by Calculated Risk on 9/12/2012 12:01:00 AM

On QE3 from Binyman Appelbaum at the NY Times: Economic Stimulus as the Election Nears? It’s Been Done Before

In September 1992, the Federal Reserve culminated a long-running effort to stimulate the sluggish economy by cutting its benchmark interest rate to 3 percent, the lowest level it had reached in almost three decades.

The cut was avidly sought by the administration of President George H. W. Bush, but it was not enough to change the course of the presidential election. Years later, Mr. Bush told an interviewer that the Fed’s chairman, Alan Greenspan, had cost him a second term by failing to act more quickly and more forcefully.
...
Experts say Fed officials are sensitive to the danger of a political reaction. But Randall S. Kroszner, a Fed governor from 2006 to 2009, said the Fed’s current chairman, Ben S. Bernanke, has concluded that the best defense of the Fed’s independence is to demonstrate its value by reaching decisions on the economic merits, then offering clear explanations to politicians and the public. “Any decision the Fed will make will make someone unhappy, but what you want out of an independent agency is a careful deliberative process,” said Mr. Kroszner, a professor of economics at the University of Chicago Booth School of Business.

“Providing as much substantive economic explanation as possible for the actions that the Fed is taking, that’s the best way to maintain the Fed’s independence,” he added.

Monetary policy impacts the economy with a lag, and it is too late to have an impact before the election - so politics shouldn't be a consideration.

The iPhone 5 is almost an economic event, from the WSJ: Expectancy Builds Up For Apple's New iPhone

The next iPhone, which has been referred to internally by the code name N41, has been in the works for more than a year, a person familiar with the matter said. Apple is expected to tweak the smartphone's shape with a slightly larger screen and a different shell, and it will work with wireless carriers' fastest LTE networks and run new mobile software. That software, iOS 6, includes improvements to voice-activated assistant Siri, a new digital-coupon-and-passes service called Passbook, and new call-blocking features, among several others.

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

• At 8:30 AM, Import and Export Prices for August will be released. The consensus is a for a 1.5% increase in import prices.

• At 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for July. The consensus is for a 0.4% increase in inventories.

by Calculated Risk on 9/11/2012 06:21:00 PM

I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

Recently there has been a dramatic shift from REO to short sales, and the percentage of distressed sales has been declining. This data would suggest some improvement although the percent of distressed sales is still very high.

In August 2012, 52.0% of all resales (single family homes and condos) were distressed sales. This was down from 54.4% last month, and down from 62.0% in August 2011. The percentage of REOs fell to 16.6%, the lowest since the Sacramento Realtors started tracking the data and the percentage of short sales increased to 35.4%, the highest percentage recorded.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales. Usually there is a seasonal pattern for conventional sales (stronger in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales decreases every summer and the increases in the fall and winter.

There has been an increase in conventional sales this year, and there were twice as many short sales as REO sales in August. The gap between short sales and REO sales is increasing.

Total sales were unchanged from August 2011 (same pace as last year even with fewer foreclosures).

Active Listing Inventory for single family homes declined 62.0% from last August, although listings were up 10.6% in August (from July).

Cash buyers accounted for 33.1% of all sales (frequently investors), and median prices were up 12.0% from last August.

This seems to be moving in the right direction, although the market is still in distress.

We are seeing a similar pattern in other distressed areas to more conventional sales, and a shift from REO to short sales,.

by Calculated Risk on 9/11/2012 04:04:00 PM

From housing economist Tom Lawler:

One of the big changes in the structure of the US Single Family (SF) housing market has been the sharp increase in the share of SF housing units that are occupied by renters. Obviously, one reason is the substantial increase in the share of SF home purchases by investor attracted by the steep drop in home prices relative to rents, and who plan to rent the purchased properties for “several” years. But ... where has the increase in the number of renters of SF homes come from?

Well, a decent % of the increased number of renters of SF homes has probably come from … yup, folks who “lost” their previously-owned SF home either to foreclosure or through a short sale.

In a Federal Reserve Staff Working Paper published last May entitled “The Post-Foreclosure Experience of U.S. Households,” Fed economists Raven Molloy and Hui Shan used data from the FRB of New York/Equifax “Consumer Credit Panel” dataset to try to identify where households experiencing foreclosure end up moving to, including the type of housing. While there are challenges with using the CCP dataset for this purpose (e.g., the dataset only identifies a foreclosure start, and not a completed foreclosure, and does not explicitly identify a mortgage as backing the borrower’s primary residence), the authors make certain assumptions (ya gotta read the paper) to attempt to identify where “owners” who experienced a foreclosure start and who moved two years later ended up living. They also compare the experience of these householders to a group of “similar” householders who did not experience a foreclosure but who also moved two years later.

