by Calculated Risk on 5/19/2011 11:45:00 AM

The MBA reported that 12.84 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q1 2011 (seasonally adjusted). This is essentially the same as in Q4. There was a significant decline in Not Seasonally Adjusted (NSA) delinquencies, but that is the usual seasonal pattern.

The following graph shows the percent of loans delinquent by days past due.

Click on graph for larger image in graph gallery.

Loans 30 days delinquent increased to 3.35% from 3.26% in Q4. This is below the average levels of the last 2 years, but still higher than normal.

Delinquent loans in the 60 day bucket were unchanged at 1.35%; this is the lowest since Q2 2008.

There was a slight increase in the 90+ day delinquent bucket. This increased from 3.62% in Q4 to 3.65% in Q1 2011.

The percent of loans in the foreclosure process decreased to 4.52%.

Note: Because of the high level of delinquencies, there are some questions about the accuracy of the seasonal adjustment (similar to Q1 2010 - and also the problems with Case-Shiller House prices).

A couple of comments from MBA chief economist Jay Brinkmann on the conference call:

• "Bulk of problem loans were originated in 2005, 2006, and 2007." The lenders are still working through those loans.

• Brinkmann: "Outlook is good. Market is on the mend."

• Florida has 24% of all loans in the foreclosure process. California is 2nd with 11% (but based on the size of the state that is actually below the national average as the next graph shows).

This graph shows the percent of loans in the foreclosure process by state. Blue is for states with a judicial foreclosure process. Because the judicial process is longer, those states have more loan in the process.

Florida, Nevada, New Jersey and Illinois are the top four states with loan in the foreclosure process.

Note: the MBA's National Delinquency Survey (NDS) covered "MBA’s National Delinquency Survey covers about 43.7 million first-lien mortgages on one- to four-unit residential properties" and the "The NDS is estimated to cover around 88 percent of the outstanding first-lien mortgages in the market." This gives almost 50 million total first lien mortgages or about 6.4 million delinquent or in foreclosure.

From the MBA: Significant Declines in 90+ Day Delinquencies and Foreclosures in Latest MBA National Delinquency Survey

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.32 percent of all loans outstanding as of the end of the first quarter of 2011, an increase of seven basis points from the fourth quarter of 2010, and a decrease of 174 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 117 basis points to 7.79 percent this quarter from 8.96 percent last quarter.
...
The percentage of loans in foreclosure, also known as the foreclosure inventory rate, decreased 12 basis points overall to 4.52.

Note: 8.32% (SA) and 4.52% equals 12.84%.

This data is a little confusing on a national basis because of the seasonal issues - and because of the concentration of problems in Florida and other states. Last year I thought overall delinquencies had peaked (that appears correct), and I think delinquencies will decline further this year as lenders work through the backlog of loans from 2005 through 2007. There was a slight increase in the 30 day delinquency bucket, possibly because of lower house prices - that is something to watch carefully over the next few quarters.

by Calculated Risk on 5/19/2011 10:00:00 AM

The NAR reports: April Existing-Home Sales Ease

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.
...
Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply4 at the current sales pace, up from an 8.3-month supply in March.

Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in April 2011 (5.05 million SAAR) were 0.8% lower than last month, and were 12.9% lower than in April 2010.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.87 million in April from 3.52 million in March.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory peaking in the summer and declining in the fall and winter. Inventory will probably increase over the next several months.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory - so the increase in months-of-supply during the Spring is expected.

Although inventory increased from March to April (as usual), inventory decreased 3.9% year-over-year in April from April 2010. This is the third consecutive month with a YoY decrease in inventory.

Inventory should increase over the next few months and peak in the summer (the normal seasonal pattern), and the YoY change is something to watch closely this year.

Months of supply increased to 9.2 months in April, up from 8.3 months in March. The months of supply will probably increase over the next few months as inventory increases. This is much higher than normal.

These sales numbers were below the consensus of 5.2 million SAAR, but the key number is the year-over-year change in inventory, and that suggests less downward pressure on house prices even though inventory is well above normal (I'll have more later - here is the NSA chart)

UPDATE: Some people misread what I wrote. There is STILL downward pressure on house prices from the high level of inventory, but the year-over-year decline suggests "less" downward pressure. "Less" does not mean "none". Of course there is also downward pressure from all the distressed sales.

by Calculated Risk on 5/19/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending May 14, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 29,000 from the previous week's revised figure of 438,000. The 4-week moving average was 439,000, an increase of 1,250 from the previous week's revised average of 437,750.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 439,000.

This is the highest level for the 4-week average since last November.

Note: It appears there were some temporary factors over the last few weeks that led to higher weekly unemployment claims. I expect the 4-week average to decline over the next few weeks, but it is concerning that the average is above 400,000 again.
_________________________________________________________
Schedule Update: At 10 AM ET the following will be released:

1) April Existing home sales
2) MBA Q1 Delinquency report
3) Philly Fed manufacturing survey
4) Conference Board leading indicators

I plan on posting on existing home sales. Then I'll be on the MBA conference call - and post on that data - and then I'll get back to the Philly Fed.

by Calculated Risk on 5/18/2011 09:46:00 PM

From Catherine Rampell at the NY Times: Many With New College Degree Find the Job Market Humbling

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree ...

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday ...

Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007.

