by Calculated Risk on 7/19/2010 11:42:00 PM

A little music to go along with the Sovereign Debt series ...

by Calculated Risk on 7/19/2010 07:40:00 PM

Earlier I mentioned I wasn't sure if the unemployment benefit extension would pass - it looks like it will pass tomorrow.

The WSJ reports Senate Set to Extend Jobless Benefits

On Tuesday, Democrats are likely to get the 60 votes they need to extend the benefits through November. ... The House is expected to approve the Senate's version Wednesday and send it to Mr. Obama for his signature.

Note: this is an extension of the qualification dates for existing tiers of extended unemployment benefits, not additional weeks of benefits.

by Calculated Risk on 7/19/2010 04:40:00 PM

Moody's reported today that the Moody’s/REAL All Property Type Aggregate Index increased 3.6% in May. This is a repeat sales measure of commercial real estate prices.

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).

It is possible that commercial real prices have bottomed - in general - but it is hard to tell because the number of transactions is very low and there are a number of distressed sales.

Commercial real estate values are now down 6.3% over the last year, and down 38.9% from the peak in late 2007.

Comments from PIMCO

As I've noted every month, this is a very thin market that is skewed by distressed sales. John Murray at PIMCO also cautioned about the CPPI index in a recent note: PIMCO U.S. Commercial Real Estate Project

National price indices such as the Moody’s Commercial Property Price Index (CPPI) can provide misleading indications of a recovery in CRE asset price levels. Since November 2009, the index has rebounded 3%.

While it is natural to draw comparisons between the CPPI and the S&P/Case-Shiller index used to gauge residential home prices, we caution that indexes such as the CPPI are relatively meaningless in today’s limited transaction environment – commercial real estate transaction volume fell nearly 90% from 2007 to 2009.

Our ride along meetings highlight another limitation of the CPPI. Based on repeat transactions, the index excludes the truly distressed or overpriced properties acquired in the past few years that have yet to trade, and is instead skewed by the high proportion of trophy asset and Agency-financed multifamily transactions.

Comments from MIT Professor David Geltner

Dr. Geltner writes a column that appears on the Real Estate Analytics LLC website on the lower right under "Professor's Corner". This is based on last month's data, but still explains the market dynamics:

CPPI advanced in April, due to the very strong performance of “healthy” properties (i.e., those without the RCA “troubled asset” flag). Figure 4 shows that the healthy property breakout index (estimated using the same methodology as the CPPI only dropping out the “troubled assets”) rose 6.3% from March to April while the “distressed” index declined more than 5%. The “healthy property index” is now only 33% below the October 2007 peak, while properties falling into distress since then are still selling more than 50% below 2007 values on average.

Graph from Dr. Geltner.

Whereas 2009 saw the advent of a bifurcated market between “healthy” and “distressed” properties, 2010 is now seeing what might be called a “trifurcated” market. Not only are distressed properties selling at sharp discounts, but “trophy” properties and solid “core” assets are selling at very respectable prices well above the general market average.

Roughly, CRE prices are moving up for "trophy" properties, moving sideways for the general market, and falling again for distressed properties. But this is based on very few transactions ...

by Calculated Risk on 7/19/2010 03:10:00 PM

CR Note: Last month, housing economist Tom Lawler's forecast was well below the consensus of 6.2 million (SAAR) for May and close to the actual reported existing home sales (he does a bottom up calculation every month, and he has been very close). Here is his preview for this month:

The pace of existing home sales in June varied dramatically across the country in June, with some of the difference reflecting the pace of closings of contracts signed to beat the federal home buyer tax credit. Long Island was a “standout” to the upside, with home closings in June coming in at 73.8% higher than last June, reflecting the longer-than-national norm time to close signed contracts. Most other markets saw materially slower YOY sales growth in June compared to May, with a number of areas seeing YOY declines. And many markets where a year ago sales were dominated by foreclosure sales saw YOY sales declines, with the drops mainly reflecting significantly lower foreclosure sales.

Based on all the data I have so far, I estimate that existing home sales ran at a seasonally adjusted annual rate of about 5.3 million in June, down about 6.4% from May’s pace. July sales, of course, will see a MUCH bigger drop.

On the inventory front, the local realtor/MLS were on balance consistent with my national tracking, which showed active residential listings up about 1.6% from May. I don’t know if the NAR data will show the same thing however; the NAR apparently doesn’t use available national listings but instead uses reports from the sample of realtor/MLS groups it gets each month, and uses that to “gross up” total inventory in a fashion that clearly produces some “spurious” volatility.

CR Note: this was from housing economist Tom Lawler. The National Association for Realtors (NAR) will release the June existing home sales report on Thursday. The consensus is for a decline to 5.3 million sales in June (SAAR, seasonally adjusted annual rate).

by Calculated Risk on 7/19/2010 01:17:00 PM

Lawrence Summers writes in the Financial Times: America’s sensible stance on recovery

[W]here an economy’s level of output is constrained by demand and the central bank has at best a limited ability to relax that constraint because it cannot reduce interest rates to below zero, fiscal policy can have a significant impact on output and employment.

...[and] there is a very strong presumption that there are likely to be beneficial effects from the expectation that budget deficits will be reduced after an economy has recovered and is no longer demand-constrained.
...
In most of the industrialised world, given that economies are in or near liquidity trap conditions, it is [these] propositions that should control policy. Together they make a case for fiscal actions that maintain or increase demand in the short run while reassuring markets on sustainability over the medium term.

It looks like the only additional stimulus will be an extension of the emergency unemployment benefits - and even that isn't clear.