by Calculated Risk on 5/30/2011 08:50:00 AM

From the Financial Times: Greece set for severe bail-out conditions

European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets ... the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures
excerpts with permission

From Reuters: EU racing to draft second Greek bailout: sources

The European Union is working on a second bailout package for Greece in a race to release vital loans next month and avert the risk of the euro zone country defaulting ... a new 65 billion euro package could involve a mixture of collateralized loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece's privatisation program.
...
The next scheduled meeting of euro zone finance ministers is on June 20 in Luxembourg

The bond yields in Europe are fairly stable this morning. Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

Weekend ...
• Summary for Week Ending May 27th
• Schedule for Week of May 29th

by Calculated Risk on 5/29/2011 11:03:00 PM

Another update on Europe - the IMF, the European Central Bank and the European Commission are trying to decide on the next step for Greece.

Lorenzo Bini Smaghi, an ECB executive board member told the Financial Times in an interview that a Greek "soft" restructuring is a "fairy tale". Here is quote:

LBS: There is no such thing as an “orderly” debt restructuring in the current circumstances. It would be a mess. And I haven’t mentioned contagion – which would come on top.

If you look at financial markets, every time there is mention of word like restructuring or “soft restructuring,” they go crazy ... “soft restructurings” “re-profilings” do not exist. They are catchwords that politicians have tried to use, but without any content.
excerpt with permission

And from the WSJ: Bond Auctions Set to Measure Contagion Fears

A team of European and International Monetary Fund officials is scheduled to conclude a closely watched examination of Greek government finances this week as bellwether bond auctions are expected to provide a sign of whether anxiety over Greece's debts is infecting investor appetite for sovereign bonds elsewhere in the euro zone.

Italy will seek to raise as much as €8.5 billion ($12.1 billion) from bond investors Monday, while Spain is seeking an estimated €3.5 billion ...

The crisis in Greece doesn't seem to be impacting Spain or Italy ... yet.

Yesterday ...
• Summary for Week Ending May 27th
• Schedule for Week of May 29th

by Calculated Risk on 5/29/2011 05:40:00 PM

From Eric Wolff at the North County Times: HOUSING: Builders feeling hopeful, opening lots for sale

The North San Diego County and Southwest Riverside County housing markets are glutted with bank-owned houses and short sales, which put a drag on local house prices. ... Yet builders opened 18 new communities in San Diego County in the first three months of 2011, five more than in the same period of 2010, and 16 opened in Riverside County, six more than during the same period last year, according to MarketPointe Realty Advisers.
...
Builders have also been able to slash costs: Many have laid off staff and found ways to become more efficient, and they're able to take advantage of reduced prices from contractors desperate to stay in business. ... Developers acquired unfinished communities at fire-sale prices from banks and desperate sellers.
...
"Every piece of property that we've bought in the last two years has been a distressed sale of some kind or another," said Brent Anderson, vice president for investor relations for Meritage. "All of these communities we're buying ---- they're distressed assets we're picking up for pennies on the dollar."

Cheap land, along with stiff competition among contractors, allows builders to slash their selling prices.

I've talked to builders in some other areas who are able to compete with distressed home pricing based on a combination of cheaper land prices, lower labor costs and also building smaller homes. (note: Eric didn't mention house size in his article).

These are still quite a few distressed homes available, but they don't appeal to every buyer. Perhaps the homes are too large, too beat up, or just too difficult to buy (short sales) - so there is still a market for new homes. I doubt this indicates a significant increase in new home construction, although we might see a little pick up later this year in a few areas as the local excess supply continues to shrink.

Yesterday ...
• Summary for Week Ending May 27th
• Schedule for Week of May 29th

by Calculated Risk on 5/29/2011 01:41:00 PM

Just a quick note: The publicly available S&P Case-Shiller release on Tuesday will include the two composite indexes (10 and 20 cities) for March, the National Index for Q1, and the indexes for 20 cities.

In nominal terms, the two Case-Shiller composite indexes for February were still above the previous post bubble lows set in April 2009. The Case-Shiller national index (released quarterly), hit a new post bubble low in Q4 2010.

I expect both the National Index and the Composite 20 index to be at new post bubble nominal lows in March. Radar Logic provides a forecast each month that has been pretty close. Here is their estimate for the March Case-Shiller indexes (Not Seasonally Adjusted, NSA):

Last month, we predicted that the S&P/Case-Shiller 10-City composite for February 2010 would be about 153 and the 20-City composite would be roughly 139. In fact, the 10-City composite was 152.70 and the 20-City composite was 139.27.

