fragile recovery". He thought the fiscal cliff deal would subtract about 1.5% from GDP this year.

CR Note: As I've noted before, the "debt ceiling" sounds virtuous, but it is really just about paying the bills. Not paying the bills is reckless and irresponsible.

By stalling, Congress is scaring people and is probably already negatively impacting the economy. Congress should do their job.  Today.  I remain confident Congress will authorize paying the bills, but this delaying is embarrassing.

by Calculated Risk on 1/14/2013 03:35:00 PM

At 4 PM ET, Fed Chairman Ben Bernanke will speak at the University of Michigan's Rackham Auditorium.

The event will be streamed live here, and Bernanke will take questions on Twitter: #fordschoolbernanke

Note: Also streaming here.

If there are prepared remarks, I'll post the text at 4 PM.

by Calculated Risk on 1/14/2013 01:30:00 PM

From San Francisco Fed President John Williams: The Economy and Monetary Policy in Uncertain Times. On the economic outlook:

As far as my outlook is concerned, I expect the economic expansion to gain momentum over the next few years. When final numbers come in, I expect growth in real gross domestic product—the nation’s total output of goods and services—to register about 1¾ percent in 2012. My forecast calls for GDP growth to rise to about 2½ percent this year and a little under 3½ percent in 2014. That pace is sufficient to bring the unemployment rate down gradually over the next few years. Specifically, I anticipate that the unemployment rate will stay at or above 7 percent at least through the end of 2014. And I expect inflation to remain somewhat below the Fed’s 2 percent target for the next few years as labor costs and import prices remain subdued. My forecast takes into account both the fiscal cliff agreement and the various stimulus measures the Fed has put in place.
emphasis added

And on uncertainty:

The economy has been growing in fits and starts for the past three-and-a-half years. Every time economic growth appears to be picking up steam, something happens that brings it back down again. Sometimes the barriers to growth are natural, like the tsunami of 2011, and the drought and Superstorm Sandy last year. Other times they are man-made, like the crisis in Europe and our own fiscal cliff drama. ...

But the direct hangover from the financial crisis is not the only reason for sluggish growth. Most banks and other financial institutions have largely returned to health, and many nonfinancial businesses have been piling up cash. Their balance sheets look exceptionally strong. For businesses that can get credit, interest rates have rarely, if ever, been lower. You would think this is a great time to expand your business. Yet, many businesspeople appear to be locked in a paralyzing state of anxiety. As one of my business contacts said recently, “They’re just not willing to stick their necks out.”

What’s going on? The terrifying financial crisis followed by a bumpy recovery, the crisis and recession in Europe, the budget mess in the United States, questions about taxes and health-care reform—these and other factors have combined to undermine the confidence of Americans and make them suspicious about the durability of the economic recovery. Indeed, an index of policy uncertainty developed by academic economists recently soared to the highest level recorded in over 25 years. In a pattern reminiscent of the debt ceiling debate in the summer of 2011, the recent rise in uncertainty has been accompanied by a sharp drop-off in business and consumer confidence.

CR comment: I think the main reason businesses aren't investing more is lack of demand, as opposed to "uncertainty". But it doesn't help having these self-inflicted wounds.

by Calculated Risk on 1/14/2013 10:27:00 AM

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

From FNC: Home Prices Up 0.3% in November; Price Increase Expected to Continue

Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that home prices nationally were up 0.3% in November. This was the ninth consecutive month that prices moved higher, leading to a total appreciation rate of 5.3% year to date. For the 12 months ending in November, home prices rose 4.2%, the largest year-over-year increase since October 2006. All three composite indices show similar trends of price recovery. ...

Two-thirds of the component markets tracked by the FNC 30-MSA composite index show continued price improvement in November. Las Vegas recorded the largest month-to-month increase, up 3.4% from October. Low inventory has contributed to the city’s rapidly rising prices in recent months. Chicago continues to lag behind other major cities in the housing recovery; home prices declined 0.8% in the 12 months ending in November. The city’s foreclosure sales remain at elevated levels; one in three homes sold are foreclosures or short sales. The recovery in Phoenix continues to significantly outpace the rest of the country. Home prices have surged 23.6% year to date. Foreclosure sales continue to shrink rapidly, making up only 13.0% of total home sales in November.

The year-over-year change continued to increase in November, with the 100-MSA composite up 4.2% compared to November 2011. The FNC index turned positive on a year-over-year basis in July - that was the first year-over-year increase in the FNC index since year-over-year prices started declining in early 2007 (over five years ago).

