by Calculated Risk on 9/22/2010 08:30:00 AM

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

Reuters reports that the American Institute of Architects’ Architecture Billings Index increased to 48.2 in August from 47.9 in July. Any reading below 50 indicates contraction.

Project cancellations continue to be the main roadblock to recovery for the construction sector, the group said.

The ABI press release is not online yet.

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So there will probably be further declines in CRE investment into 2011.

by Calculated Risk on 9/22/2010 07:12:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 0.9 percent from the previous week, which is the third straight weekly decrease. The seasonally adjusted Purchase Index decreased 3.3 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.44 percent from 4.47 percent, with points decreasing to 0.81 from 1.08 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Purchase applications have declined for two consecutive weeks after rising slightly from the lows in July. Purchase applications are at about the levels of 1996 or 1997, suggesting existing home sales (closed transactions) in August, September and even October, will be weak. (Lawler's estimate is existing home sales will be around 4.1 million SAAR in August - to be reported Thursday)

by Calculated Risk on 9/21/2010 08:31:00 PM

I was going to ignore this, but I realized Tanta had written some informative and entertaining pieces that will help everyone understand the issues.

First an update from Bloomberg earlier today: Ally Says GMAC Mortgage Mishandled Affidavits on Foreclosures

Ally Financial Inc., whose GMAC Mortgage unit halted evictions in 23 states amid allegations of mishandled affidavits, said its filings contained no false claims about home loans.

The “defect” in affidavits used to support evictions was “technical” and was discovered by the company, Gina Proia, an Ally spokeswoman, said in an e-mailed statement.

The basic facts are:

The homeowners had a mortgage.

The homeowners are in default.

The lender was sloppy and filed inaccurate documents with the court.

This is great for the lawyers (fighting foreclosure), and costly for the lender, but this is nothing new - except that GMAC must not have been paying attention!

The best reporting on the GMAC story comes from 2007 (just change the name of the lender) - and you can learn all about affidavits from Tanta's posts:

From 2007: Deutsche Bank FC Problems and Revenge of the Nerd

And a follow-up in 2007: In Re Foreclosure Cases

And in 2008 on Lost Note Affidavit (LNA): Lost Note Affidavits & Skeletons in the Closet

And what Tanta wrote in 2007 applies to the GMAC stories:

To summarize: there were dollars on the table encouraging secondary market participants to get real sloppy. ... The big news here is that the true cost of doing business is belatedly showing up. I happen to think that's a more important story than was originally reported.

Another amazing story is that three years later all these lenders haven't realized how sloppy the original work was!

Note that all of these stories were for non-GSE lenders and/or loans that were in private label MBS. These guys tried to cut corners everywhere, and they are now paying the price for being sloppy. They deserve to be ridiculed ...

by Calculated Risk on 9/21/2010 06:50:00 PM

From the White House: Dr. Lawrence H. Summers, Director of the National Economic Council, to Return to Harvard University at the End of the Year

From Bloomberg: Summers to Leave White House After Election

From the NY Times: Top White House Economic Adviser to Depart

This is quite a turnover: Christina Romer, Peter Orszag, and now Lawrence Summers. I expect Treasury Secretary Timothy Geithner will stay on (just a guess) - and I have no idea who will replace Summers.

by Calculated Risk on 9/21/2010 03:44:00 PM

Fed Chairman Ben Bernanke suggested in his August 27th speech at Jackson Hole that additional easing would probably require “significant weakening of the outlook” or a meaningful decline in inflation expectations (or further disinflation).

The change to the FOMC statement today on inflation suggests the second criteria might have been met:

"Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

This was a significant downgrade from the statement last month:

"Measures of underlying inflation have trended lower in recent quarters ..."

The FOMC and staff forecasts will be presented next month (Note: earlier I thought it might be today), and these forecasts will probably be revised down again. That will probably meet the "significant weakening of the outlook" criteria.

Also - the two key economic releases between now and the two day meeting on November 2nd and 3rd are the September employment report (to be released on October 8th) and the Q3 GDP advance estimate (to be released on October 29th). Barring a significant upside surprise in one or both of those reports, it appears QE2 might arrive as early as November.

This statement today was pretty clear: The FOMC "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

by Calculated Risk on 9/21/2010 02:15:00 PM

Paving the way for QE2 ...

From the Fed:

Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives.