by Calculated Risk on 1/05/2011 07:20:00 AM

The MBA reports: Mortgage Applications Drop the Week Before Christmas and Increase the Week After

For the week ending December 24, 2010, the Refinance Index decreased 7.2 percent from the previous week and the seasonally adjusted Purchase Index increased 3.1 percent from one week earlier. The following week, the Refinance Index increased 3.9 percent and the seasonally adjusted Purchase Index decreased 0.8 percent.
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For the week ending December 31, 2010, the average contract interest rate for 30-year fixed-rate mortgages decreased to 4.82 percent with points increasing to 1.11.

Click on graph for larger image in new window.

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

The four-week moving average of the purchase index is at about the levels of 1997 - and about 17% below the levels of April this year - suggesting weak existing home sales through the first couple months of 2011.

by Calculated Risk on 1/04/2011 07:57:00 PM

From Eric Pryne at the Seattle Times: Bellevue Towers developer turns project over to lenders

The developer of Bellevue Towers, the region's biggest condo project ever, has turned over the development to lenders to avoid foreclosure.

More price declines coming ...

The new owners announced price cuts to help spur sales at the 539-unit development, where just 118 sales have closed since the two towers were completed nearly two years ago.

by Calculated Risk on 1/04/2011 04:00:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 12.55 million SAAR in December. That is up 13.1% from December 2009, and up 2.7% from the November 2010 sales rate.

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for December (red, light vehicle sales of 12.55 million SAAR from Autodata Corp).

This is the highest sales rate since September 2008, excluding Cash-for-clunkers in August 2009.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate. The current sales rate is still near the bottom of the '90/'91 recession - when there were fewer registered drivers and a smaller population.

This was above most forecasts of around 12.3 million SAAR.

by Calculated Risk on 1/04/2011 02:00:00 PM

From the December 14, 2010 FOMC meeting. These are probably the key sentences:

While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program, and some noted that more time was needed to accumulate information on the economy before considering any adjustment. Members emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments; however, some indicated that they had a fairly high threshold for making changes to the program.

And on the outlook:

Regarding their overall outlook for economic activity, participants generally agreed that, even with the positive news received over the intermeeting period, the most likely outcome was a gradual pickup in growth with slow progress toward maximum employment. However, they held a range of views about the risks to that outlook. A few mentioned the possibility that growth could pick up more rapidly than expected, particularly in light of the very accommodative stance of monetary policy currently in place. It was noted that such an acceleration would likely be accompanied by significantly more rapid growth in bank lending and in the monetary aggregates, suggesting that such indicators might prove to be useful sources of information. Others pointed to downside risks to growth. One common concern was that the housing sector could weaken further in light of the considerable supply of houses either on the market or likely to come to market. Another concern was the ongoing deterioration in the fiscal position of U.S. states and localities, which could lead to sharp cuts in spending and increases in taxes. In addition, participants expressed concerns about a possible worsening of the banking and financial strains in Europe, which could spill over to U.S. financial markets and institutions, and so to the broader U.S. economy. ...

Regarding the outlook for inflation, participants generally anticipated that inflation would remain for some time below levels judged to be most consistent, over the longer run, with maximum employment and price stability. In particular, most participants expected that underlying measures of inflation would bottom out around current levels and then move gradually higher as the recovery progresses.

by Calculated Risk on 1/04/2011 11:03:00 AM

Note: The real key is the seasonally adjusted annual sales rate (SAAR) compared to the last few months, not the year-over-year comparison provided by the automakers.

From MarketWatch: GM posts 7.5% gain in December U.S. sales

[GM] reported a 7.5% increase in December U.S. sales to 224,185 cars and trucks.

Once all the reports are released, I'll post a graph of the estimated total December light vehicle sales (SAAR) - usually around 4 PM ET. Most estimates are for an increase to 12.3 million SAAR in December from the 12.2 million SAAR in November. Sales in December 2009 were at a 11.1 million SAAR.

I'll add reports from the other major auto companies as updates to this post.

Update: MarketWatch reports: Ford 2010 sales up 19% vs year ago

From CNBC:

Chrysler says its sales for December of 2010 were up 16.4 percent from the same time in 2009. The carmaker sold 100,702 vehicles in December vesus 86,523 in the same month of 2009.

by Calculated Risk on 1/04/2011 08:59:00 AM

From Bloomberg: U.S. Office Market Has First Gain in Occupied Space Since 2007, Reis Says

Office buildings added 2.5 million square feet ... of occupied space in the fourth quarter, compared with a loss of 14 million square feet a year earlier, Reis said in its report. It was the first rise in net absorption since the fourth quarter of 2007.

The office vacancy rate was unchanged from the third quarter at 17.6 percent, remaining at the highest level since 1993, as supply also increased. ... “Vacancy has finally appeared to have stabilized,” Ryan Severino, an economist at Reis, said ...

Click on graph for larger image in new window.

This graph shows the office vacancy rate starting in 1991.

Reis is reporting the vacancy rate was at 17.6% in Q4 2010, the same as in Q3 and up from 17.0% in Q4 2009.

Reis should release the Mall and Apartment vacancy rates over the next few days.

by Calculated Risk on 1/03/2011 10:15:00 PM

From CNBC: Home Prices Will Decline for Years: Zuckerman (ht Scott)

Mort Zuckerman ... blamed the continuing price decline on the so-called shadow inventory of foreclosed homes that's yet to come on the market.