Click on graph for larger image.

This graph from FNC shows their Composite 10, 20, and 100 indexes, and the year-over-year change (light blue) in the composite 100 index. Note: The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

The key is the indexes are now showing a year-over-year increase indicating prices probably bottomed early in 2012.

by Calculated Risk on 1/14/2013 08:45:00 AM

LPS released their Mortgage Monitor report for November today. According to LPS, 7.12% of mortgages were delinquent in November, up from 7.03% in October, and down from 7.83% in November 2011.

LPS reports that 3.51% of mortgages were in the foreclosure process, down from 3.61% in October, and down from 4.20% in November 2011.

This gives a total of 10.63% delinquent or in foreclosure. It breaks down as:

• 1,999,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,584,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,767,000 loans in foreclosure process.

For a total of ​​5,350,000 loans delinquent or in foreclosure in November. This is up slightly from 5,300,000 in October, and down from 6,172,000 in November 2011.

This following graph from LPS shows the total delinquent and in-foreclosure rates since 1995.

Click on graph for larger image.

Even though delinquencies were up slightly in November, it was mostly seasonal. However there was a large increase in delinquencies in the areas impacted by Hurricane Sandy, From LPS:

The November data also showed that the impact of Hurricane Sandy continued in ZIP codes hit hardest by the storm. While national delinquencies are moving in line with seasonal trends – that is, tending to rise slightly through the remainder of the calendar year – mortgage delinquencies increased sharply in those areas affected by Sandy. Whereas the national delinquency rate has increased 3.7 percent since August of this year, delinquencies in Sandy-impacted ZIPs have risen at more than threefold that pace – climbing 15.4 percent in Conn., 15.2 percent in N.J. and 14.8 percent in N.Y.

The second graph from LPS shows foreclosure starts were off sharply. From LPS:

The November Mortgage Monitor report released by Lender Processing Services shows the national foreclosure inventory dropped to 3.51 percent in November, representing an almost 10 percent decline from September 2012, when newly instituted National Mortgage Settlement requirements began to influence the pace of first-time foreclosure starts. As noted in last month’s Mortgage Monitor release, LPS expects foreclosure starts to rebound as mortgage servicers incorporate the new procedural requirements into their operations in the coming months.

There is much more in the mortgage monitor.

by Calculated Risk on 1/13/2013 09:23:00 PM

Monday:
• At 8:45 AM ET, LPS will release their Mortgage Monitor report for November.

• At 4:00 PM Fed Chairman Ben Bernanke will speak at the University of Michigan's Rackham Auditorium. Here is the topic: "Chairman Bernanke visits the University of Michigan for a conversation with Ford School Dean Susan M. Collins on monetary policy, recovery from the global financial crisis, and long-term challenges facing the U.S. economy". The event will be streamed live, and Bernanke will take questions on Twitter: #fordschoolbernanke

Weekend:
• Schedule for Week of Jan 13th
• Summary for Week Ending Jan 11th

The Asian markets are mixed tonight; the Shanghai Composite index is up slightly.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 3 and DOW futures are up 25 (fair value).

Oil prices have moved sideways recently WTI futures at $94.03 per barrel and Brent at $110.83 per barrel. Gasoline prices are down slightly over the last couple of days.

by Calculated Risk on 1/13/2013 02:23:00 PM

Another update on gasoline prices. From the EIA (Energy Information Administration):

EIA expects that the Brent crude oil spot price, which averaged $112 per barrel in 2012, will fall to an average of $105 per barrel in 2013 and $99 per barrel in 2014. The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which averaged $18 per barrel in 2012, falls to an average of $16 per barrel in 2013 and $8 per barrel in 2014, as planned new pipeline capacity lowers the cost of moving Mid-continent crude oil to the Gulf Coast refining centers.

EIA expects that falling crude prices will help national average regular gasoline retail prices fall from an average $3.63 per gallon in 2012 to annual averages of $3.44 per gallon and $3.34 per gallon in 2013 and 2014, respectively.
emphasis added

Click on graph for larger image.

This graph shows the EIA forecasts for crude and gasoline. There are some seasonal factors for gasoline with prices rising during the summer. This forecast is mostly just some small changes to current prices, and as we all know, there can be wild event driven swings for oil and gasoline prices.

