by Calculated Risk on 9/23/2011 08:29:00 AM

Just another day ...

From the NY Times: With a Joint Statement, the Leading Economies Try to Reassure World Markets

The world’s major economies released an unexpected joint statement Thursday night ...

“We are committed to supporting growth, implementing credible fiscal consolidation plans, and ensuring strong sustainable growth,” said the communiqué from the Group of 20 nations. “This will require a collective and bold action plan with everyone doing their part.”

From the WSJ: Moody's Downgrades 8 Greek Banks

Moody's Investors Service Inc. downgraded eight Greek banks by two notches Friday, citing expected losses due to their holdings of Greek government bonds, increasing concerns about the impact of a recession as well as fragile liquidity and funding positions.

"The government faces significant solvency challenges and historical experience shows that small sovereign debt restructurings have often been followed by larger sovereign defaults," Moody's warned.

From Reuters: Greek default talk gathers pace

Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50 percent haircut for bondholders was one of three possible scenarios for resolving the heavily indebted euro zone nation's fiscal woes.

And the denial: Greece Denies Reports on Default Scenarios

Given the history of the European financial crisis, denials are frequently taken as confirmation ...

The Greek 2 year yield was up to 67%. The Greek 1 year yield is at 134%.

The Portuguese 2 year yield is up to 17.6% (rising quickly) and the Irish 2 year yield was down to 9.05%.

by Calculated Risk on 9/22/2011 08:19:00 PM

Here is a new study released today of mortgage originations in 2010. From the Federal Reserve: The Mortgage Market in 2010: Highlights from the Data Reported under the Home Mortgage Disclosure Act

Back in 2003, about 35.5% of all homeowners refinanced. In 2010 only 10.7% of homeowners refinanced. On page 62, the study provides a table by FICO score, year of origination, and states with steep house price declines compared to all other states ("Steepest declines" consists of the five states with the steepest declines in house prices from 2006 to 2009: Arizona, California, Florida, Michigan, and Nevada; "other" consists of all remaining states.) Only a few borrowers with low FICO scores refinanced in 2010, and the rates for refinancing were lower in the five states than in the other states.

This is important - although we may see sub 4% conforming 30 year fixed rate mortgages soon, many borrowers will not be able to refinance.

I've excerpted a few key findings with highlights.

• Mortgage originations declined between 2009 and 2010 in the HMDA data from just under 9 million loans to fewer than 8 million loans. Most significant was the decline in the number of refinance loans despite historically low baseline mortgage interest rates throughout the year. Home-purchase loans also declined, but less so than the decline in refinance lending.

• We draw on data from a national credit bureau to highlight the importance of house price declines and changes in underwriting relative to earlier in the decade for refinance activity during 2010. We estimate that, in the absence of home equity problems and underwriting changes, roughly 2.3 million first-lien owner-occupant refinance loans would have been made during 2010 on top of the 4.5 million such loans that were actually originated.

• A sharp drop in home-purchase lending activity occurred in the middle of 2010, right alongside the June closing deadline (although the deadline was retroactively extended to September). The ending of this program during 2010 may help explain the decline in the incidence of home-purchase lending to lower-income borrowers between the first and second halves of the year.

• Home-purchase lending in highly distressed census tracts identified by the Neighborhood Stabilization Program (NSP) was 75 percent lower in 2010 than it had been in these same tracts in 2005. This decline was notably larger than that experienced in other tracts, and appears to primarily reflect a much sharper decrease in lending to higher-income borrowers in the highly distressed neighborhoods.

• National single-family home loan limits on both FHA loans and Freddie Mac and Fannie Mae purchases are scheduled to fall on October 1, 2011. Analysis of the 2010 HMDA data suggests that the number of loans affected by these limit changes is likely to be small. For example, about 1.3 percent of both the 2010 home-purchase and refinance loans fell into a size range affected by the proposed limit changes for Freddie Mac and Fannie Mae. Although the affected number of loans is small relative to the total number of loans, the analysis also shows that the number is large relative to the current jumbo loan market. How easily the private market would be able to absorb this potentially large increase in the market for jumbo loans is unclear.

by Calculated Risk on 9/22/2011 04:55:00 PM

The Case-Shiller House Price index for July will be released Tuesday. Here are a few other indexes:

• FNC: Home Prices Begin to Lose Momentum; Up 0.1% in July

Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ (RPI) indicates that single-family home prices were up slightly in July to a seasonally unadjusted rate of 0.1%, following a strong performance in June that saw a 1.1% increase in a single month. As a gauge of underlying home value, the RPI excludes sales of foreclosed homes, which are often sold with large price discounts due to poor property conditions.

