by Calculated Risk on 10/16/2012 08:30:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment. For the second month in a row, the substantial increase in the all items index was mostly the result of an increase in the gasoline index, which rose 7.0 percent in September after increasing 9.0 percent in August.
...
The index for all items less food and energy rose 0.1 percent for the third month in a row.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was above the consensus forecast of a 0.5% increase for CPI, and below the consensus for a 0.2% increase in core CPI.

The increase in CPI was mostly due to the sharp increase in gasoline prices.

Cost-Of-Living Adjustment (COLA): The BLS reported CPI-W increased to 2281.84 in September, for a Q3 average of 226.936. In Q3 2011, CPI-W average 223.33. The annual Social Security Cost-Of-Living Adjustment will be 1.66% (will be rounded).

by Calculated Risk on 10/15/2012 08:54:00 PM

From the WSJ: Proposal Would Give Banks Protection in Cases Involving Top-Quality Mortgages

The proposal for the first time would establish a basic national standard for loans, known as a "qualified mortgage."

As part of its deliberation, the Consumer Financial Protection Bureau is considering providing a full legal shield for high-quality loans that qualify, mandating that judges rule in lenders' favor if consumers contest foreclosures, these people say.

For a smaller category of loans that still meet the "qualified mortgage" guidelines but carry higher interest rates—a group similar to "subprime loans"—lenders would receive fewer protections. In those cases, consumers could argue in court that lenders should have known that they couldn't afford the mortgage.

On Tuesday:
• At 8:30 AM ET, the Consumer Price Index for September will be released. The consensus is for CPI to increase 0.5% in September and for core CPI to increase 0.2%. This release will determine the Cost-of-living-adjustment for Social Security. Currently I expect COLA to be around 1.6%.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for September. The consensus is for Industrial Production to increase 0.2% in September, and for Capacity Utilization to increase to 78.3%.

• At 10:00 AM, the October NAHB homebuilder survey will be released. The consensus is for a reading of 41, up from 40 in September. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.  This index bottomed at 8 in January 2009, and was at or below 22 for over 4 1/2 years.


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

by Calculated Risk on 10/15/2012 06:54:00 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 September 2012, 50.8% of all resales (single family homes and condos) were distressed sales. This was down from 52.0% last month, and down from 64.0% in September 2011. The percentage of REOs fell to 15.4%, 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.

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

Total sales were down 10% from September 2011, however conventional sales were up 23% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - some decline in overall sales as distressed sales decline, but an increase in conventional sales.

Active Listing Inventory for single family homes declined 63.4% from last September, and listings were down 11.1% in September compared to August.

Cash buyers accounted for 35.9% of all sales (frequently investors), and median prices were up 9.6%% from last September.

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 10/15/2012 04:47:00 PM

Early this year when I wrote The Housing Bottom is Here and Housing: The Two Bottoms, I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

For the bottom in activity, I presented a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

When I posted that graph, the bottom wasn't obvious to everyone. Now it is, and here is another update to that graph (and a repeat of some analysis).

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011. This was a long flat bottom - something a number of us predicted given the overhang of existing vacant housing units.

Housing plays a key role for employment too. Here is an update to a graph I've been posting for a few years. This graph shows single family housing starts (through August) and the unemployment rate (inverted) also through September. Note: there are many other factors impacting unemployment, but housing is a key sector.

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts (blue) increased a little in 2009 with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing last year. This was one of the reasons the unemployment rate remained elevated.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recover.

However, following the recent recession with the huge overhang of existing vacant housing units, this key sector didn't participate. This time the unemployment rate started falling before housing starts picked up.  Going forward I expect housing activity to increase and help push down the unemployment rate. Unfortunately I expect the housing recovery to be somewhat sluggish.

by Calculated Risk on 10/15/2012 01:48:00 PM

On Sunday, I wrote that private modifications were performing better than HAMP. According to the Q2 OCC report, HAMP modifications have a lower redefault rate than private mods:

HAMP modifications perform better than other modifications. Of the 565,751 HAMP modifications implemented since the third quarter of 2009, 68.2 percent remained current, compared with 53.4 percent of other modifications implemented during the same period.
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Servicers modified 2,543,133 mortgages from the beginning of 2008 through the end of the fourth quarter of 2011. At the end of the first quarter of 2012, 50.7 percent of these modifications remained current or were paid off. Another 7.1 percent were 30 to 59 days delinquent, and 15.1 percent were seriously delinquent. Almost 11 percent were in the process of foreclosure, and 6.3 percent had completed the foreclosure process. More recent modifications that emphasized reduced payments, affordability and sustainability have outperformed modifications implemented in earlier periods.

The OCC report covers about "60% of all first-lien mortgages in the United States" whereas the Hope Now report I mentioned on Sunday includes data from the non-bank servicers (not included in the OCC report) and is scaled to cover the entire first lien market. I'll have more on modifications soon (Mark Hanson called modifications the "new subprime").

Also, as a followup to a question in the comments, here is a "heat map" from Zillow on where properties owners have negative equity. Note: you can zoom in on the map, and put the cursor over an area - it will show the distribution of equity.