Below is a graph from Gasbuddy.com showing the roller coaster ride for gasoline prices last year. Prices are up a little this year, but still near the recent low.

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 1/13/2013 10:33:00 AM

Jim the Realtor posted a short and interesting video.

Since the market is "hot" in Carmel Valley, San Diego, and there is very little inventory, some sellers are pushing up the price with the expected result - no takers.

As Jim notes: "I don't think you are going to buffalo today's buyers. I don't think they are going for. They have access to all the data. They know the comps. They know the one around the corner is priced [significantly less]."

"Price pushing" will probably contribute to some increase in inventory this year.

by Calculated Risk on 1/12/2013 09:59:00 PM

From Joe Weisenthal at Business Insider: White House Rules Out The Trillion Dollar Coin Option To Break The Debt Ceiling

”Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” [Anthony Coley, a spokesman for the Treasury Department]
...
From HuffPo:

"There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default," said Press Secretary Jay Carney. "When Congressional Republicans played politics with this issue last time putting us at the edge of default, it was a blow to our economic recovery, causing our nation to be downgraded. The President and the American people won't tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job."

emphasis added

I don't think of this as "hostage taking" since I remain confident that Congress will raise the debt ceiling (really just about paying the bills) and pay the bills on time - without any concessions from the White House. A better term would be "economic terrorism" since they are just trying to scare people.

It would be better for America, the economy and all parties to raise the debt ceiling sooner rather than later.

The good news is, as Goldman Sachs chief economist Jan Hatzius wrote yesterday:

"By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years."

That fits with my view for the next few years.

We should all agree:  Pay the bills.  Stop scaring people.  Raise the debt ceiling today.

by Calculated Risk on 1/12/2013 04:11:00 PM

The first bank failure of 2013:

Sun setting bankers
Westside eclipsed by Sunwest
Sun burning savers
by Soylent Green is People
From the FDIC: Sunwest Bank, Irvine, California, Assumes All of the Deposits of Westside Community Bank, University Place, Washington

As of September 30, 2012, Westside Community Bank had approximately $97.7 million in total assets and $96.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.3 million. ... Westside Community Bank is the first FDIC-insured institution to fail in the nation this year, and the first in Washington.

And the unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Jan 11, 2012.

Changes and comments from surferdude808:

The FDIC cranked up a closing team to get the first full week in 2013 underway, otherwise it would have been a quiet week for the Unofficial Problem Bank List. Along with the failure, there was one action termination, which leaves the list count at 832 institutions with assets of $310.7 billion. A year ago, the list held 969 institutions with assets of $391.2 billion.

The action termination was Southern First Bank, National Association, Greenville, SC ($779 million Ticker: SFST). The failure was Westside Community Bank, University Place, WA ($98 million), which was the 18th bank to close in Washington since the on-set of the crisis. Next week, we anticipate the OCC will release its actions through mid-December 2012.

Earlier:
• Schedule for Week of Jan 13th
• Summary for Week Ending Jan 11th

by Calculated Risk on 1/12/2013 01:10:00 PM

Earlier:
• Summary for Week Ending Jan 11th

This will be a busy week for economic data. The key reports for this week will be the December retail sales report on Tuesday, and  December housing starts on Thursday.  On Monday, the focus will be on "a conversation with Fed Chairman Ben Bernanke".

Also the Consumer Price Index (CPI) and Producer Price Index (PPI) for December will be released this week.

For manufacturing, the Fed will release December Industrial Production on Wednesday, and the January NY Fed (Empire state) and Philly Fed surveys will be released this week.

----- Monday, Jan 14th -----
8:45 AM ET: LPS will release their Mortgage Monitor report for November.

4:00 PM: Fed Chairman Ben Bernanke will speak at the University of Michigan's Rackham Auditorium, "Chairman Bernanke visits the University of Michigan for a conversation with Ford School Dean Susan M. Collins on monetary policy, recovery from the global financial crisis, and long-term challenges facing the U.S. economy". The even will be streamed live, and Bernanke will take questions on Twitter: #fordschoolbernanke

----- Tuesday, Jan 15th -----
8:30 AM: Producer Price Index for December. The consensus is for a 0.1% decrease in producer prices (0.2% increase in core).

8:30 AM ET: Retail sales for December will be released. There have been a number of reports of "soft" holiday retail sales.

This graph shows monthly retail sales and food service, seasonally adjusted (total and ex-gasoline) through November. Retail sales are up 24.5% from the bottom, and now 8.8% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to increase 0.2% in December, and to increase 0.3% ex-autos.