This month, we expect the March 2011 10-City composite index to be about 152 and the 20-City index to be roughly 138.

That would put the composite 20 at a new low (both NSA and SA), but the Composite 10 would still be about 1% above the low in April 2009.

by Calculated Risk on 5/29/2011 08:53:00 AM

From Bloomberg: Arizona Land Sells for 8% of Price Calpers Group Paid at Peak (ht Justin)

A 10,200-acre desert site in Arizona sold for $32.5 million this week, five years after a group with investors including the California Public Employees’ Retirement System paid $400 million for the land.
...
The site ... had been planned for a 42,000-home community by the Calpers- financed group when it was purchased in 2006.

This was one of those crazy deals that happened right at the peak.

I suppose paying under $10,000 per lot sounded good to someone in 2005, but the new owners are more realistic: “This won’t be developed in my lifetime.” said Kent Kleinman, a spokesman for the buyer ...

Yesterday ...
• Summary for Week Ending May 27th
• Schedule for Week of May 29th

by Calculated Risk on 5/28/2011 10:02:00 PM

Here is the weekly update on hotels from HotelNewsNow.com: US hotels post 11.6% weekly RevPAR gain

The U.S. hotel industry recorded an 11.6% revenue-per-available-room gain for the week ending 21 May 2011, according to data from STR.

The increase pushed RevPAR to US$67.52 for the week. The industry’s occupancy rose 6.2% to 65.4%, and its average daily rate increased 5.1% to US$103.23.

"The U.S. hotel industry reported its strongest weekly performance since early April," said Steve Hood, senior VP at STR.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

Click on graph for larger image in graph gallery.

This graph shows the seasonal pattern for the hotel occupancy rate using a four week average for the occupancy rate.

Back in March the four week average was almost back to 2008 levels, but then hotels hit a soft patch. Over the last couple of weeks, the occupancy rate has increased again - and the four week average is now back close to 2008 levels.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Earlier ...
• Summary for Week Ending May 27th
• Schedule for Week of May 29th

by Calculated Risk on 5/28/2011 05:25:00 PM

Earlier ...
• Summary for Week Ending May 27th

There will probably be a series of weak economic reports this week, including Case-Shiller house prices on Tuesday, the ISM manufacturing index on Wednesday, May vehicle sales also on Wednesday, and the May employment report on Friday.

----- Monday, May 30th -----
Memorial Day: All US markets will be closed in observance of the Memorial Day holiday.

----- Tuesday, May 31st -----
9:00 AM: S&P/Case-Shiller Home Price Index for March. Although this is the March report, it is really a 3 month average of January, February and March.

Click on graph for larger image in graph gallery.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

House prices have continued to decline, and the Composite 20 index will probably be at post-bubble low in March. The consensus is for prices to decline about 0.2% in March; the ninth straight month of house price declines.

9:45 AM: Chicago Purchasing Managers Index for May. The consensus is for a sharp decrease to 62.3, down from 67.6 in April.

10:00 AM: Conference Board's consumer confidence index for May. The consensus is for a slight increase to 66.5 from 65.4 last month due to slightly lower gasoline prices.

----- Wednesday, June 1st -----
8:15 AM: The ADP Employment Report for May. This report is for private payrolls only (no government). The consensus is for +178,000 payroll jobs in May, about the same as the 179,000 reported in April.

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through mid-year (not counting all cash purchases).

10:00 AM: Construction Spending for April. The consensus is for a 0.5% increase in construction spending.

10:00 AM: ISM Manufacturing Index for May. The consensus is for a decrease to 57.5 from 60.4 in April. Based on the regional manufacturing surveys, I expect the ISM index to be in the mid-50s.

All day: Light vehicle sales for May. Light vehicle sales are expected to decrease to 12.8 million (Seasonally Adjusted Annual Rate), from 13.1 million in April.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the April sales rate.

Edmunds is forecasting: "Edmunds.com analysts predict that May’s Seasonally Adjusted Annualized Rate (SAAR) will be 12.2 million, down from 13.2 million in April 2011."

The supply chain disruption is now impacting sales and I think the consensus is too high.

----- Thursday, June 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The number of claims increased over the last month. The consensus is for a decrease to 420,000 from 424,000 last week.

