by Calculated Risk on 4/11/2012 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March. Activity in the Boston, Atlanta, Chicago, Dallas, and San Francisco Districts grew at a moderate pace, while Cleveland and St. Louis cited modest growth. New York reported that economic growth picked up somewhat. Philadelphia and Richmond cited improving business conditions. The economy in Minneapolis grew at a solid pace and Kansas City's economy expanded at a faster pace.

And on real estate:

Residential real estate activity improved in most Districts, though Cleveland and San Francisco noted that activity remained lackluster or at low levels. The St. Louis and Minneapolis Districts reported increases in building permits. The construction of multi-family housing units, including apartments and senior housing, expanded in many Districts. Home prices continued to decline in Boston, New York, and Minneapolis, but were largely flat in San Francisco. Contacts in Boston, Philadelphia, and Kansas City indicated that mild weather had boosted real estate activity.

Non-residential construction activity improved in the Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis Districts, though many of these contacts characterized the improvement as slow. Boston, New York, and San Francisco characterized non-residential real estate activity as unchanged or steady. The energy and high-tech sectors were driving much of the demand in the Dallas District. San Francisco noted a rise in the demand for office space from the technology sector. Cleveland and Chicago saw a boost in healthcare-related construction. Projects related to the education sector are showing growth in Boston, Cleveland, Philadelphia, and Richmond. The outlook of builders is described as positive or slowly improving in the Philadelphia, Cleveland, Atlanta, and Kansas City Districts, and as cautiously optimistic in Boston.

Prepared by the Federal Reserve Bank of Cleveland based on information collected on or before April 2, 2012. Mostly sluggish growth, but some positive comments on residential real estate ...

by Calculated Risk on 4/11/2012 11:38:00 AM

BLS economist Mitra Toossi released some new projections for the participation rate as of January 2012: Labor force projections to 2020: a more slowly growing workforce. This post updates a couple of graphs with these projections.

A key issue is what will happen to the labor force participation rate as the economy slowly recovers. In 2010 I looked at some of the cyclical and long term trends for the participation rate: Labor Force Participation Rate: What will happen? I concluded that a majority of the recent decline in the participation rate is due to changes in demographics.

Changes in population and the participation rate can significantly impact the unemployment rate. If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 94 thousand jobs per month to keep the unemployment rate steady at 8.2%.

However if the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 63.8%) over the next two years, the economy will need to add 227 thousand jobs per month to hold the unemployment rate steady.

A big difference!

Note: These calculations were done with the Atlanta Fed Jobs Calculator.

That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place and can be very confusing.

Here is an update to a couple of graphs based on Toossi's projections.

Click on graph for larger image.

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

The second graph shows the actual annual participation rate and two forecasts based on changes in demographics. Now that the leading edge of the baby boom generation is starting to retire, the participation rate is declining and will probably continue to decline for the next 20 years.

This suggests that any bounceback in the participation rate as the economy recovers will probably be fairly small, and the number of jobs needed to hold the unemployment rate steady is probably closer to 100 thousand per month than the frequently report 150+ thousand per month.

Here is the paper with the longer term projection, from Austin State University Professor Robert Szafran in September 2002: Age-adjusted labor force participation rates, 1960–2045 (these projections were made before the recession).

by Calculated Risk on 4/11/2012 08:29:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 3.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.5 percent from one week earlier. ... There was no adjustment made for Good Friday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.10 percent from 4.16 percent, with points remaining unchanged at 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This is the lowest 30-year fixed rate since March 9, 2012.

Yesterday, the FHFA acting director Ed DeMarco commented on HARP refinances:

"[M]any of the largest lenders are seeing tremendous homeowner interest [in HARP]. FHFA and the Enterprises expect the volume of HARP loans to increase in the very near future."

by Calculated Risk on 4/10/2012 07:29:00 PM

Here is a very good overview (and fairly short) of US mortgage and foreclosure law by Zachary Kimball and Paul Willen at The New Palgrave Dictionary of Economics.

This article discusses title and liens, the differences between judicial states and non-judicial states, judgments and recourse, the Mortgage Electronic Registration System (MERS) and much more.

Here is an excerpt:

Two types of foreclosure by sale emerged in US law. The first is foreclosure by judicial sale, in which the lender petitions the court and the court orders a foreclosure auction. Judicial sale is available in every jurisdiction. The alternative approach is that, when the mortgage is originated, the borrower gives the lender the right to carry out a foreclosure auction in the event of default, a right known as the ‘power of sale’ (Osborne, 1951, p. 992). Although rare in the early 19th century, power-of-sale foreclosure became more common in the USA over time (Osborne, 1951, p. 993).

Power-of-sale foreclosure is available in a majority of states. In general, states in the south and west of the country offer power of sale and states in the north and east are judicial; whether power-of-sale or judicial foreclosure is the preferred method aligns almost exactly with whether the state follows title or lien theory, respectively. Of the states with the most severe foreclosure problems in the current crisis, Arizona, California and Nevada all allow power-of-sale foreclosure, while Florida only allows judicial foreclosure. Other notable judicial states include Illinois, New York and New Jersey. For fuller discussion of judicial and power-of-sale foreclosure, see Gerardi et al. (2011) and National Consumer Law Center (2010).

by Calculated Risk on 4/10/2012 04:45:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the January report, were off 61.8% from the peak according to Case-Shiller, and off 9.1% over the last year.

Sales in 2011 were at record levels - even more than during the bubble - and it looks like 2012 will be an even stronger year, even with some new rules that slow the foreclosure process.

From the LVGAR: GLVAR reports local home prices, sales rising as inventory shrinks

According to GLVAR, the total number of local homes, condominiums and townhomes sold in March was 4,388. That’s up from 3,794 in February, and up from 4,316 total sales in March 2011.
...
Compared to one year ago, home sales were up 4.4 percent, while condo and townhome sales were down 8.4 percent.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service again decreased from February to March, with a total of 18,200 single-family homes listed for sale at the end of the month. That’s down 3.6 percent from 18,870 single-family homes listed for sale at the end of February and down 18.0 percent from one year ago.
...
By the end of March, GLVAR reported 4,901 single-family homes listed without any sort of offer. That’s down 25.1 percent from 6,543 such homes listed in February and down 56.8 percent from one year ago.
...
“Our inventory is really dropping,” said GLVAR President Kolleen Kelley, a longtime local REALTOR®. “Based on current demand, we’re looking at a six-week supply of homes on the market. This is making new homes more attractive and creating a window of opportunity for home builders.”

Economist Tom Lawler sent me the following table for several distressed areas that have reported so far for March.

CR Note: This could be very useful data over the next several months (and years) as we try to track the impact of the mortgage servicer settlement and to see if the markets are improving. For all of the areas, the distressed share of sales is down from March 2011, the share of short sales has increased and the share of foreclosure sales are down - and down significantly in some areas.

Look at Phoenix: Short sales have increased from 19.1% to 25.7%, and foreclosures have declined from 46.2% to 21.1%.

Note: The table is a percentage of total sales.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Mar	11-Mar	12-Mar	11-Mar	12-Mar	11-Mar
Las Vegas	26.6%	23.6%	40.7%	47.6%	67.3%	71.2%
Reno	34.0%	30.0%	32.0%	41.0%	66.0%	71.0%
Phoenix	25.7%	19.1%	21.1%	46.2%	46.7%	65.3%
Mid-Atlantic (MRIS)	13.2%	13.1%	14.7%	26.3%	27.9%	39.5%