by Calculated Risk on 1/24/2011 05:54:00 PM

There have been a few recent "policy" discussions that I haven't mentioned - because they are all about political posturing with no real substance.

A couple of examples:
• The Debt Ceiling. The deficit and the debt are real issues, but the "debt ceiling" debate is political posturing. Professor Hamilton recently wrote: Debt ceiling politics

If you have a concrete proposal to raise tax revenue or cut spending, then put it on the table. But if you simply want to grandstand on the debt ceiling as if it were a stand-alone issue, it is clear that you have nothing but contempt for the voters.

• A recent article in the NY Times about "discussions" on state bankruptcies. Not Gonna Happen. Economix has California’s state treasurer, Bill Lockyer response: State Bankruptcies? ‘Ludicrous,’ He Says

“It’s a cynical proposal, intended to incite a panic in response to a phony crisis,” Mr. Lockyer said in a conference call with journalists. “Killer bees, space aliens, and now it’s the invasion of the bankrupt states.”

The state budget issues are serious. And the U.S. debt and deficit issues are serious too. But I've ignored the "debt ceiling" and "state bankruptcy" discussions for a reason - they are nonsense.

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