by Calculated Risk on 8/24/2010 11:30:00 AM

Earlier the NAR released the existing home sales data for July; here are a couple more graphs ...

The first 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.

Click on graph for larger image in new window.

Although inventory increased from June 2010 to July 2010, inventory decreased 1.9% YoY in July. The slight year-over-year decline is probably because some sellers put their homes on the market in the Spring hoping to take advantage of the home buyer tax credit.

Note: Usually July is the peak month for inventory.

This level of inventory is especially bad news because the reported inventory is already historically very high, and the 12.5 months of supply in July is far above normal.

The months-of-supply will probably decline in August as sales rebound slightly and some sellers take their homes off the market, but I expect double digit months-of-supply for some time - and that will be a really bad sign for house prices ...

A normal housing market usually has under 6 months of supply. The following graph shows the relationship between supply and house prices (using Case-Shiller).

This graph show months of supply (through July 2010) and the annualized change in the Case-Shiller Composite 20 house price index (through May 2010).

Below 6 months of supply (blue line) house prices are typically rising (black line).

Above 6 or 7 months of supply, house prices are usually falling. This isn't perfect - it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don't expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.

Notes: The Case-Shiller house price index for June will be reported next week (really a 3 month average of April, May and June). We really want to see prices for July - and those will not be reported until the end of September. And once again the July numbers will be a 3 month average. So it might take until the end of October to see the price declines that are already happening in the housing market.

by Calculated Risk on 8/24/2010 10:00:00 AM

The NAR reports: July Existing-Home Sales Fall as Expected but Prices Rise

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.
...
Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June.

Click on graph for larger image in new window.

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

Sales in July 2010 (3.83 million SAAR) were 27.2% lower than last month, and were 25.5% lower than July 2009 (5.14 million SAAR).

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.98 million in July from 3.89 million in June. The all time record high was 4.58 million homes for sale in July 2008.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory increasing in the spring and into the summer. I'll have more on inventory later ...

The last graph shows the 'months of supply' metric.

Months of supply increased to 12.5 months in July from 8.9 months in June. A normal market has under 6 months of supply, so this is extremely high and suggests prices, as measured by the repeat sales indexes like Case-Shiller and CoreLogic, will start declining.

Ignore the median price! Double digit supply and lowest sales rate since 1996 are the key stories.

I'll have more soon.

by Calculated Risk on 8/24/2010 08:47:00 AM

Last night I linked to an excellent article on the recent FOMC meeting by Jon Hilsenrath at the WSJ: Fed Split on Move to Bolster Sluggish Economy

From Economist's View: "It is Time for Bernanke to Stake Out a Public Position"

Tim Duy writes:

I understand why his colleagues appreciate Bernanke’s management style, and why the media likes to ooze quiet praise on that style, but shouldn’t he be showing some leadership in the public as well? After all, the Federal Reserve, last time I checked, was not a University economics department. It is not the same. As we like to say in academics, the disputes are bitter because so little is at stake. Not so for the Fed. As an institution, it serves the public directly, and much, much is at stake. Perhaps it is time for Bernanke to stake out a public position. How exactly does he view the current economic situation in light of his work on Japan? For many of us, that work points to a much more aggressive policy stance. Is this the direction Bernanke wants to take? If so, why is he dragging his heels? If not, then what is different? This is the conversation I want to see him have with the public, on the record. And the sooner, the better.

Mark Thoma discusses the pros and cons of Bernanke staking out a position and concludes:

[W]hen there is considerable uncertainty due to disagreement on the FOMC, the Fed chair needs to use the influence bestowed upon him or her by the Fed's institutional arrangements, set a firm course for policy, and resolve the uncertainly. That might mean having lots of informal discussions with other members of the FOMC to make sure their views get a fair hearing, and some back and forth in the process, but at some point the Fed chair needs to step up and lead. Right now is one of those times.

Paul Krugman points on the "modern version of liquidationism" that has crept into the FOMC discussions: Hangover Theory At The Fed

My guess is the Hilsenrath article is paving the way for QE2.

by Calculated Risk on 8/23/2010 08:55:00 PM

Jon Hilsenrath at the WSJ discusses the debate at the August FOMC meeting: Fed Split on Move to Bolster Sluggish Economy

A few key points:

There is a clear split on the FOMC between those who want the Fed to be more aggressive - because of the high unemployment rate and low inflation - and those that want to take no further action.

Because of low mortgage rates and more refinancing, the NY Fed projected that the balance sheet would shrink by almost $400 billion by the end of 2011 if they Fed did nothing. Earlier this year the estimate was $200 billion.

According to Hilsenrath, Bernanke "is determined to avoid mistakes of past central bankers that created devastating bouts of deflation". And that probably means QE2 - it is probably just a matter of when and how long the FOMC waits.

Note: Existing home sales will be reported tomorrow morning. Don't miss Lawler's Existing Home Sales: “Consensus” vs. Likely for a preview!

by Calculated Risk on 8/23/2010 05:24:00 PM

CR Note: This is from economist Tom Lawler.

