by Calculated Risk on 9/28/2011 01:43:00 PM

From Boston Fed President Eric Rosengren: Housing and Economic Recovery

A few excepts and couple of graphs that highlight two topics we've discussed for years:

[E]even though residential investment is a small share of GDP (today only 2.2 percent), it is quite interest-sensitive – it can decline quite dramatically as interest rates rise, and expand quickly when interest rates are relatively low. So it has been a disproportionally important part of the monetary policy transmission mechanism.

In the current situation, however, U.S. mortgage rates are quite low but residential investment has not been the engine of growth that it normally is in economic recoveries. As shown in Figure 4, exports have been a source of strength in the first two years of the U.S. recovery, and business fixed investment has grown at approximately the same rate in this recovery as in the previous three. Yet the household sector has been particularly weak. Consumption, which accounts for approximately 70 percent of U.S. GDP, has grown only about half as much in the first two years of the recovery as it did in the previous three recoveries. And the shortfall for residential investment is even more striking. In the previous three recoveries, residential investment grew over 30 percent on average in the first years of the recovery – but has actually decreased in the first two years of this recovery. ...

CR Note: Residential investment (RI) is usually an engine of recovery, but with the huge overhang of existing vacant housing units, RI didn't contribute during the first two years this time. This is exactly what we've expected.

The weak housing sector also has an impact on employment. Figure 9 shows that far fewer jobs have been created in the first two years of this recovery (the left bar in each pair) than in previous recoveries (the right bar in the pair). In fact, construction jobs have continued to decline during the first two years of this recovery – we have lost over a half a million construction jobs since the recovery began. While construction employment is typically volatile during a recovery, on average the sector adds roughly 150,000 jobs.

Indeed, ... employment in construction has declined by 9 percent in the first two years of this recovery compared to growth over 4 percent during the previous three recoveries. And weak construction employment and activity also reduces the demand for labor in sectors that support construction.

CR Note: Employment is been especially weak in this recovery, and construction employment was especially hard hit. In addition to the excess housing inventory, there is excess capacity in most industries - and households have too much debt and are deleveraging.

The little bit of good news is that Residential Investment will make a positive contribution to growth this year (mostly from multi-family and home improvement), and construction employment will probably increase this year (not much).

by Calculated Risk on 9/28/2011 10:24:00 AM

In June, Tom Lawler posted on how the NAR estimates existing home inventory. The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory).

In a few months the NAR will revise down their estimates fpr inventory and sales of existing homes for the last few years. Also the NAR methodology for estimating sales and inventory will be changed.

I think the HousingTracker / DeptofNumbers data that Tom mentioned provides a timely estimate of changes in inventory. Ben at deptofnumbers.com is tracking the aggregate monthly inventory for 54 metro areas.

Click on graph for larger image in graph gallery.

This graph shows the NAR estimate of existing home inventory through August (left axis) and the HousingTracker data for the 54 metro areas through September. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates this fall).

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the September listings - for the 54 metro areas - declined 16.7% from last year.

Of course there is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed or "visible" inventory is a key story in 2011 - and listed inventory for September is probably down to the lowest level since September 2005.

Note: inventory surged in the late 2005 and early 2006 - a key sign that the housing bubble was bursting.

by Calculated Risk on 9/28/2011 07:22:00 AM

Note: The graph below includes the enhanced sample discussed last week. "The survey captures more than 75% of all U.S. retail and consumer direct mortgage applications, compared to 50% previously." For a discussion of the changes, see: Presentation to Discuss Enhancements to MBA’s Weekly Applications Survey.

There is also additional data. The weekly survey now includes mortgage rates for both conforming and jumbo loans. There is also a new Monthly Profile report (see sample here: Monthly Profile of State and National Mortgage Activity). This report breaks down the monthly application data by product type, size of loans, and state data. This appears very useful for short-term prepay modeling given the differences across states. This report is only available to subscribers.

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 11.2 percent from the previous week. The seasonally adjusted Purchase Index increased 2.6 percent from one week earlier.
...
"Mortgage rates declined last week, at least partially in response to the Fed's announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities," said Mike Fratantoni, MBA's Vice President of Research and Economics. "With lower rates, refinance application volume increased to its highest level since August 19, 2011. Purchase application volume also increased. However, the increase was in conventional purchase applications, which were up by 4.9 percent. Purchase applications for government loans fell by 0.6 percent over the week, likely influenced by the pending decline in FHA loan limits."
...
The average loan size of all loans for home purchase in the US was $212,700 in August 2011, up from $211,200 in July 2011. The average loan size for a refinance was $241,300, up from $209,200 in July.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.25 percent from 4.29 percent, with points decreasing to 0.35 from 0.41 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.51 percent from 4.55 percent, with points decreasing to 0.38 from 0.46 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

August was an especially weak month for this index. This increase was pretty small, and although this doesn't include the large number of cash buyers, this suggests fairly weak home sales in September and October.

by Calculated Risk on 9/27/2011 08:34:00 PM

A few articles ...

From the WSJ: Greece Passes Property-Tax Law, Clearing a Path for Additional Aid

Greece's parliament approved a new property-tax law in a closely watched vote Tuesday ... The approval of the property tax is expected to open the way for the return to Athens this week of a troika of inspectors from the International Monetary Fund, the European Union and the European Central Bank.

The next step will be the return of the inspectors ... and the vote on the EFSF in Germany.

From the NY Times: Merkel Rallies Wary Coalition Ahead of Vote on Greek Aid

[L]awmakers in Slovenia voted Tuesday to approve their share of the rescue fund’s guarantees. Finland’s Parliament is expected to reluctantly approve the fund measure in a vote on Wednesday

The German parliament will vote on Thursday and Friday.

[T]he German finance minister, Wolfgang Schäuble, ruled out an increase in the size of the euro zone bailout fund, though not necessarily an increase in its ability to borrow. ... Mr. Schäuble also said Tuesday that it was likely that the rescue mechanism would be further “enhanced,” though he would not give details.

And the Financial Times is reporting: Split opens over Greek bail-out terms. Apparently some officials (Germany and a few others) are arguing that the private sector should take a larger haircut. So this isn't settled yet.

Eurozone finance ministers had originally hoped to sign off on the next aid tranche to Greece on Monday, but a decision is now expected to delay the next €8bn payment until an emergency meeting in two weeks.
excerpt with permission

Greece apparently has enough cash until mid-October ...

Earlier:
• CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units
• Case Shiller: Home Prices increased Seasonally in July
• Real House Prices and House Price-to-Rent

by Calculated Risk on 9/27/2011 04:53:00 PM

From ATA: ATA Truck Tonnage Index Edged 0.2% Lower in August

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index declined 0.2% in August after falling a revised 0.8% in July 2011. July’s decrease was less than the 1.3% ATA reported on August 23, 2011. The latest drop put the SA index at 114.4 (2000=100) in August, down from the July level of 114.6.
...
Compared with August 2010, SA tonnage was up a solid 5.2%. In July, the tonnage index was 4.5% above a year earlier.

“Freight has been going sideways for much of this year, but it isn’t falling significantly either, which suggests the U.S. economy just might skirt another recession,” ATA Chief Economist Bob Costello said.

Click on graph for larger image in graph gallery.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. From ATA:

Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.

Moving sideways all year ...

Earlier:
• CoreLogic: Existing Home Shadow Inventory Declines to 1.6 million units
• Case Shiller: Home Prices increased Seasonally in July
• Real House Prices and House Price-to-Rent