And many of there recent graduates are saddled with excessive student debt - a difficult situation and a poor time to start a career.

by Calculated Risk on 5/18/2011 05:48:00 PM

Tomorrow morning will be busy, and I just wanted to touch on these three releases:

• Weekly Initial Unemployment Claims. The number of claims jumped up in recent weeks and this raises a key question: Is this a sign of renewed weakness in the labor market, or was the increase temporary? Goldman Sachs put out a note earlier this week arguing the increase in claims was mostly temporary due to auto-sector layoffs (related to supply chain and the earthquake in Japan), some unusual seasonal factors mostly (timing of Easter and shifting school holidays) and a few other miscellaneous factors. There were probably also some storm / flooding related claims, so we might not see a huge decline in the report tomorrow. The consensus is for a decrease to 420,000 from 434,000 last week - and this will be important to watch over the next few weeks.

• The Mortgage Bankers Association (MBA) will release the Q1 National Delinquency Survey (NDS) survey. My guess is this will show a sharp decline in overall delinquencies, but probably a record percentage of loans in the foreclosure process. I expect this will be viewed as good news (because of the sharp decline in overall delinquencies). I'll be on the conference call at 10:30 AM and pass along the comments.

• Existing Home Sales for April. Tom Lawler is estimating that the NAR will report that "existing home sales ran at a seasonally adjusted annual rate of 5.15 million in April, up 1% from March’s pace, but down 11.2% from last April’s tax-credit-goosed pace".

Probably more important than sales is the change in inventory. This is hard to predict, but Lawler expects a modest 1.5-2.0% increase from March to April. However Tom has warned that the NAR seems to always show a huge inventory increase in April, and even though the number is suspect, inventory is probably the key number in tomorrow's report.

Last April, the NAR reported inventory at 4.029 million units, and NAR reported 3.549 million in March 2011. It would take a pretty large month-to-month increase to see a positive year-over-year change in inventory.

This graph based on the March shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in graph gallery.

Although inventory increased from February to March (as usual), inventory decreased 2.1% year-over-year in March (from March 2010). This is the second consecutive month with a small YoY decrease in inventory.

Although inventory is already very high, if the trend of declining year-over-year inventory continues there would be less pressure on house prices. Note: There are also questions about "active" inventory since it seems more homes are "pending" or otherwise not active in the listings, but that will not be addressed in the release tomorrow.

by Calculated Risk on 5/18/2011 02:00:00 PM

The Bernanke press conference after the FOMC meeting covered some of discussion in the statement.

From the April 27, 2011 FOMC meeting. There is a lengthy discussion on the eventual exit strategy, although it clearly will not happen soon.

Meeting participants agreed on several principles that would guide the Committee's strategy for normalizing monetary policy. First, with regard to the normalization of the stance of monetary policy, the pace and sequencing of the policy steps would be driven by the Committee's monetary policy objectives for maximum employment and price stability. Participants noted that the Committee's decision to discuss the appropriate strategy for normalizing the stance of policy at the current meeting did not mean that the move toward such normalization would necessarily begin soon. Second, to normalize the conduct of monetary policy, it was agreed that the size of the SOMA's securities portfolio would be reduced over the intermediate term to a level consistent with the implementation of monetary policy through the management of the federal funds rate rather than through variation in the size or composition of the Federal Reserve's balance sheet. Third, over the intermediate term, the exit strategy would involve returning the SOMA to holding essentially only Treasury securities in order to minimize the extent to which the Federal Reserve portfolio might affect the allocation of credit across sectors of the economy. Such a shift was seen as requiring sales of agency securities at some point. And fourth, asset sales would be implemented within a framework that had been communicated to the public in advance, and at a pace that potentially could be adjusted in response to changes in economic or financial conditions.

In addition, nearly all participants indicated that the first step toward normalization should be ceasing to reinvest payments of principal on agency securities and, simultaneously or soon after, ceasing to reinvest principal payments on Treasury securities. Most participants viewed halting reinvestments as a way to begin to gradually reduce the size of the balance sheet. It was noted, however, that ending reinvestments would constitute a modest step toward policy tightening, implying that that decision should be made in the context of the economic outlook and the Committee's policy objectives. In addition, changes in the statement language regarding forward policy guidance would need to accompany the normalization process.

The sequence will probably be: 1) End of QE2 at the end of June, 2) stop reinvestment some time later this year, 3) remove the "exceptionally low levels for the federal funds rate for an extended period" late this year or in 2012, 4) and then start raising rates / selling assets in 2012 or even 2013. Anyone expecting the Fed to raise rates this year is probably overlooking some of these steps.

And here were the forecasts as of April 27th (GDP was revised down, inflation up, unemployment rate down - Bernanke released this earlier):

April 2011 Economic projections of Federal Reserve Governors and Reserve Bank presidents
	2011	2012	2013
Change in Real GDP	3.1 to 3.3	3.5 to 4.2	3.5 to 4.3
Previous Projection (Jan 2011)	3.4 to 3.9	3.5 to 4.4	3.7 to 4.6
Unemployment Rate	8.4 to 8.7	7.6 to 7.9	6.8 to 7.2
Previous Projection (Jan 2011)	8.8 to 9.0	7.6 to 8.1	6.8 to 7.2
PCE Inflaton	2.1 to 2.8	1.2 to 2.0	1.4 to 2.0
Previous Projection (Jan 2011)	1.3 to 1.7	1.0 to 1.9	1.2 to 2.0
Core PCE Inflation	1.3 to 1.6	1.3 to 1.8	1.4 to 2.0
Previous Projection (Jan 2011)	1.0 to 1.3	1.0 to 1.5	1.2 to 2.0

FOMC definitions:
¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.