“That’s what’s going to put downward pressure on residential prices,” Zuckerman added, “And in my judgment, that’s going to continue for several years.”

And from MarketWatch: S&P warns on ‘shadow inventory’ (ht jb)

Standard & Poor’s Ratings Services said Monday that it’s taking longer for the U.S. housing market to absorb foreclosed homes, which means there may be a major drag on prices for a few more years.

My view is house prices - as measured by the Case-Shiller and CoreLogic repeat sales indexes - will decline another 5% to 10%. I think it is likely that nominal house prices will bottom in 2011, but that real house prices (inflation adjusted) will decline for another two to three years. (See: Question #1 for 2011: House Prices)

by Calculated Risk on 1/03/2011 07:09:00 PM

From the American Bankruptcy Institute: Consumer Bankruptcy Filings increase 9 percent in 2010

U.S. consumer bankruptcies increased 9 percent nationwide in 2010 from the previous year, according to the American Bankruptcy Institute (ABI) relying on data from the National Bankruptcy Research Center (NBKRC). The data showed that the overall consumer filing total for the 2010 calendar year (Jan. 1 – Dec. 31, 2010) reached 1,530,078 compared to the 1,407,788 total consumer filings recorded during 2009. Annual consumer filings have increased each year since the Bankruptcy Abuse Prevention and Consumer Prevention Act was enacted in 2005.

“The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth,” said ABI Executive Director Samuel J. Gerdano. “We expect that consumer filings will continue to rise in 2011.”

This is slightly below ABI's forecast for 1.6 million filings last year. The following graph shows the annual consumer bankruptcy filings based on data from the U.S. Courts (and the ABI for 2010).

by Calculated Risk on 1/03/2011 03:30:00 PM

This is one of several industry specific indexes I track each month.

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

Note: Any reading above 100 shows expansion for this index.

From the National Restaurant Association (NRA): Restaurant Performance Index Declined in November as Sales and Traffic Slipped

As a result of a downtick in same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) fell below 100 in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.9 in November, down 0.8 percent from October. November marked the first time in three months that the RPI stood below 100, the level above which signifies expansion in the index of key industry indicators.
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For the first time in three months, restaurant operators reported a net decline in same-store sales. ... Restaurant operators also reported a net decline in customer traffic levels in November.

This is just one month of slight contraction, but something to watch.

by Calculated Risk on 1/03/2011 12:42:00 PM

This is the last in a series of "Ten Economic Questions for 2011". These posts included some thoughts and few predictions on these questions.

Of course no one has a crystal ball, but my general view is economic and employment growth will improve in 2011 as compared to 2010, but growth will still be sluggish relative to the slack in the system. By "sluggish" I mean I don't expect anything like the 7.2% real GDP growth we saw in 1984 coming out of the early '80s severe recession. This recession was different - caused by the bursting of the housing and credit bubbles - and recoveries from financial crisis tend to be slow.

And there are downside risks from falling house prices, Europe, and state and local government budget cuts. And unfortunately I think the unemployment rate will still be around 9% at the end of 2011.

The good news is residential investment will probably make a positive contribution to GDP growth for the first time since 2005. And residential construction employment will probably increase in 2011.

This graph shows the annual change in real residential investment, and the change in residential construction employment since 2004. The economy has lost about 1.3 million residential construction jobs over the last 5 years, and only a small portion of those jobs will return in 2011.

We still need to work down the excess inventory of housing units. It is good news that completions in 2011 will be at or near a record low. And with improved employment growth, we should see a pickup in household formation. The combination of a low number of new units added to the housing stock, and more household formation, should lead to a meaningful decline in the number of excess housing units this year.

That brings up the question: if there are still excess vacant housing units, why will residential investment increase in 2011? There are a few reasons: for multi-family units it takes over a year on a average to complete, and apartment owners are seeing falling vacancy rates - and some have started to plan for 2012 and will be breaking ground in 2011. We can this in reports from architects.

And for single family homes, not all areas are the same (and most housing can't be moved). Also, as the economy improves, I expect some increase in homes built for owners (not built for sale). This will probably mean something like a 15% increase in residential investment in 2011.

As I've noted before, one of the key reasons for the sluggish recovery has been the ongoing problems in housing. Usually residential investment is a major contributor to GDP growth in the early stages of a recovery, but not this time because of the huge overhang of existing vacant homes.

Click on graph for larger image in graphics gallery.

This graph shows RI and investment in single family structures as a percent of GDP. Usually RI rebounds strongly at the beginning of a recovery, but this time RI has continued to decline.

RI as a percent of GDP is at a post WWII low of 2.22%, and investment in single family structures is near the all-time low.

Even though I expect a pickup this year, I think residential investment as a percent of GDP will still be very low.

Ten Questions:
• Question #1 for 2011: House Prices
• Question #2 for 2011: Residential Investment
• Question #3 for 2011: Delinquencies and Distressed house sales
• Question #4 for 2011: U.S. Economic Growth
• Question #5 for 2011: Employment
• Question #6 for 2011: Unemployment Rate
• Question #7 for 2011: State and Local Governments
• Question #8 for 2011: Europe and the Euro
• Question #9 for 2011: Inflation
• Question #10 for 2011: Monetary Policy