10:00 AM: Manufacturers' Shipments, Inventories and Orders for April. The consensus is for a 0.9% decrease in orders.

----- Friday, June 3rd -----
8:30 AM: Employment Report for May.

The consensus is for an increase of 190,000 non-farm payroll jobs in May, down from the 244,000 jobs added in April.

This graph shows the net payroll jobs per month (excluding temporary Census jobs) since the beginning of the recession. The estimate for May is in blue.

The consensus is for the unemployment rate to decline to 8.9% in May (from 9.0% in April).

The second employment graph shows the percentage of payroll jobs lost during post WWII recessions through April - aligned at maximum job losses.

This shows the severe job losses during the recent recession - there are currently 6.96 million fewer jobs in the U.S. than when the recession started in 2007.

Once again I think the consensus is too high.

10:00 AM: ISM non-Manufacturing Index for May. The consensus is for a slight increase to 54.0 in May.

Best wishes to All!

by Calculated Risk on 5/28/2011 02:54:00 PM

Earlier ...
• Summary for Week Ending May 27th

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for May 27, 2011.

Changes and comments from surferdude808:

Activities of the FDIC contributed to many changes to the Unofficial Problem Bank List this week as they closed a bank and released their enforcement actions through April 2011. In all, there were 12 additions and three removals, which leaves the list at 997 institutions with assets of $415.4 billion compared with 988 institutions and assets of $423.9 billion last week.

Asset figures were updated from 2010q4 to 2011q1, which caused aggregate assets to drop by $9.8 billion. The net of additions and removals this week caused assets to rise $1.4 billion.

The removals include the failed First Heritage Bank, Snohomish, WA ($173 million) and action terminations against CB&S Bank, Inc., Russellville, AL ($1.3 billion); and Alliance Banking Company, Winchester, KY ($60 million).

Among the 12 additions are Four Oaks Bank & Trust Company, Four Oaks, NC ($961 million); Frontier State Bank, Oklahoma City, OK ($517 million); Security First Bank, Fresno, CA ($114 million Ticker: SFRK); and Central Florida State Bank, Belleview, FL ($85 million Ticker: CEFB).

Other changes include Prompt Corrective Actions order issued by the FDIC against Community South Bank, Parsons, TN ($658 million); First International Bank, Plano, TX ($321 million); and Community Bank of Central Wisconsin, Colby, WI ($104 million).

CR Note: The FDIC Q1 Quarterly Bank Profile showed 888 problem institutions on the official problem bank list. The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are also not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest. In general the unofficial list has tracked the official list, although currently there more institutions on the unofficial list.

by Calculated Risk on 5/28/2011 08:15:00 AM

The economic data was soft again last week. The Richmond Fed manufacturing survey showed contraction in May, and the Kansas City Fed manufacturing survey showed growth had "stalled". The second estimate of Q1 GDP was disappointing (unrevised at 1.8% annualized real growth rate, but the underlying details were weaker than in the advance estimate). And weekly initial unemployment claims increased again. Also the personal income and outlays report for April indicated a slowdown in consumer spending.

There might have been a little bit of good news in a surprising sector: housing. New home sales were up a little (still very low), and although mortgage delinquencies increased slightly, the increase was probably seasonal, with both Fannie and Freddie reporting another decline in seriously delinquent loans. Also lender Real Estate Owned (REO) is now declining. Baby steps ...

Also gasoline prices are now down about 16 cents per gallon nationally from the recent peak - and that probably showed up in a small increase in May consumer sentiment.

Below is a summary of economic data last week mostly in graphs:

• New Home Sales in April at 323 Thousand SAAR, Ties Record low for April

Click on graphs for larger image in graph gallery.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 323 thousand. This was up from a revised 301 thousand in March (revised from 300 thousand).

Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 67,000 units in April. The combined total of completed and under construction is at the lowest level since this series started.

The following graph shows existing home sales (left axis) and new home sales (right axis) through April.

The gap is due mostly to the flood of distressed sales. This has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Although above the consensus forecast of 300 thousand, this ties the record low for April - and new home sales have averaged only 298 thousand SAAR over the last 12 months ... moving sideways at a very low level.

• Three Graphs of REO Inventory

Here are three graphs of lender Real Estate Owned (REO) inventory. The first is for Fannie, Freddie and the FHA. Then we add Private Label Securities, and finally FDIC insured banks and thrifts.