8:30 AM: NY Fed Empire Manufacturing Survey for January. The consensus is for a reading of 0.0, up from minus 8.1 in December (below zero is contraction).

8:30 AM: Corelogic will release their House Price Index for November 2012.

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

----- Wednesday, Jan 16th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Consumer Price Index for December. The consensus is for no change in CPI in December and for core CPI to increase 0.1%.

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

This shows industrial production since 1967 through November.

The consensus is for a 0.2% increase in Industrial Production in December, and for Capacity Utilization to increase to 78.5%.

10:00 AM: The January NAHB homebuilder survey. The consensus is for a reading of 48, up from 47 in December. Although this index has been increasing sharply, any number below 50 still indicates that more builders view sales conditions as poor than good.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This might show some slight improvement.

----- Thursday, Jan 17th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 368 thousand from 371 thousand last week.

8:30 AM: Housing Starts for December.

Total housing starts were at 861 thousand (SAAR) in November, down 3.0% from the revised October rate of 888 thousand (SAAR). Single-family starts decreased to 565 thousand in November.

The consensus is for total housing starts to increase to 887 thousand (SAAR) in December, up from 861 thousand in November.

10:00 AM: Philly Fed Survey for January. The consensus is for a reading of 6.0, down from 8.1 last month (above zero indicates expansion).

----- Friday, Jan 18th -----
9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 75.0, up from 72.9.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for November 2012

by Calculated Risk on 1/12/2013 08:05:00 AM

There was little economic data released this week. The trade deficit was much higher than expected, however the data might have been impacted by the port strike on the west coast. The BLS reported job openings were up about 12% year-over-year and the 4-week average for initial weekly unemployment claims increased a little.   Not much data, but next week will be busy!

Some quarterly data was released for office, apartment and mall vacancy rates and rents. All vacancy rates declined, although both office and mall rates are still near the cycle high - and apartment vacancy rates are already low.

Here are some thoughts on the economy in 2013:
• Question #1 for 2013: US Fiscal Policy
• Question #2 for 2013: Will the U.S. economy grow in 2013?
• Question #3 for 2013: How many payroll jobs will be added in 2013?
• Question #4 for 2013: What will the unemployment rate be in December 2013?
• Question #5 for 2013: Will the inflation rate rise or fall in 2013?
• Question #6 for 2013: What will happen with Monetary Policy and QE3?
• Question #7 for 2013: What will happen with house prices in 2013?
• Question #8 for 2013: Will Housing inventory bottom in 2013?
• Question #9 for 2013: How much will Residential Investment increase?
• Question #10 for 2013: Europe and the Euro

And here is a summary of last week in graphs:

• Trade Deficit increased in November to $48.7 Billion

Click on graph for larger image.

From Commerce: "[T]otal November exports of $182.6 billion and imports of $231.3 billion resulted in a goods and services deficit of $48.7 billion, up from $42.1 billion in October, revised. November exports were $1.7 billion more than October exports of $180.8 billion. November imports were $8.4 billion more than October imports of $222.9 billion."

Exports are 10% above the pre-recession peak and up 3.3% compared to November 2011; imports are near the pre-recession peak, and up 2.5% compared to November 2011.

The increase in the trade deficit in November was due to non-petroleum products.  The trade deficit with the euro area was $10.6 billion in November, up from $8.2 billion in November 2011. It appears the eurozone recession is still impacting trade.

Note: The trade deficit might have been skewed by the port strike that started in late November.

• BLS: Job Openings "unchanged" in November

This graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased slightly in November to 3.676 million, up from 3.665 million in October. The number of job openings (yellow) has generally been trending up, and openings are up about 12% year-over-year compared to November 2011.  Quits increased slightly in November, and quits are up 8% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Not much changes month-to-month in this report, but the trend suggests a gradually improving labor market.

All current employment graphs
• Weekly Initial Unemployment Claims at 371,000

From the Department of Labor (DOL): "In the week ending January 5, the advance figure for seasonally adjusted initial claims was 371,000, an increase of 4,000 from the previous week's revised figure of 367,000. The 4-week moving average was 365,750, an increase of 6,750 from the previous week's revised average of 359,000.

Weekly claims were above the 362,000 consensus forecast.

Note: There are large seasonal factors in December and January, and that can make for fairly large swings for weekly claims.

