by Calculated Risk on 7/05/2009 05:08:00 PM

The following article suggests that the large number of part time workers will slow any labor recovery:

‘I don’t need to hire anybody new. I need to work my existing workers more.’

That seems to make sense, but I wondered if it has been true in previous recessions (that a large number of part time workers - for economic reasons - became fully employed before the unemployment rate started to decline).

Here is the article from The Boston Globe: Grappling with part-time work

According to the Bureau of Labor Statistics, there are 9.1 million Americans working part time for economic reasons, more than double the 4.5 million in 2007. That compares with a 50 percent rise in the recession of 1981-82 and a 25 percent increase in the recession of 1990.
...
For the economy as a whole, the glut of part-time workers could slow any recovery.

“At no time have we ever seen an increase of that magnitude, which is why labor markets are far weaker than the unemployment rate is telling us,’’ says Andrew Sum, director of Northeastern University’s Center for Labor Market Studies.

“When the economy turns around if you have so many people that are in slack work, you’ll say, ‘I don’t need to hire anybody new. I need to work my existing workers more.’ It’s going to be a lot harder to bring the unemployment rate down.’’

The following graph shows the unemployment rate and the percent of the civilian labor force that is working part time for economic reasons.

Click on graph for larger image in new window.

Looking back at previous recessions, it doesn't appear that there was a decline in part time workers (for economic reasons) prior to a decline in the unemployment rate.

That doesn't mean part time workers aren't hurting - many are (as noted in the article), but it appears the the number of part time workers, and the unemployment rate, usually peak at about the same time. This time might be different, but I wouldn't count on it.

by Calculated Risk on 7/05/2009 01:27:00 PM

Rising vacancies. Falling rents. Negative absorption. The trend continues ...

From the Baltimore Business Journal: D.C. area office vacancies reach 12.3%

The Washington, D.C., area’s commercial real estate market saw a net absorption of negative 726,100 square feet in the second quarter, the third straight quarter of negative absorption ... the Washington region’s office vacancy rate has now reached 12.3 percent.

... "we are entering into a period of steady rent declines" [said Kevin Thorpe, director of market research for Cassidy & Pinkard Colliers]
emphasis added

From Reuters: Manhattan office vacancy hits 15-year high-report

The vacancy rate for top quality Midtown Manhattan office buildings reached its highest level in 15 years and asking rents fell nearly 11 percent in the second quarter, a Jones Lang LaSalle (JLL.N) report said.

Click on graph for larger image in new window.

For Q1, REIS reported the office vacancy rate nationwide rose to 15.2% from 14.5% in Q4 2008.

This graph shows the office vacancy rate starting 1991.

The Q2 data should be released this week.

by Calculated Risk on 7/05/2009 09:43:00 AM

From Lauren Beale at the Los Angeles Times: Vacancies give renters room to negotiate

The first quarter saw the largest rent decline in a decade for Los Angeles County, Reis' [Victor Calanog, director of research] said. Effective rents, those that take concessions into account, fell 1.7% in the first quarter of this year from the fourth quarter of 2008, while asking rents dropped 1%.

And vacancy rates are rising:

The rate climbed to 5.3% in the first quarter from 3.8% in the first quarter of 2008, said [Reis' Calanog] ... In contrast, vacancies had been hovering between 2% and 3% for the last decade.
...
The last time vacancy rates were this high in Los Angeles County was in the early 1990s, when they hit 5%.

Declining rents puts more pressure on house prices ... and rents could continue to fall through 2010.

Here are some comments from BRE (a REIT) in February:

We believe we are looking at a negative rent curve for the next two years.

We believe on a composite basis, market rents in 2009 could fall between 3 and 6% from peak levels in 2008. And the rent cuts in 2010 could be deeper ...

by Calculated Risk on 7/04/2009 10:52:00 PM

From Gretchen Morgenson at the NY Times: So Many Foreclosures, So Little Logic

Alan M. White, an assistant professor at the Valparaiso University law school in Indiana analyzed data on 3.5 million subprime and alt-A mortgages in securitization pools overseen by Wells Fargo.
...
In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.

Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. ...

Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.

Well, it is an article by poor Gretchen, so we need to highlight a funny...

Loan modifications occur when a lender agrees to change terms of a troubled borrower’s mortgage; the most common approach is to reduce the loan’s interest rate. ... Lenders and their representatives, however, don’t like to modify loans through interest rate cuts ...

I guess they don't like doing the most common approach!

Note: the database analyzed by Professor White is for subprime and Alt-A only, whereas the OCC data includes prime loans - so it is hard to compare. Here is the OCC report for Q1: OCC and OTS: Prime Delinquencies Surge in Q1
And a couple of earlier posts on the OCC report:

OCC and OTS: Prime Delinquencies Surge in Q1

Modifications and Re-Default

by Calculated Risk on 7/04/2009 08:32:00 PM

This piece "Mortgages Made Simpler" by Richard Thaler, is a discussion of the proposed Obama Administration regulatory requirement that lenders offer consumers "plain vanilla" mortgages. From the Treasury regulatory reform proposals (page 66):

We propose that the regulator be authorized to define standards for “plain vanilla” products that are simpler and have straightforward pricing. The CFPA should be authorized to require all providers and intermediaries to offer these products prominently, alongside whatever other lawful products they choose to offer.

I found the following description amusing:

Traditional economics is based on imaginary creatures sometimes referred to as “Homo economicus.” I call them Econs for short. Econs are amazingly smart and are free of emotion, distraction or self-control problems. Think Mr. Spock from “Star Trek.”

Real people are not Econs. Real people have trouble balancing their checkbooks, much less calculating how much they need to save for retirement; they sometimes binge on food, drink or high-definition televisions. They are more like Homer Simpson than Mr. Spock. Call them Homer economicus if you like, or just Humans. Behavioral economics is the study of Humans in markets.

Designing policies for Econs is pretty straightforward. Because they are smart consumers and make good choices, the best policies give them as many choices as possible and simply assure that they have access to all the relevant information.

Humans, however, can use a bit more help, especially when the options are hard to understand.

I like the idea that all consumers be offered a "plain vanilla" mortgage option, and also that many of the non-traditional mortgage products come with warning labels.

Of course most CR readers are probably "Homo economicus" and are free to opt out.