by Calculated Risk on 5/29/2013 10:15:00 AM

The FDIC released the Quarterly Banking Profile for Q1 today.

Improvements in noninterest income and expense, plus broad-based reductions in loan loss provisions, outweighed declining net interest income and helped lift industry earnings to an all-time high of $40.3 billion in first quarter 2013. First-quarter net income was $5.5 billion (15.8 percent) higher than in first quarter 2012, as a reduction in expenses for litigation costs and proceeds from a legal settlement boosted reported earnings. Half of all insured institutions reported year-over-year improvement in quarterly earnings, the lowest proportion since fourth quarter 2009.

The FDIC reported the number of problem banks declined:

The number of FDIC-insured institutions reporting financial results fell to 7,019 in the first quarter, down from 7,083 in fourth quarter 2012. Mergers absorbed 55 institutions during the quarter, and four institutions failed. This is the smallest number of failures in a quarter since second quarter 2008. For a 7th consecutive quarter, no new insured institutions were added. Except for charters created to absorb failed banks, there have been no new charters added since fourth quarter 2010. The number of insured institutions on the FDIC’s “Problem List” declined for an eighth consecutive quarter, from 651 to 612. Total assets of “problem” institutions declined from $233 billion to $213 billion. The number of full-time equivalent employees at insured institutions fell from 2,110,276 to 2,102,839 during the quarter.

Click on graph for larger image.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $8.34 billion in Q4 2012 to $7.89 billion in Q1. This is the lowest level of REOs since Q4 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO.

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.

by Calculated Risk on 5/29/2013 09:14:00 AM

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

The Refinance Index decreased 12 percent, the largest single week drop in refinance applications this year, from the previous week to the lowest level since December 2012. The seasonally adjusted Purchase Index increased 3 percent from one week earlier.
...
"Refinance applications fell for the third straight week bringing the refinance index to its lowest level since December 2012 as mortgage rates increased to their highest level in a year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Rates rose in response to stronger economic data and an increasing chance that the Fed may soon begin to taper their asset purchases."

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.90 percent, the highest rate since May 2012, from 3.78 percent, with points unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

There has been a sustained refinance boom for over a year.

However the index is down almost 30% over the last three weeks, and this is the lowest level since last December.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and the 4-week average of the purchase index is up about 10% from a year ago.

by Calculated Risk on 5/28/2013 09:19:00 PM

Earlier on house prices:
• Case-Shiller: Comp 20 House Prices increased 10.9% year-over-year in March

• Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000

And from Nick Timiraos at the WSJ about concerns of a new bubble: Home Sales Power Optimism

The pace of home-price gains has raised concerns among some economists over whether low mortgage rates have stimulated unsustainable home-price inflation—the proverbial bubble that some critics of Fed policies have feared. ...

The worries about rapid price growth look especially founded in more expensive markets such as San Francisco, Los Angeles and San Diego that have witnessed double-digit price gains over the past year. While home prices still look cheap on a historical basis, "the trouble is that that impression is almost entirely the function of low mortgage rates," said Stan Humphries, chief economist at Zillow Inc. Cheap credit is "distorting housing considerably," he said.

Others say it's too soon for alarm. Price gains largely reflect a rebound from low levels and prices remain largely in line with their long-run relationship between incomes and rents, said Christopher Thornberg, an economist with Beacon Economics in Los Angeles. "Could this thing go on too long? Absolutely," he said. "Could it turn into the next bubble? Absolutely. But we're not there yet, so I'm not going to start screaming 'Bubble.' "

And from Catherine Rampell at the NY Times: Homes See Biggest Price Gain in Years, Propelling Stocks

Economists generally expect home prices to continue rising, particularly as the economy improves and more young people move out of their parents’ homes and into homes of their own. And many dismiss concerns of a potential bubble, not only because household formation is growing but also because housing prices remain well below their highs. Even after 10 straight months of year-over-year gains, the 20-city Case-Shiller composite price index is 28 percent below its previous peak in July 2006, which is probably a good thing.

“Talk of a house price bubble seems premature,” said Ed Stansfield, an economist at Capital Economics. “In relation to incomes, rents or their own past, U.S. home prices still look low.”

What’s more, credit is still hard to come by. The Federal Reserve has pushed interest rates down about as far as they can go, but many people who want to buy are still finding it difficult to get a home loan.

“We usually think of bubbles as being driven by extremely easy credit, with people borrowing more than the outstanding value of the house and making little to no down payment,” said Mr. Gapen. “That’s not the case with credit standards today.”

Wednesday economic releases:
• At 7:00 AM ET, Update: Because of the holiday, this will probably be released on Thursday. the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. Look for rising mortgage rates.

• At 10:00 AM, the FDIC will release the Q1 Quarterly Banking Profile and hold "a press conference to discuss a comprehensive summary of the first quarter 2013 financial results for all FDIC-insured institutions". The webcast of the press conference will be available here.

by Calculated Risk on 5/28/2013 06:34:00 PM

From Zillow today: 30-Year Fixed Mortgage Rates Rise to 12-Month Highs; Current Rate is 3.71%

Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 3.71 percent, up from 3.58 percent at this same time last week.

The 30-year fixed mortgage rate hovered between 3.65 and 3.68 percent for the majority of the week before rising to the current rate this morning.

“Rates spiked last week after meeting minutes revealed the Fed was contemplating scaling back economic stimulus plans much earlier than expected,” said Erin Lantz, director of Zillow Mortgage Marketplace. “Now at 12-month highs, we expect rates to remain stable in the near-term, but new direction from the Fed and employment figures could boost rates significantly.”

Here is an update to an old graph - by request - that shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey. 

Click on graph for larger image.

Currently the 10 year Treasury yield is 2.135% and 30 year mortgage rates are at 3.71% (according to Zillow). Based on the relationship from the graph, if the ten year yield stays in this range, 30 year mortgage rates might move up to around 4%.

Note: The yellow markers are for the last three years with the ten year yield below 3%. A trend line through the yellow markers only is a little lower, but still close to 4% at the current 10 year Treasury yield.

by Calculated Risk on 5/28/2013 02:24:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly in 2013. 

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for April).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory increased more than the normal seasonal pattern, and finished the year up 7%. However in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

So far in 2013, inventory is up 16.4%. This is well above the peak percentage increases for 2011 and 2012 and suggests to me that inventory is near the bottom. It now seems likely - at least by this measure - that inventory bottomed early this year (it could still happen early next year). 

It is important to remember that inventory is still very low, and is down 15.5% from the same week last year according to Housing Tracker.  Once inventory starts to increase (more than seasonal), buyer urgency will wane, and I expect price increases to slow.

This graph shows the NAR estimate of existing home inventory through April (left axis) and the HousingTracker data for the 54 metro areas through late May.  

Since the NAR released their revisions for sales and inventory in 2011, the NAR and HousingTracker inventory numbers have tracked pretty well.

The third graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

The year-over-year declines will probably continue to get smaller all year.

Right now I think inventory bottomed early this year, and, if correct, the year-over-year change will be zero late this year (or early in 2014).