Given the various state/local MLS sales reports available for July, it seems INCREDIBLY likely that existing home sales last month were down a boatload from June’s pace. Every local realtor report I’ve seen showed a drop in sales from a year ago, with most showing YOY sales declines over 20%, and some reporting sales declines of over 40% from a year ago. (See last page for “raw” data) Yet amazingly the “consensus” forecast for existing home sales in July calls for a SAAR of 4.65-4.66 million, which would be down just 9.3-9.5% from last July’s seasonally adjusted pace. Of course, since this July had one fewer business day than last July, that would imply a larger YOY decline in unadjusted sales, but only to about 10.5-10.7%.

With so many state and/or local MLS publicly reporting YOY sales declines massively higher than that, how can the “consensus” be as high as it is?

Click on graph for larger image in new window.

Even if an economist were willing to put out a forecast for existing home sales, but were unwilling to actually “do the work” in compiling local sales data, one would think that that economist would look at the pending home sales index – which plunged by 29.9% on a seasonally adjusted basis from April to May, and then fell by another 2.6% from May to June! How would these drops be consistent with a monthly seasonally adjusted decline of just 13.2% - 13.4%? Well, er, uh … they aren’t! One forecaster (no names!), after hearing about the local sales data, suggested that the NAR “just won’t” publish a sales number that low, and will probably “smooth” the number over the next several months!!! I very much doubt that!!!

So … where does the “consensus” come from, and why does it appear to be so far off?

Well, as best as I can determine A LOT of the economists surveyed for various “consensus” forecasts often don’t really know much about many of the statistics they are asked to project, but are still quite willing to be in such surveys. In the case of home sales, very few track local sales data, but surprising quite a few also don’t look at pending sales either! And for some others that do, they are often reluctant to project “really big” changes – they don’t feel comfortable being an “outlier” – and figure that if they get the direction right, well, THAT’S pretty good!

Below is a table showing the YOY % decline reported by various realtor organization/MLS/others. Where state realtor associations and/or other organizations show a full-state total, I don’t show individual areas separately. Note that for some areas the YOY growth reflects a preliminary count for this July vs. a final count for last July, and I try to take this into account in coming up with my own forecast.

Right now all of the incoming regional data in my view appear to be consistent with the NAR reporting a seasonally adjusted annual rate for existing home sales in July of 3.95 million. I’ve been a bit uncomfortable about the forecast because it is so far below consensus; however, that’s what the incoming data suggest!

If existing home sales come in as I expect, existing home sales (unadjusted) in the first seven months of 2010 will be up about 7.6% [compared to] sales in the first seven months of 2009.

August sales will probably come in pretty weak as well, however; while my early read suggests that the NAR’s pending home sales index will show a seasonally adjusted gain from June to July of around 5%, that would still leave the index about 19% below last July’s level.

So… what did we learn from the home buyer tax credit? (1) “if you pay them, they will come”; (2) if there is a deadline, they will rush to meet the deadline; and (3) when the deadline is over, sales will fall WAY below trend!

Some folks still like the tax credit, because (a) it helped “stabilize” home prices (short term it does appear to have); (b) it would help reduce excess inventories (for new home sales it did, but existing inventories have kept increasing); and (c) it would “generate interest” in the housing sector. On the latter score, the stabilization of home prices and reports of earlier strong sales DID appear to generate interest in housing – but mainly from previously “discouraged” sellers who decided to put their homes on the market (in many cases again) – which appears to be the major reason why active listings have INCREASED despite the tax-credit “goose” to sales!

YOY % Change, Home Sales, July 2010
.Alabama	Birmingham	-30.0%	Huntsville	-32.5%
.Arizona	Phoenix	-21.9%	Tucson	-33.1%
.California	Whole State (new and resale)	-21.9%
.Colorado	Denver	-26.6%	Colorado Springs	-23.4%
.Connecticut	Hartford	-49.1%
. DC	All of DC	-18.4%
.Florida	Northeast Florida	-12.8%	Mid-Florida	-10.5%	Southeast Florida	-9.1%
	Pensacola	-29.2%	Naples	-20.9%
.Hawaii	Oahu	-3.4%
.Idaho	Ada County	-24.0%
.Illinois	Chicago Metro	-25.0%	Peoria	-36.8%
.Indiana	Whole State	-28.8%
.Iowa	Whole State	-43.8%
.Kansas	Kansas City	-36.9%	Wichita	-34.0%
.Kentucky	Louisville	-22.0%	Lexington	-32.4%
.Maryland	Whole State	-17.1%
.Massachusetts	Whole State	-31.6%
.Michigan	Detroit metro	-19.4%	Ann Arbor	-17.0%	Kalamazoo	-36.4%
.Minnesota	Whole State	-40.8%
.Nebraska	Omaha	-46.1%
.Nevada	Vegas	-18.6%	Reno	-24.8%
.New Hampshire	Whole State	-32.4%
.New Mexico	Albuquerque	-27.1%
.New York	Long Island	-31.6%	Greater Hudson Valley	-37.2%	Dutchess County	-36.8%
.North Carolina	Charlotte	-11.5%	Triangle	-31.0%	Fayetteville	-20.9%
	Asheville	-25.5%	Wilmington	-19.8%
.Ohio	Toledo	-28.1%	Akron	-26.0%
.Oklahoma	Oklahoma City	-33.3%
.Oregon	Portland	-29.0%
.Pennsylvania	Pittsburgh	-6.0%	Lehigh Valley	-41.7%
.South Carolina	Whole State	-16.1%
.Tennessee	Nashville	-23.1%	Memphis	-28.5%	Knoxville	-25.3%
.Texas	Whole State	-25.4%
.Virginia	Greater NoVa	-19.7%	Hampton Roads	-20.7%	Roanoke Valley	-36.6%
.Washington	NW Washington	-18.7%
.Wisconsin	South Central Wisconsin	-43.1%	Milwaukee metro	-48.6%

