by Calculated Risk on 1/24/2011 03:33:00 PM

This is an update to a post I wrote in April 2010. Once again people are asking if the Fed will raise rates this year? It is unlikely.

That reminds me of a question Catherine Rampell at the NY Times Economix asked: How Long Is an ‘Extended Period’?

My short answer: Longer than many analysts expect.

We can compare to the "considerable period" language in 2003:

• June 25, 2003: Lowered Rate to 1%, Unemployment Rate peaked at 6.3%

• August 12, 2003: “the Committee believes that policy accommodation can be maintained for a considerable period.” Unemployment rate at 6.1%

• December 9, 2003: Last statement using the phrase "considerable period". Unemployment rate at 5.7%

• January 28, 2004: the Committee believes that it can be patient in removing its policy accommodation. Unemployment Rate 5.7%

• May 4, 2004: “the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” Unemployment Rate 5.6%

• June 30, 2004: FOMC raised the Fed Funds rate 25 bps. Unemployment Rate 5.6%

So "extended period" is probably 6+ months after the language changes. The FOMC will meet this week, and there has been no hint that the "extended period" language will change. The next meeting will be on March 15th and the next two day meeting is near the end of April.

Based on past experience - as I noted last year - it is unlikely the Fed will raise rates until the unemployment rate is below 8%, and therefore I think it is very unlikely the Fed will raise rates this year.

by Calculated Risk on 1/24/2011 11:37:00 AM

Moody's reported today that the Moody’s/REAL All Property Type Aggregate Index increased 0.6% in November. Note: Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales and there are a large percentage of distressed sales - and that can impact prices and make the index very volatile.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in new window.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are up 2.8% from a year ago and down about 42% from the peak in 2007.

CoStar reported that CRE prices declined in November, and that the commercial market is bifurcated (even trifurcated) with trophy properties doing well, but prices for other properties still declining.

by Calculated Risk on 1/24/2011 10:40:00 AM

The Department of Transportation (DOT) reported that vehicle miles driven in November were up 1.1% compared to November 2009:

Travel on all roads and streets changed by 1.1% (2.6 billion vehicle miles) for November 2010 as compared with November 2009. Travel for the month is estimated to be 241.8 billion vehicle miles.

Cumulative Travel for 2010 changed by 0.7% (19.0 billion vehicle miles).

Click on graph for larger image in new window.

This graph shows the rolling 12 month total vehicle miles driven.

On a rolling 12 month basis, vehicle miles driven have only increased 1.2% from the bottom of the recession.

Miles driven are still 1.3% below the peak in 2007. This is another indicator of a sluggish recovery.

Note: in the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months. Currently miles driven has been below the previous peak for 36 months - another record that will be broken soon.

by Calculated Risk on 1/24/2011 09:00:00 AM

From Campbell/Inside Mortgage Finance HousingPulse: Distressed Property Index Surged in December

One of the biggest developments in December was a sharp jump in the HousingPulse Distressed Property Index or DPI ... Last month’s DPI was 47.2% and reflected the share of total home sale transactions that involved distressed properties. December’s level was up from 44.5% in November and nearly matched the 47.5% peak in the index reached in September ...

Distressed property sales were not distributed evenly around the country. In California, a state hit hard by the foreclosure crisis, an incredible 66% of all transactions tracked in December involved distressed properties. The combined area of Arizona and Nevada similarly suffered, with 62% of transactions being distressed. However, in the oil-producing states of Texas, Oklahoma, and Louisiana, only 29% of transactions were distressed.
...
Campbell Surveys predicts the surge in home buying may not last. “January and February are typically the slowest months of the year for home buying,” explained Popik. “And we’ll still have a backlog of foreclosed homes coming on the market during the winter, so prices may come under pressure, too.”

The NAR reported an increase in distressed sales in December too:

Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

There will probably be more distressed sales in a few months as banks resume foreclosures.

by Calculated Risk on 1/23/2011 09:36:00 PM

Here is topic we've been discussing for several years ...

From Douglas Hanks at the Miami Herald: S. Florida job-market mobility stuck at home

[Joe] Farkas, 53, sees his underwater mortgage as something of a career anchor, too. He would pursue jobs across the country if it weren't for the financial hit he'd take by selling the house for a loss.

``There would be a lot more for me to choose from, a lot more for me to pursue,'' said Farkas ...

As I wrote several years ago, less worker mobility is kind of like arteriosclerosis of the economy. It lowers the overall growth potential. And how about this comment:

``I've had discussions with people who say, I'm willing to [relocate],'' said Berger, senior vice president of client relations for Octagon Technology Staffing. The first question I ask is: `How long have you owned your home?' If it's since '99, great. If it's 2005, that's a problem.''

This mobility problem will be with us for years.


Earlier:
• Here is the busy economic schedule for the coming week.
• Here is the Summary of last week

by Calculated Risk on 1/23/2011 02:33:00 PM

There will be a two day meeting of the Federal Open Market Committee (FOMC) on Tuesday and Wednesday of the coming week. The FOMC statement will be released on Wednesday around 2:15 PM ET, and I expect no changes to the Fed Funds rate, or to the program to reinvest principal payments, or to the Large Scale Asset Purchase program (LSAP, aka "QE2").

The only questions are: 1) will the statement will be more positive than in December, and 2) how many members, if any, will dissent.

• The key portions of the December statement will remain the same. I don't expect the sentence "likely to warrant exceptionally low levels for the federal funds rate for an extended period" to be changed any time soon. There might be some minor changes to the first paragraph to mention the recent improvement in economic data, but the second and third paragraphs will probably remain the same as in December:

... Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. ...

... The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. ...

• The voting committee members will change this month, and there may be more dissenting votes. The regional Federal Reserve Bank presidents serve one-year terms as voting members of the FOMC on a rotating basis (the NY Fed president is a permanent voting member).

This means Kansas City Fed president Thomas M. Hoenig will not be a voting member this year. Hoenig was the lone dissenting vote at every meeting in 2010.

Regional voting members this year include Charles L. Evans, Chicago, Richard W. Fisher, Dallas, Narayana Kocherlakota, Minneapolis and Charles I. Plosser, Philadelphia. Both Plosser "The Scope and Responsibilities of Monetary Policy" and Fisher "The Limits of Monetary Policy" have expressed reservations about QE2. So there might be two dissenting votes this week.