All current Employment Graphs
• Reis: Office Vacancy Rate declines slightly in Q4 to 17.1%

Reis reported that the office vacancy rate declined slightly to 17.1% from 17.2% in Q3.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010, and Q1 2011.

As Reis noted, net absorption was still positive, even though demand for office space was low - because there is so little new construction.  This remains a sluggish recovery for office space, and new construction will stay low until the vacancy rate falls much further.

• Reis: Apartment Vacancy Rate declined to 4.5% in Q4

Reis reported that the apartment vacancy rate fell to 4.5% in Q4, down from 4.7% in Q3 2012. The vacancy rate was at 5.2% in Q4 2011 and peaked at 8.0% at the end of 2009.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

This was another strong quarter for apartments with the vacancy rate falling and rents rising. With more supply coming online in 2013, the decline in the vacancy rate should slow - but the market is still tight, and Reis expects rents to continue to increase.

• Reis: Mall Vacancy Rate declines in Q4

Reis reported that the vacancy rate for regional malls declined to 8.6% in Q4 from 8.7% in Q3. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.7% in Q4, down from 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP through Q3. This has increased from the bottom because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Reis noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Vacancy data courtesy of Reis.

by Calculated Risk on 1/11/2013 08:59:00 PM

Some short excerpts from a research note by Goldman Sachs chief economist Jan Hatzius:

1.Will the 2013 tax hike tip the economy back into recession?

No. To be sure, it will likely deal a heavy blow to household finances, and we therefore expect consumer spending to be weak this year. ...

2.Will growth pick up in the second half?

Yes. This forecast is based on the assumption that the drag from fiscal retrenchment—i.e., the ex ante reduction in the government deficit—diminishes in the second half of 2013 but the boost from the ex ante reduction in the private sector financial balance remains large. In our forecast, this causes a pickup in real GDP growth to a 2½% annualized rate in 2013H2, and further to around 3% in 2014.
...
3.Will capital spending growth accelerate?

Yes. We expect a pickup from around zero in the second half of 2012 to about 6% in 2013 on a Q4/Q4 basis. This would contribute 0.6 percentage points to real GDP growth and offset most of the likely slowdown in consumer spending growth.
...
4.Will the housing market continue to recover?

Yes. The fundamentals for housing activity point to further large gains in the next couple of years.
...
6.Are profit margins bound to shrink in 2013?

No.
...
7.Will core inflation accelerate significantly?

No. We expect inflation as measured by the PCE price index excluding food and energy to stay around 1½%, moderately below the Fed’s 2% target.
...
8.Will there be a bond market scare over the budget deficit?

No. ... the large government deficits of the past five years are closely related to the dramatic balance sheet adjustment in the private sector. ... As the private sector balance sheet adjustment comes closer to completion, we expect the government deficit to diminish gradually ... By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years.
...
9.Will the Federal Reserve stop buying assets?

No. Admittedly, the minutes of the December 11-12 FOMC meeting suggest that most Fed officials currently expect QE3 to end by late 2013. But we would not make too much of this. For one thing, it is important to remember that the outlook for monetary policy depends on the outlook for the economy.
...
10.Will interest rates rise?

Not much. ... At the longer end of the curve, we do expect a small increase in 10-year Treasury yields to 2.2% by the end of 2013.

by Calculated Risk on 1/11/2013 07:55:00 PM

From the NY Times: ‘Any Lawful Steps’ Urged to Avert Default

“In the event that Republicans make good on their threat by failing to act, or by moving unilaterally to pass a debt-limit extension only as part of unbalanced or unreasonable legislation, we believe you must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis — without Congressional approval, if necessary,” wrote Senators Harry Reid of Nevada, Richard J. Durbin of Illinois, Charles E. Schumer of New York and Patty Murray of Washington.
...
Democratic leadership aides said the Senate would probably take up legislation in early February that would allow the president to raise the debt ceiling on his own in set increments, perhaps of $1 trillion. Congress would have the ability to reject the increase, but that would take a two-thirds majority.

That plan was first used at the suggestion of Senator McConnell in 2011 to solve the last debt-ceiling impasse.

I remain confident that the debt ceiling will be raised, and that the US Government will pay the bills.

However "fear" will start slowing the economy soon - just like in 2011 - and the House will receive (and deserves) all of the blame for any damage done to the economy.

I assume the House is looking for a way out, and maybe another McConnell bill is the solution.