The FNC index tables for three composite indexes and 30 cities are here.

• CoreLogic reported earlier this month for July: Home Price Index increased 0.8% in July

July Home Price Index (HPI) which shows that home prices in the U.S. increased for the fourth consecutive month, inching up 0.8 percent on a month-over-month basis.

• The FHFA reported this morning: FHFA House Price Index Up 0.8 Percent in July

• From RadarLogic today As We Pass the Seasonal Peak in Home Prices, Signs Point to Trouble Ahead

In July, the 25-MSA RPX Composite price remained essentially unchanged on a month-over-month basis, but declined year over year for the 13th month in a row.
...
Last month, we predicted that the S&P/Case-Shiller 10-City composite for June 2011 would be about 156 and the 20-City composite would be roughly 142. In fact, the 10-City composite was 154.88 and the 20-City composite was 141.30.

This month, we expect the S&P/Case-Shiller composite indices to increase about one percent month over month, but to remain about three percent below their July 2010 levels. The July 2011 10-City composite index will be about 156, and the 20-City index will be roughly 143.

The consensus is that prices increased in July, but that prices will start falling again soon.

And there was another big move in the stock market today.

Here is a graph (click on graph for larger image) from Doug Short.

Pretty wild swings over the last couple of months!

by Calculated Risk on 9/22/2011 03:09:00 PM

Update: from Bloomberg: Europe Officials Weigh Forming Crisis ‘Firewall’

European officials said governments may leverage the region’s bailout program to erect a “firewall” around the sovereign debt crisis once a revamp of the fund is completed.

From the Financial Times: EU set to speed recapitalisation of 16 banks

European officials look set to speed up plans to recapitalise the 16 banks that came close to failing last summer’s pan-EU stress tests as part of a co-ordinated effort to reassure the markets about the strength of the 27-nation bloc’s banking sector.

A senior French official said the 16 banks regarded to be close to the threshold would now have to seek new funds immediately. Although there has been widespread speculation that French banks are seeking more capital, none is on the list.
excerpt with permission

From Bloomberg: Greece Speeds Budget Cuts to Ensure Aid

Measures announced yesterday following two rounds of talks with the European Union and the IMF include: a 20 percent cut in pensions of more than 1,200 euros ($1,650) a month, according to a government statement; pensions paid to those younger than 55 will be shaved by 40 percent for the amount exceeding 1,000 euros and wages will be lowered for 30,000 state employees.

With an 8 billion-euro aid payment in the balance, Greek creditors are also in the final stages of negotiating a bond exchange intended to reduce the country’s debt load of about 350 billion euros.

The Greek 2 year yield was up to 66.5%. The Greek 1 year yield is at 135%.

The Portuguese 2 year yield is up to 17.5% (rising quickly) and the Irish 2 year yield was down to 9.1%.

The Italian 10 year yield was down slightly to 5.7%.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 9/22/2011 11:52:00 AM

From Bloomberg: Commercial Real Estate Prices in U.S. Increased 5% in July, Moody’s Says

The Moody’s/REAL Commercial Property Price Index advanced 5 percent from June. It’s up 1.2 percent from a year earlier and almost 13 percent from its post-peak low in April, the New York- based company said in a report today.

Demand was driven by middle-market properties that aren’t considered major assets.
...
“This month’s gain is more a continuation of the bottoming process than a harbinger of recovery,” the company said in the report. “Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in turn will constrain near term price increases.”

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in graph gallery.

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).

According to Moody's, CRE prices are up 1.2% from a year ago and down about 42% from the peak in 2007. Some of this increase was probably seasonal - also this index is very volatile because there are relatively few transactions. Also, this report was for July, and the index will probably be weaker in August after the debt ceiling debate and the renewed fears about Europe.