by Calculated Risk on 7/30/2012 09:29:00 PM

From Nick Timiraos at the WSJ: Data Show Fannie, Freddie Savings From Debt Forgiveness

As the regulator for Fannie Mae and Freddie Mac nears its decision on whether to approve debt forgiveness for troubled borrowers, a new analysis by the regulator suggests that taxpayers could actually benefit from the move...

In April, the agency said that loan forgiveness would save about $1.7 billion for the companies, relative to other types of relief. At the time, the agency said that because the Treasury was paying to subsidize those write-downs, the relief would still cost taxpayers $2.1 billion, offsetting any savings to the companies.

But the latest analysis done by the agency found that such write-downs would generate $3.6 billion in savings for the companies, under certain assumptions, according to people familiar with the analysis. Even after subtracting the cost of the Treasury subsidies, the program would save $1 billion, these people said. As many as 500,000 borrowers could be eligible, these people said.
...
The FHFA has raised other concerns beyond the cost of such write-downs. Chief among them is the fear that more borrowers, upon hearing that Fannie and Freddie are instituting a debt-forgiveness program, might default to seek more generous terms.

FHFA acting director Edward DeMarco focused on this last point in his speech in April:

One factor that needs to be considered is the borrower incentive effects. That means, will some percentage of borrowers who are current on their loans, be encouraged to either claim a hardship or actually go delinquent to capture the benefits of principal forgiveness?
...
It is difficult to model these borrower incentive effects with any precision. What we can do is give a sense of how many current borrowers would have to become “strategic modifiers” for the NPV economic benefit provided by the HAMP triple PRA incentives to be eliminated. In this context, a “strategic modifier” would be a borrower that either claims a financial hardship or misses two consecutive mortgage payments in order to attempt to qualify for HAMP and a principal forgiveness modification.

The FHFA might decide that the risk from "strategic modifiers" outweighs the possible savings.

Also from Nick Timiraos at the WSJ Are Home Prices Rising? A Price-Index Primer

On Tuesday:
• At 8:30 AM ET, the Personal Income and Outlays report for June will be released by the BEA. The consensus is for a 0.2% increase in personal income in June, and for 0.1% increase in personal spending, and for the Core PCE price index to increase 0.2%.

• At 9:00 AM, S&P/Case-Shiller House Price Index for May is scheduled to be released. The consensus is for a 1.4% decrease year-over-year in Composite 20 prices (NSA) in May. The Zillow forecast is for the Composite 20 to decline 1.0% year-over-year, and for prices to increase 0.8% month-to-month seasonally adjusted.

• At 9:45 AM: Chicago Purchasing Managers Index for July will be released. The consensus is for a decrease to 52.5, down from 52.9 in June.

• Also at 10:00 AM, the Conference Board's consumer confidence index for July. The consensus is for a decrease to 61.5 from 62.0 last month.


And the final question for the July economic contest:

by Calculated Risk on 7/30/2012 08:09:00 PM

Most of this article is about the ECB and there isn't anything new on the Fed, from Jon Hilsenrath and Brian Blackstone at the WSJ: Heat Rises on Central Banks

The two-day Federal Open Market Committee meeting convenes Tuesday, following signs that Fed officials have become more willing to act to address disappointingly slow U.S. economic growth.
...
The Fed could unveil a new program for buying mortgage or government securities to bring down long-term interest rates, or take other actions to spur growth, or simply promise to do more later if necessary. Officials might wait until September, when they will formally update their economic forecasts, before deciding anything significant.

From Goldman Sachs analysts today:

Although a new Fed asset purchase program is a possibility in the near term if the data continue to disappoint, our central expectation is for a return to QE in December or early 2013.
...
We expect an extension of the current “exceptionally low…at least through late 2014” interest rate guidance to "mid 2015." Such a shift would roughly restore the forward guidance to the same three-year horizon as at the January FOMC meeting, when the "late 2014" formulation was first adopted. We would, however, regard this rate extension as a relatively modest step.

by Calculated Risk on 7/30/2012 04:51:00 PM

From the National Multi Housing Council (NMHC): Apartment Market Hot Streak Continues

For the sixth quarter in a row, the apartment industry improved across all indexes in the National Multi Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring Market Tightness (76), Sales Volume (54), Equity Financing (58) and Debt Financing (77) all measured at 50 or higher, indicating growth from the previous quarter.

“The apartment sector’s strength continues unabated,” said NMHC Chief Economist Mark Obrinsky. “Even as new construction ramps up, higher demand for apartment residences still outstrips new supply with no letup in sight. Despite the need for new apartments, acquisition and construction finance remains constrained in all but the best properties in the top markets.”
...
Majority report increased market tightness. The Market Tightness Index edged up to 76 from 74. For the first time in a year, more than half (55 percent) of respondents said that markets were tighter. By contrast, only 2 percent reported the markets as loosening and 43 percent reported no change over the past three months.

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The index has indicated tighter market conditions for the last ten quarters and suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q2 2012 to 4.7%, down from 4.9% in Q1 2012, and down from 9.0% at the end of 2009. This was the lowest vacancy rate in the Reis survey in over 10 years.

This survey indicates demand for apartments is still strong. And even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be more completions in 2012 than in 2011, but it looks like another strong year for the apartment industry.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010 - and will probably be useful in indicating when the vacancy rate will stop falling.

by Calculated Risk on 7/30/2012 01:47:00 PM

From Tom Lawler:

The Commerce Department estimated that manufactured housing shipments ran at a seasonally adjusted annual rate of 54,000 in June, down from 56,000 in May. In the first five months of 2012 manufactured housing shipments ran at a SAAR of 57,000, up from 51,600 in 2011 but just a fraction of the pace prior to last decade’s collapse.

The Commerce Department also estimated that manufactured housing placements ran at a SAAR of 47,000 in May, down from 51,000 in April. In the first five months of 2012 manufactured housing shipments ran at a SAAR of 52,200, up from 47,000 in 2011.

	Manufactured Housing Shipments (Annual Average, 000's)
1961-1970	255.6
1971-1980	348.5
1981-1990	243.7
1991-2000	296.8
2001-2006	154
2006-2010	78.9
2011	51.6
2012YTD	57

Click on graph for larger image.

Here is a graph from Lawler showing the annual manufactured housing shipments since 1959. The column for 2012 is the annual sales rate for the first six months of the year.

Although sales are running at about a 10% increase over last year, shipments in 2012 will still be the fourth lowest on record behind only 2009, 2010, and 2011.

by Calculated Risk on 7/30/2012 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Posts Slower Growth Amid Weaker View of General Business Activity

Texas factory activity continued to increase in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 15.5 to 12, suggesting slightly slower output growth.

The new orders index was positive for the second month in a row, although it moved down from 7.9 to 1.4. Similarly, the shipments index posted its second consecutive positive reading but edged down from 9.6 to 7.4. ... The general business activity plummeted to -13.2 after climbing into positive territory in June. Nearly 30 percent of manufacturers noted a worsening in the level of business activity in July, pushing the index to its lowest reading in 10 months.
...
Labor market indicators reflected stronger labor demand. Employment growth continued in July, although the index edged down from 13.7 to 11.8. ... The hours worked index was 4.1, up slightly from its June reading.

This was below expectations of a 2.5 reading for the general business activity index.

The regional manufacturing surveys were mostly weak in July. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through July), and five Fed surveys are averaged (blue, through July) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through June (right axis).

The ISM index for July will be released Wednesday, August 1st, and these surveys suggest another weak reading. The consensus is for an increase to 50.1, up from 49.7 in June. (below 50 is contraction).