While the dataset limitations make it difficult to make crystal-clear conclusions, the data seem to suggest that a fairly large (perhaps as high as 60%) percentage of householders experiencing a foreclosure from 2006 to 2008 subsequently ended up renting a SF home, though a non-trivial (perhaps as high as 23%) ending up renting a unit in a multifamily structure. Not surprisingly, very few of the householders in the dataset who experienced a foreclosure and subsequently moved had a mortgage on the property they had moved into.

When it comes to analyzing the portion of the so-called “shadow inventory” that is currently occupied by owners behind on their mortgages, where these householders may ultimately live is important in assessing the implications for the overall housing market. Some folks who write about the “shadow” inventory where they include properties backing mortgages likely to be foreclosed upon seem to assume that all of the folks living in these properties will either “disappear,” or move in with someone else. That just ain’t so!

Unfortunately, of course, there are to the best of my knowledge no good (or possibly no) data on the percentage of properties backing seriously-delinquent/in foreclosure mortgages that are vacant, occupied by renters, or occupied by owners. There also doesn't appear to be any data on the condition of these properties. I don’t rightly know why government officials haven’t asked the large servicers for such data, though it’s quite possible they don’t have a clue.

There are, of course, reasons to believe that the share of the “shadow” inventory that is either vacant or non-owner-occupied has fallen over the past few years. After all, the share of completed foreclosure sales that were non-owner-occupied has been significantly higher than the non-owner-occupied share of outstanding first-lien mortgages.

by Calculated Risk on 9/11/2012 02:12:00 PM

By request, here is an updated timeline of QE (and Twist operations):

• November 25, 2008: Press Release: $100 Billion GSE direct obligations, $500 billion in MBS

• December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities

• January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.

• March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities

• March 31, 2010: QE1 purchases were completed at the end of Q1 2010.

• August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2

• November 3, 2010: FOMC Statement: $600 Billion QE2 announced.

• June 30, 2011: QE2 purchases were completed at the end of Q2 2011.

• September 21, 2011: "Operation Twist" announced. "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."


• June 20, 2012: "Operation Twist" extended. "The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities."

• August 31, 2012: Fed Chairman Ben Bernanke hints at QE3: Analysis: Bernanke Clears the way for QE3 in September

This graph show the S&P 500 and the Fed actions. Click on graph for larger image.

by Calculated Risk on 9/11/2012 12:34:00 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.

From the GLVAR: GLVAR August 2012 Housing Statistics

According to GLVAR, the total number of local homes, condominiums and townhomes sold in August was 3,688. That’s up from 3,572 in July but down from the near-record 4,693 total sales in August 2011.
...
For the second straight month, the total number of homes listed for sale on GLVAR’s Multiple Listing Service bounced back a bit, with a total of 17,047 single-family homes listed for sale at the end of the month. That’s up 0.6 percent from 16,944 single-family homes listed for sale at the end of July, but still down 23.9 percent from one year ago.

[T]he number of available homes listed for sale without any sort of pending or contingent offer fell from the previous month and year. By the end of August, GLVAR reported 3,981 single-family homes listed without any sort of offer. That’s down 7.3 percent from 4,293 such homes listed in July and down 64.4 percent from one year ago.
...
Meanwhile, 43.7 percent of all existing local homes sold during August were short sales. That’s up from 40 percent in July and the highest short sale percentage GLVAR has ever recorded.

Continuing a trend of declining foreclosure sales in recent months, bank-owned homes accounted for 16.9 percent of all existing home sales in August, down from 20.7 percent in July.

A few key points:
• Even with the slight increase in inventory in August, inventory is still down sharply from a year ago (down 64.4 percent year-over-year for single family homes without contingent offers).

• The decline in sales from the record levels in 2011 (even more sales than during the bubble!) is because of the decline in foreclosures. Some of the recent decline in foreclosures is due to new foreclosure rules in Nevada, but there is also a shift to short sales.

• Short sales are more than double foreclosures now. The GLVAR reported 43.7 percent of sales were short sales, and only 16.9% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).

• The percent distressed sales was extremely high at 60.6% in August (short sales and foreclosures), down slightly from 60.7% in July.

• There is a push to complete short sales, from the article:

[H]omeowners are pushing to short-sell their homes by the end of the year, when the Mortgage Forgiveness Debt Relief Act is set to expire unless Congress acts to extend it. If Congress does not extend this law by Dec. 31, she said any amount of money a bank writes off in agreeing to sell a home as part of a short sale will become taxable income when sellers pay their income taxes.