by Calculated Risk on 3/19/2013 08:23:00 PM

I'm sure Bernanke will be asked about Cyprus in his press conference tomorrow. Also, in January, the FOMC statement contained the sentence: "Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook." That might be reworked a little ...

Note: Over the weekend, as a preview to the FOMC meeting: FOMC Projections Preview

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

• Morning, the AIA's Architecture Billings Index for February (a leading indicator for commercial real estate). This has been showing a pickup in billings recently.

• At 2:00 PM, the FOMC Meeting Announcement will be released. No change to interest rates or QE purchases is expected at this meeting.

• Also at 2:00 PM, the FOMC projections will be released. This will include the Federal Open Market Committee (FOMC) participants' quarterly economic projections.

• At 2:30 PM. Fed Chairman Ben Bernanke will hold a press conference.

by Calculated Risk on 3/19/2013 05:03:00 PM

This is a minor indicator that I follow.

From ATA: ATA Truck Tonnage Index Edged Higher In February

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index rose 0.6% in February after increasing 1% in January. (The 1% gain in January was revised down from a 2.4% increase ATA reported on February 19, 2013.) Tonnage has now increased for four straight months, which hasn’t happened since late 2011. Over the last four months, tonnage gained a total of 7.7%. In February, the SA index equaled 123.6 (2000=100) versus 123.0 in January. The highest level on record was December 2011 at 124.3. Compared with February 2012, the SA index was up a solid 4.2%, just below January’s 4.6% year-over-year gain. Year-to-date, compared with the same period in 2012, the tonnage index is up 4.4%. In 2012, tonnage increased 2.3% from 2011.

“Fitting with several other key economic indicators, truck tonnage is up earlier than we anticipated this year,” ATA Chief Economist Bob Costello said. “While I think this is a good sign for the industry and the economy, I’m still concerned that freight tonnage will slow in the months ahead as the federal government sequester continues and households finish spending their tax returns. A little longer term, I think the economy and the industry are poised for a more robust recovery.”
emphasis added

Note from ATA:

Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is fairly noisy, but is up solidly year-over-year.

by Calculated Risk on 3/19/2013 02:28:00 PM

From Business Insider: CYPRUS VOTES AGAINST CONTROVERSIAL BANK BAILOUT DEAL

The Cypriot parliament has voted against the bank bailout deal, with 36 votes against, reports Bloomberg.

19 abstained from voting.

The vote was held in a show of hands.

Back to the drawing board.

by Calculated Risk on 3/19/2013 12:15:00 PM

A few comments:

• Total housing starts in February were up 27.7% from the February 2012 pace. Single family starts were up 31.4%. This is a very strong year-over-year increase.

• Even with this significant increase, housing starts are still very low. Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. That means starts will probably increase more than 60% from the current level (917 thousand SAAR in February).

• Residential investment and housing starts are usually the best leading indicator for economy.  Nothing is foolproof as a leading indicator, but this suggests the economy will continue to grow over the next couple of years.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) is lagging behind - but completions will follow starts up (completions lag starts by about 12 months).

This means there will be an increase in multi-family deliveries this year, but still well below the 1997 through 2007 level of multi-family completions.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts are moving up and completions are following.  Usually single family starts bounce back quickly after a recession, but not this time because of the large overhang of existing housing units. 

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 3/19/2013 09:57:00 AM

From CoreLogic: CoreLogic reports 200,000 More Residential Properties Return to Positive Equity in Fourth Quarter of 2012

CoreLogic ... today released new analysis showing approximately 200,000 more residential properties returned to a state of positive equity during the fourth quarter of 2012. This brings the total number of properties that moved from negative to positive equity in 2012 to 1.7 million and the number of mortgaged residential properties with equity to 38.1 million. The analysis also shows that 10.4 million, or 21.5 percent of all residential properties with a mortgage, were still in negative equity at the end of the fourth quarter of 2012. This figure is down from 10.6 million properties, or 22 percent, at the end of the third quarter of 2012.

... At the end of the fourth quarter, 2.3 million residential properties had less than 5 percent equity, referred to as near-negative equity. Properties that are near negative equity are at risk should home prices fall. ...

“In the fourth quarter we again saw an improvement in the equity position of households,” said Dr. Mark Fleming, chief economist for CoreLogic. “Housing market improvements, particularly in the hardest hit states, are the catalyst for households to regain equity and become participants in 2013’s housing market.”
emphasis added

Click on graph for larger image.

This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic:

"Nevada had the highest percentage of mortgaged properties in negative equity at 52.4 percent, followed by Florida (40.2 percent), Arizona (34.9 percent), Georgia (33.8 percent) and Michigan (31.9 percent). These top five states combined account for 32.7 percent of negative equity in the U.S."

The second graph shows the distribution of home equity. Just under 10% of residential properties have 25% or more negative equity - it will be long time before those borrowers have positive equity. But other borrowers are close.

More from CoreLogic: "Of the properties in negative equity, 1.8 million, or 3.7 percent of all residential properties with a mortgage, had current estimated loan-to-value (LTV) ratios between 100 and 105, referred to as near-equity. If home prices were to rise another 5 percent, these properties would move into a positive equity position."

According to CoreLogic, 1.7 million borrowers returned to positive equity from negative equity in 2012. I expect a similar number will return to positive equity in 2013.