The combined REO inventory for Fannie, Freddie and the FHA decreased to 287,380 at the end of Q1, from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

The REO inventory for the "Fs" increased sharply in 2010, but may have peaked in Q4 2010. The Fs acquired 101,997 REO units in Q1, but sold 110,023. Both are records, and the numbers will probably increase all year.

The second graph includes the data for the Fs and adds Private Label Securities (PLS).

The PLS blew up first because it contained the worst of the worst loans; poorly underwritten subprime and Alt-A.

Also the PLS wasn't set up to effectively manage REO and they just dumped houses on the market. Usually house prices are sticky downwards - prices decline, but slowly. However this dump of REOs led to what Tom Lawler called "destickification" with house prices falling rapidly in many low end areas with high foreclosure rates.

Now about half of the REOs are owned by the Fs and they are little more careful in releasing REO to the market.

From Tom Lawler: "The FDIC released its Quarterly Banking Profile for the first quarter of 2011. ... On the REO front [lender Real Estate Owned], the carrying value of 1-4 family residential real estate owned on FDIC-insured institutions’ balance sheet on 3/31/11 was $13.2795 billion, down from $14.0498 billion on 12/31/10 and $14.5527 billion last March. ... Using [$150,000 per REO], here is a chart of REO holdings of Fannie, Freddie, FHA, and FDIC-insured institutions.

Note that this is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories. ... If one “grossed up” the estimates shown in the chart by this factor – which probably produces a “too high” number – then one estimate of the total REO inventory for 1-4 family properties would be around 615,000.

• LPS: Mortgage Delinquency Rates increased slightly in April, Foreclosure pipeline "Bloated"

According to LPS, 7.97% of mortgages were delinquent in April, up from 7.78% in March, but down from 8.80% in February and down from 9.52% in April 2010. Some of this increase is the normal seasonal pattern.

LPS reports that 4.14% of mortgages were in the foreclosure process, down from the record 4.21% in March. This gives a total of 12.11% delinquent or in foreclosure. It breaks down as:

• 2.24 million loans less than 90 days delinquent.
• 1.96 million loans 90+ days delinquent.
• 2.18 million loans in foreclosure process.

For a total of 6.39 million loans delinquent or in foreclosure in April.

This graph provided by LPS Applied Analytics shows the aging for the 90+ days delinquent bucket.

What is surprising is the large percentage in the 90+ days delinquent bucket that are more than 12 months delinquent and haven't moved to the "in foreclosure process" bucket. About 40% of loans in the 90+ days bucket - or about 800,000 loans - have been delinquent over a year.

The second graph - from the March report - shows the aging of loans in the foreclosure process.

"31% of loans in foreclosure have not made a payment in over 2 years." So about one third of the 2.2 million loans in the foreclosure process haven't made a payment in over 2 years.

These two graphs show the "bloated" backlog of seriously delinquent loans (90+ days and in foreclosure).

The good news is the improvement in the early stages, however there is still an enormous number of seriously delinquent loans.

• Personal Income and Outlays increased 0.4% in April

This graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars).

PCE increased 0.4% in April, but real PCE only increased 0.1% as the price index for PCE increased 0.3 percent in April.

It appears growth in real consumer spending has slowed over the last couple of months.

• Consumer Sentiment increased in May

The final May Reuters / University of Michigan consumer sentiment index increased to 74.3 from the preliminary reading of 72.4, and from 69.8 in April.

This was above expectations for a reading of 72.5.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices.

This is still a low reading, but sentiment probably improved a little possible due to the decline in gasoline prices.

• Other Economic Stories ...
• ATA Trucking index decreased 0.7% in April
• Chicago Fed: Economic activity weakened in April
• Q1 real GDP growth unrevised at 1.8% annualized rate
• Kansas City Manufacturing Survey: Activity was largely unchanged in May
• Richmond Fed shows contraction

Best wishes to all!

by Calculated Risk on 5/27/2011 10:34:00 PM

From the FDIC: Columbia State Bank, Tacoma, Washington, Assumes All of the Deposits of First Heritage Bank, Snohomish, Washington

As of March 31, 2011, First Heritage Bank had approximately $173.5 million in total assets and $163.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $34.9 million. ... First Heritage Bank is the 44th FDIC-insured institution to fail in the nation this year, and the second in Washington.

Friday arrives late ...