CR Note: This is from economist Tom Lawler.

by Calculated Risk on 8/23/2010 01:49:00 PM

Steve Randy Waldman at Interfluidity writes about a discussion last week with several bloggers and Treasury officials: Monday at the Treasury: an overlong exegesis

A few excerpts:

Obviously the headline act was Timothy Geithner. Off the record (or “on deep background”), Geithner is entirely different from the sometimes stiff character who appears on television. He is fun to argue with, very smart, good natured, and intellectually wily. As Yves Smith quipped afterwards, Geithner “gives good meeting.”

Despite that, our seminar was an adversarial affair.

And on HAMP:

On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

If correct, HAMP was mostly a foreclosure delaying program.

There is much more in the post from Waldman.

by Calculated Risk on 8/23/2010 10:47:00 AM

The Department of Transportation (DOT) reported that vehicle miles driven in June were up 1.3% compared to June 2009:

Travel on all roads and streets changed by +1.3% (3.4 billion vehicle miles) for June 2010 as compared with June 2009.
...
Cumulative Travel for 2010 changed by +0.1% (1.6 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 are mostly moving sideways. Miles driven are still 1.9% below the peak - and only 0.7% above the recent low.

Back in 2008, vehicle miles turned strongly negative on a "month over the same month of the prior year" basis, and that was one of the pieces of data that helped me correctly predict oil prices would decline sharply in the 2nd half of 2008. So far we haven't seen a sharp decline in vehicle miles - but we also haven't seen a strong increase.

Early next year this will be the longest period with the rolling 12-months miles driven below the previous peak since the DOT started tracking this series. The current longest slump followed the 1979 oil crisis and lasted for 40 months (starting in 1979 and lasting through the recession of the early '80s).

by Calculated Risk on 8/23/2010 08:30:00 AM

Note: This is a composite index based on a number of economic releases.

From the Chicago Fed: Index shows economic activity rebounded in July

Led by improvements in production-related indicators, the Chicago Fed National Activity Index returned to its historical average of zero in July, up from –0.70 in June. Three of the four broad categories of indicators that make up the index improved from June, but only the production and income category made a positive contribution to the index in July.

The index’s three-month moving average, CFNAI-MA3, edged lower to –0.17 in July from –0.12 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

Click on table for larger image in new window.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This composite index increased in July because of the boost in industrial production. That was probably mostly auto related and recent surveys (like from the Philly Fed) have indicated slowing or even contraction for production in August.

by Calculated Risk on 8/22/2010 10:07:00 PM

Note: Here is the Weekly Summary for last week, and the Schedule for next week (will be busy!).

Amazing ... people still think house prices will go up 10% per year ... from David Streitfeld at the NY Times: Housing Fades as a Means to Build Wealth, Analysts Say

In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade.

With minor swings in sentiment, the latest results reflect what new buyers always seem to feel. At the boom’s peak in 2005, they said prices would go up. When the market was sliding in 2008, they still said prices would go up.

“People think it’s a law of nature,” said Mr. Shiller, who teaches at Yale.

by Calculated Risk on 8/22/2010 05:50:00 PM

Note: Here is the Weekly Summary for last week, and the Schedule for next week (will be busy!).

A bizarre story from Danny Westneat at the Seattle Times: Mansion squatters return in a big way (ht Laura)

Mark von der Burg [is] the Eastside real-estate agent who, two months ago while prepping for an open house to sell a $3.3 million mansion in Kirkland, was stunned to find that complete strangers had moved in and were staking a tortured legal claim to the foreclosed property.
...
Von der Burg says that while the mansion-squatting story may have been entertaining — it ended when police retook control of the house for the bank that owned it — it cost his client, a bank, $35,000 in ... So count him as not amused that this week, the same team of squatters apparently attempted to stake claims to three new mansions on the Eastside ... Police say no one has as yet moved into any of the houses. But all three had letters tacked to the front doors ordering anyone claiming ownership "to surrender possession within three days." And then threatening "judicial proceedings" against anyone who doesn't comply.

These squatters sounds like upscale "bandos"¹, but it sounds like they are really just scammers - looking for something for nothing. The real estate bust has really brought out the worst in some people.

¹ "Bandos" are homeless people who live in abandoned homes.