by Calculated Risk on 6/29/2009 10:20:00 AM

From the Financial Times: Romer upbeat on US economy

Ms Romer, chairman of the US president’s council of economic advisers, told the Financial Times in an interview she was “more optimistic” that the economy was close to stabilisation.
...
Ms Romer said stimulus spending was “going to ramp up strongly through the summer and the fall”.

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” she said.

Ms Romer said that stimulus money was being disbursed at almost exactly the rate forecast by the Office of Management and Budget. “It should make a material contribution to growth in the third quarter.”

But she acknowledged that cutbacks by states facing budget crises would push in the opposite direction.

Ms Romer said the latest economic data were encouraging, following a weaker patch a month ago. “I am more optimistic that we are getting close to the bottom,” she said.
...
But she added: “I still hold out hope it will be a V-shaped recovery. It might not be the most likely scenario but it is not as unlikely as many people think.

“We are going to get some serious oomph from the stimulus, there is the inventory cycle and I believe there is some pent-up demand by consumers.”

I think a normal V-shaped recovery is very unlikely since the two usual drivers of economic recovery - residential investment and personal consumption expenditure - will both be crippled for some time.

by Calculated Risk on 6/29/2009 08:48:00 AM

Here are a few graphs from the Freddie Mac June Investor Presentation.

Click on graph for large image.

The first graph shows the average LTV of the Freddie Portfolio (graph doesn't start at zero).

The second graph shows the current breakdown by LTV and credit score.

According to Freddie Mac's estimate, 17% of the mortgages in their portfolio have negative equity.

Another 11% of the loans have less than 10% equity.

According to the Census Bureau, 51.6 million U.S. owner occupied homes had mortgages (end of 2007, see data here)

This would suggest that 8.8 million households have negative equity (51.6 million times 17%), and another 5.7 have 10% or less equity. However, the loans from Freddie Mac were better than most, and this is probably the lower bound for homeowners with negative equity.

The third graphs show how the LTV breakdown has shifted over time as house prices have fallen.

I'm surprised that any loans had negative equity in 2004, but just over 10% of the portfolio appeared to have LTV portfolio risk in 2004. Falling house prices has changed the mix!

Note: I'd consider the Zillow estimate of 20.4 million homeowners with negative equity as the upper bound (and I think their estimate is too high).

About 20.4 million of the 93 million houses, condos and co- ops in the U.S. were worth less than their loans as of March 31, according to Seattle-based real estate data service Zillow.com.

There is much more in the Freddie Mac presentation.

by Calculated Risk on 6/28/2009 09:52:00 PM

The Bank of International Settlements (BIS) will release their annual report tomorrow. The Guardian has a preview: Recovery threatened by toxic assets still hidden in key banks

... Despite months of co-ordinated action around the globe to stabilise the banking system, hidden perils still lurk in the world's financial institutions according to the Basle-based Bank of International Settlements.

"Overall, governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks," the BIS says in its annual report. "At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses."

... As one of the few bodies consistently sounding the alarm about the build-up of risky financial assets and under-capitalised banks in the run-up to the credit crisis, the BIS's assessment will carry weight with governments. It says: "The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy."

It also expresses concern about the dilemma facing policymakers on when to start reining in the recovery. "Tightening too early could thwart the recovery, whereas tightening too late may result in inflationary pressures from the stimulus in place, or contribute to yet another cycle of increasing leverage and bubbling asset prices. Identifying when to tighten is difficult even at the best of times, but even more so at the current stage," it says.

Also, the WSJ has an article on the incredibly shrinking PPIP: Wary Banks Hobble Toxic-Asset Plan

I think the stress tests showed that the U.S. should have pre-privatized BofA, Citigroup and GMAC. Oh well ...

by Calculated Risk on 6/28/2009 07:26:00 PM

TJ & The Bear asks: "ocrenter had an interesting question over at JtR's BubbleInfo. Specifically, what percentage of homeowners that sold during the height of the bubble (04 to 06) went to cash and rented?" ocrenter is obviously curious about "cash on the housing sidelines".

We don't have the data to answer that question, but using the Census Bureau Residential Vacancies and Homeownership report, we can see that the number of occupied rental units bottomed in Q2 2004.

Click on graph for larger image in new window.

This graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. (all data from the Census Bureau).

The number of occupied rental units bottomed in Q2 2004, and has increased by 3.8 millions units since then.

The homeownership rate also peaked in 2004, although it didn't start declining sharply until 2007.

Note: graph starts at 60% to better show the change.

There are probably several reasons why the number of renters started increasing in the 2nd half of 2004 (even though the housing bubble didn't peak in activity until the summer of 2005, and in prices until the summer of 2006.) More and more renters probably thought housing prices were too high by 2004 and put off buying, and some homeowners probably sold and became renters ...

To answer ocrenters question (somewhat), the number of renters increased by about 1.6million in the 2004 to 2006 period. A large number of those renters could have been homeowners who decided to sell and rent. We just don't have the data ...

by Calculated Risk on 6/28/2009 02:34:00 PM

ht ShortCourage