by Calculated Risk on 8/29/2012 08:47:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.7 percent in the second quarter of 2012 (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis.

The main revisions were:

PCE was revised up from 1.5% to 1.7% (services were revised up).

Investment was revised down (the contribution to GDP from Change in private inventories was revised from +0.32 percentage points to -0.23 in the second release).

Imports are revised down. PCE prices increased at only 0.7% annualized (same as advance release), and core PCE prices increased at a 1.7% annual rate. Overall these changes are minor and were at expectations. This is still sluggish growth.

by Calculated Risk on 8/29/2012 07:03:00 AM

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

The Refinance Index decreased 6 percent from the previous week to its lowest level since May 11, 2012. The seasonally adjusted Purchase Index increased more than 1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.80 percent from 3.86 percent, with points remaining unchanged at 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index.

The purchase index has been mostly moving sideways over the last two years.

I'm still puzzling over why the MBA index is moving sideways but the recent Senior Loan Officer survey showed "moderately to stronger" demand for mortgages to purchase homes:


Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn't clear why the MBA index and the Fed survey results are different.

by Calculated Risk on 8/28/2012 08:37:00 PM

First an excerpt from a research note by Jan Hatzius at Goldman Sachs:

At a minimum, we expect an extension of the forward rate guidance to "mid-2015" at the September 12-13 FOMC meeting. We also expect an eventual return to QE, although in terms of timing we believe that either December or early 2013 is still more likely than September.
...
The tone of the data has clearly improved a bit since the [last FOMC] meeting. ... we estimate that Q3 GDP is on track for a 2.4% annualized gain versus an advance estimate of 1.5% for Q2.

However, a return to QE in September is clearly possible if the upcoming data, especially the August employment report released on September 7, fall short of expectations or if financial conditions tighten again--e.g., in the wake of any disappointment around the European situation and the ECB meeting on September 6.

On Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

• At 8:30 AM, the BEA will release the 2nd estimate of Q2 GDP. The consensus is that real GDP increased 1.7% annualized in Q2, revised up from 1.5% in the advance release.

• At 10:00 AM, the Pending Home Sales Index for August will be released. The consensus is for a 1.0% increase in the index.

• At 11:00 AM, the New York Fed will release the Q2 2012 Report on Household Debt and Credit

• 2:00 PM, the Federal Reserve Beige Book will be released. This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts.


A question for the August economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 8/28/2012 05:04:00 PM

First a couple of bearish views on house prices - clearly residential investment has bottomed, but some analysts think house prices will fall further.

• From RadarLogic: Apparent Strength in Home Price Metrics Driven by Decline in Distressed Sales

A decline in sales of homes in bank inventories, coupled with an increase in the rate of all other sales, helped drive the 25 metropolitan area RPX Composite price to a year-over-year gain in June, according to the June 2012 RPX Monthly Housing Market Report ...
"The absence of real price appreciation when distressed sales are excluded from the analysis suggests that traditional home buyers remain hesitant to return to the market in strength," said Michael Feder, Radar Logic's CEO. "We continue to be concerned that this negative psychology could be the biggest risk threatening any real recovery in housing values. If it continues, the resultant imbalance between supply and demand could trigger another decline in home values."

The gains of the first half of 2012 could be short lived. They were the result of seasonal factors and REO disposition strategies that could reverse in the fall. The unusually rapid price appreciation could give way to equally rapid declines in the second half of the year.

• From Mark Hanson posted at the Big Picture: Hanson On Case Shiller

[T]oday’s CS is disappointing…a YoY 15% increase in purchasing power and 25% decrease in foreclosure resales and still the CS-20 NSA only managed a 0.5% gain over last year. To me, normalized, that means real house prices are still falling.

My view is house prices probably bottomed early this year (back when I wrote "The Bottom is Here").

And on foreclosures: CoreLogic® Reports 58,000 Completed Foreclosures in July

According to the report, there were 58,000 completed foreclosures in the U.S. in July 2012 down from 69,000 in July 2011 and 62,000* in June 2012. Since the financial crisis began in September 2008, there have been approximately 3.8 million completed foreclosures across the country. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure.
...
“Completed foreclosures were down again in July, this time by 16 percent versus a year ago, as servicers increasingly rely on alternatives to the foreclosure process, such as short sales and modifications,” said Mark Fleming, chief economist for CoreLogic. “Completed foreclosures remain concentrated in five states, California, Florida, Michigan, Texas and Georgia, accounting for 48 percent of all completed foreclosures nationwide in July.”

Earlier:
• Case-Shiller: House Prices increased 0.5% year-over-year in June
• House Price Comments, Real House Prices, Price-to-Rent Ratio
• All Current House Price Graphs

by Calculated Risk on 8/28/2012 02:50:00 PM

The FDIC released the Quarterly Banking Profile for Q2 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $34.5 billion in the second quarter of 2012, a $5.9 billion improvement from the $28.5 billion in profits the industry reported in the second quarter of 2011. This is the 12th consecutive quarter that earnings have registered a year-over-year increase. Lower provisions for loan losses and higher gains on sales of loans and other assets accounted for most of the year-over-year improvement in earnings. Also noteworthy was an increase in loan balances for the fourth time in the last five quarters.

The FDIC reported the number of problem banks declined:

The number of "problem" institutions fell for the fifth quarter in a row. The number of "problem" institutions declined from 772 to 732. This is the smallest number of "problem" banks since year-end 2009. Total assets of "problem" institutions declined from $292 billion to $282 billion. Fifteen insured institutions failed during the second quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12. Another nine banks have failed so far in the third quarter, bringing the total for the year to date to 40. At this point last year, there had been 68 failures.

Click on graph for larger image.

And the dollar value of Real Estate Owned (REOs, foreclosure houses) declined from $11.1 billion in Q1 to $9.5 billion in Q2. This is the lowest level of REOs since Q1 2008.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

The next graph is from Tom Lawler and shows the total REO for Fannie, Freddie, FHA, Private Label (PLS) and FDIC insured institutions. This isn't all the REO, as Lawler noted before, it "excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts", but it is probably over 90%.

Some comments from Tom Lawler:

On the SF REO front, the “carrying value” of 1-4 family REO properties of FDIC-insured institutions at the end of last quarter was $9.5302 billion, down from $11.0819 billion at the end of the first quarter and $12.0895 billion a year ago. The FDIC does not report (or even collect) data on the number of 1-4 family REO properties held by FDIC-insured institutions, which is annoying.

Assuming that the carrying value of SF REO properties held by FDIC-insured institutions is 50% higher than the average of Fannie and Freddie, here is a chart showing trends in the SF REO inventories of Fannie, Freddie, FHA, private-label securities (from Barclays Capital), and FDIC-insured institutions.

Combined REO inventories last quarter were down about 21% from a year ago, and were at the lowest level since 2007.