by Calculated Risk on 7/12/2011 09:35:00 PM

I'm frequently asked why I'm not worried about the debt ceiling, and why the bond market doesn't seem to care.

The answer is the debt ceiling is a joke. It serves no purpose except political posturing.

The budget is about the deficit; the debt ceiling is about paying the bills - and the U.S. will pay its bills.

Here is what I wrote two months ago:

Congress will probably push this to the brink, but they will raise the debt ceiling before the country defaults. The first rule for most politicians is to get re-elected, and the easiest way to guarantee losing in 2012 is to throw the country back into recession. If that happened, I believe the voters would correctly blame the leaders of Congress, and I think Congress knows that too. Therefore it won't happen. I'm not worried and neither are investors.

We are almost to the "brink".

Let me add: In this case, voters would blame the Republican party, and if the debt ceiling is not raised, the "Republican" brand would become toxic and synonymous with fiscal irresponsibility. The leaders of Congress know that and they will scramble to find a solution. I doubt this is the end of the GOP :-)

Earlier I argued the smart thing to do would be to eliminate the debt ceiling. Maybe we are headed in that direction. Today, Senator Mitch McConnell proposed something along those lines (not clean though).

Senate Minority Leader Mitch McConnell (R., Ky.) unveiled a new proposal that would allow President Barack Obama to raise on his own the federal borrowing limit by $2.4 trillion in three installments before the end of 2012, unless two-thirds of Congress votes to block it.

Somehow the debt ceiling will be raised. Of course there is a huge battle ahead over the budget for the next fiscal year (the fiscal year starts on October 1st). It never ends.

by Calculated Risk on 7/12/2011 05:15:00 PM

Special Note: It now appears the NAR will release the benchmark revisions in August (ht Mary Ellen). These revisions are expected to show significantly fewer sales and lower levels of inventory for the last few years. Hopefully the new methodology will be fully disclosed. Also, hopefully the NAR will release sales and inventory for all revisions (not just the last year).

From DataQuick: Southland Home Sales Quicken, Median Price Highest This Year

Southern California home sales last month shot up more than usual from May to the highest level for any month since June 2010, when the market got its last big boost from homebuyer tax credits. Sales of lower-cost homes, driven by investors and first-time buyers, and even high-end sales continued to outshine traditional move-up activity in middle price ranges ...

A total of 20,532 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in June. That was up 11.6 percent from 18,394 in May but down 14.0 percent from 23,871 in June 2010, according to San Diego-based DataQuick.
...
Builders continue to suffer on a scale not seen in decades: The 1,395 newly built houses and condos sold last month marked a 36 percent drop from a year earlier and the lowest new-home total for a June in DataQuick’s records.
...
Distressed property sales accounted for just over half of the Southland resale market last month. Roughly one out of three homes resold was a foreclosure, while almost one in five was a “short sale.”

This is another report suggesting an increase in existing home sales in June compared to the reported 4.81 million sold in May on a seasonally adjusted annual rate (SAAR) basis (before the benchmark revisions).

On New Home sales: My understanding is DataQuick reports when the escrow closes, and the Census Bureau reports when a contract is signed. It usually takes about 6 months to close (builders usually build to contract with few speculative homes these days). So this low level is related to the Census Bureau reports for 6 months ago. Also, last year, June sales (reported at close) were boosted by the housing tax credit.

National existing home sales for June will be reported on July 20th, and new home sales will reported on July 26th.

by Calculated Risk on 7/12/2011 03:38:00 PM

Bloomberg reports that Moody's has downgraded Irish debt to junk (Ba1) with a negative outlook (further downgrades possible). This wasn't a surprise ...

“The key driver for today’s rating action is the growing possibility that following the end of the current EU/IMF support program at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals."

The Irish 10 year yield is up to a record 13.3%.

But most yields were down today (see table below).

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

by Calculated Risk on 7/12/2011 01:29:00 PM

From Eric Pryne at the Seattle Times: Apartment developers bypass suburbs, target Seattle (ht David)

More new apartments will come on the market in King and Snohomish counties in 2013 than in any year since 1991, one researcher projects.

This apartment boom, however, is different from those that preceded it.

This time it's focused almost entirely on Seattle. Developers, for the most part, are bypassing the suburbs.
...
Observers attributed the turnaround to a host of influences: foreclosed homeowners re-entering the rental market; an economic recovery that was sufficiently strong to allow some young adults to finally move into their own places; and growing disillusionment with homeownership.

Thanks to the recession, however, there was little new supply on the horizon to meet this surge in demand: In King and Snohomish counties, 2011 is shaping up as the worst year for new-project completions since at least 2004.

Now apartment developers are rushing to fill that gap, inspired in part by projections that growing demand will continue to push rents up — perhaps another 25 percent by 2015 ...

This article touches on several themes we've been discussing:
• Multi-family completions in 2011 will be at record lows (also total completions).
• Starts for multi-family will pick up sharply this year, but the new supply will not be on the market until 2012 or 2013.
• this lack of supply will put upward pressure on rents (and lower the price-to-rent ratio for homes).
• And there is more "disillusionment with homeownership"

by Calculated Risk on 7/12/2011 10:25:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in May was 3.0 million, unchanged from April. The number of job openings in May was 862,000 higher than in July 2009 (the series trough) but remains well below the 4.4 million openings when the recession began in December 2007.

The following graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Unfortunately this is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for May, the most recent (and even more dismal) employment report was for June.

Click on graph for larger image in graph gallery.

Notice that hires (purple) and total separations (red and blue columns stacked) are pretty close each month. When the purple line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

In general job openings (yellow) has been trending up - and job openings increased slightly again in May - and are up about 7% year-over-year compared to May 2010.

Overall turnover is increasing too, but remains low. Quits increased again and have been trending up - and quits are now up about 10% year-over-year (usually a sign of more confidence in the labor market).