by Calculated Risk on 11/23/2011 11:32:00 PM

The Case-Shiller Home Price Indices for September will be released next Tuesday, November 29th. Zillow chief economist Stan Humphries put out a forecast for the Case-Shiller HPI yesterday: Zillow Forecast: September Case-Shiller Composite-20 Expected to Show 3.2% Decline from One Year Ago

Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted, NSA) will decline by 3.2% on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will show a year-over-year decline of 2.8%. The seasonally adjusted (SA) month-over-month change from August to September will be -0.2% and 0.0% for the 20 and 10-City Composite Home Price Index (SA), respectively.
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"We expect to see continued home value depreciation as unemployment and negative equity remain high and as the pace of foreclosures, kept artificially low since the robo-signing controversy, increases again."

On an NSA basis, this would leave the 10-city composite about 3.9% above the post bubble low, and the 20-city composite about 3.5% above the post bubble low.

The CoreLogic (used by the Fed) index (NSA) for September was about 3.6% above the post bubble low.

However this would put the seasonally adjusted 20-City composite index at a new post-bubble low (and the 10-city would be just above a new low). Because the seasonal factor has been impacted by the high percentage of foreclosures, most people just report the NSA numbers - and the NSA numbers will probably not be at new lows until early next year.

But there is still a strong seasonal pattern to house prices, and it will be interesting if the SA numbers are at new lows ...

by Calculated Risk on 11/23/2011 06:55:00 PM

Yesterday the Federal Reserve outlined the annual bank supervisory stress tests. The Fed included a stress test scenario for house prices and inflation, so we can calculate the impact on real house prices.

The stress test scenario is outlined here. The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones Total Stock Market Index will decline by more than 50% from the current level. The scenario also assumes that nominal house prices will fall another 20%+.

Note: The Federal Reserve uses the CoreLogic House Price Index (Blue).

Click on graph for larger image.

This graph shows real house prices through August 2011 (September for CoreLogic), and the Federal Reserves stress test scenario (blue after Q3 2011).

This scenario would take real house prices back to about mid-1984 prices in real terms (adjusted for inflation).

by Calculated Risk on 11/23/2011 03:13:00 PM

Yields are rising quickly ...

From Reuters: Belgian/German spreads hit euro-era highs on political deadlock

The yield premium of Belgian 10-year government bonds over German Bunds hit euro-era highs on Wednesday after a blow to prospects of forming a government left the country vulnerable to a fast-spreading debt crisis.

The highly-indebted country, which has been without a government for 18 months, suffered a further blow on Tuesday when its lead negotiator in forming an administration resigned.

From the WSJ: German Bond Auction Adds to Investor Worries on Euro Zone

A German government debt auction drew some of the weakest demand since the introduction of the euro, signaling diminishing investor appetite for even the safest euro-zone assets amid Europe's worsening debt crisis.

From the Athens News: Samaras addresses letter to creditors

In the latest move in the power game over the written commitment that EU leaders have asked Pasok and New Democracy to cosign, Antonis Samaras on Wednesday sent a letter to the European Union and IMF reiterating his support for the new prime minister and for fiscal adjustment targets.
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He noted, however, that “certain policies have to be modified”.
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It was not immediately clear whether the letter would satisfy the EU and IMF ... Earlier on Wednesday, German Chancellor Angela Merkel said that if Samaras did not sign, an 8bn euro bailout payment would not be released.

From Bloomberg: Three-Month Dollar Libor Reaches 0.5%, 1st Time Since July 2010

The London interbank offered rate, or Libor, for three- month dollar loans climbed to 0.50028 percent from 0.495 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since July 21, 2010.

Below is a table for several European bond yields (links to Bloomberg).

The Italian 10 year bond yield is at 6.97%; the Italian 2 year yield is up to 7.12%!

The Spanish 10 year bond yield has increased to 6.65%; the Spanish 2 year yield is up to 5.86%.

The Belgian 10 year yield is up sharply to 5.48%; the Belgian 2 year yield is 4.94%.

The Irish 10 year yield is at 8.21%. The Portuguese 10 year yield is at 11.3%.

The French 10 year bond yield is at 3.69%.

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 11/23/2011 11:25:00 AM

Although there are significant downside risks from the European financial crisis and additional fiscal tightening in early 2012, right now the U.S. data suggests continued sluggish growth ...

• From the Kansas City Fed: Growth in Manufacturing Activity Eased Slightly

The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity eased slightly in November, but expectations for future months remained relatively solid.

“Factory activity in the region grew slightly slower in November than in the previous two months, and price pressures eased a bit,” said Wilkerson. “But capital spending plans were generally solid, and many firms planned to add workers in coming months as well.”
...
The month-over-month composite index was 4 in November, down from 8 in October and 6 in September ... The production and shipments indexes decreased to 0, and the new orders and order backlog indexes were negative. The employment index dropped to its lowest level of the year but remained slightly positive, and the new orders for exports index moderated slightly.

In general the regional manufacturing surveys have indicated sluggish growth in November.

• From Truecare.com: Highest SAAR for New Vehicle Sales Since Cash for Clunkers

For November 2011, new light vehicle sales in the U.S. (including fleet) is expected to be 972,712 units, up 11.5 percent from November 2010 and down 4.7 percent from October 2011 (on an unadjusted basis) ... The November 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.3 million new car sales, up from 13.2 million in October 2011 and up from 12.3 million in November 2010.

“We’ve seen six straight months of year over year gains for new vehicle sales, which shows positive momentum for the auto industry, ” said Jesse Toprak, Vice President of Industry Trends and Insights for TrueCar.com. “There is a strong possibility that we could reach a 14 million SAAR next month.“

Earlier:
• Personal Income increased 0.4% in October, Spending increased 0.1%
• Weekly Initial Unemployment Claims at 393,000

by Calculated Risk on 11/23/2011 10:00:00 AM

The final November Reuters / University of Michigan consumer sentiment index declined to 64.1 from the preliminary reading of 64.2, up from the October reading of 60.9, and up from 55.7 in August.

From MarketWatch: November UMich consumer sentiment hits 64.1

A gauge of consumer sentiment reached 64.1 in the final reading for November -- the highest reading since June -- compared with 60.9 in October, according to Wednesday reports on the data from the University of Michigan and Thomson Reuters. A preliminary reading for November pegged the gauge at 64.2

Click on graph for larger image.

Consumer sentiment is usually impacted by employment (and the unemployment rate) and gasoline prices. But right now the European financial crisis is probably also impacting sentiment.

Although sentiment is up from October, this is still very weak, and slightly below the consensus forecast of 64.6.