by Calculated Risk on 2/29/2012 09:04:00 PM

From the National Restaurant Association: Restaurant Industry Outlook Remains Positive Despite Slight Dip in Restaurant Performance Index

The outlook for the restaurant industry is positive for the coming months, as the National Restaurant Association’s Restaurant Performance Index (RPI) remained well above 100 in January. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.3 in January, down from December’s strong level of 102.2. Despite the decline, January represented the third consecutive month that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“Although the Restaurant Performance Index dipped somewhat from December’s nearly six-year high, it remained solidly in positive territory,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators reported positive same-store sales for the eighth consecutive month, and a majority of them expect business to continue to improve in the months ahead.”
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Restaurant operators reported positive same-store sales for the eighth consecutive month in January. ... Restaurant operators also reported positive customer traffic results in January.

Click on graph for larger image.

The index decreased to 101.3 in January from 102.2 in December (above 100 indicates expansion).

The data for this index only goes back to 2002.

This is "D-list" data (at best), but restaurant spending is discretionary and can tell us a little something about the overall economy. This index showed contraction in July and August, but is now solidly positive.

by Calculated Risk on 2/29/2012 04:31:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in January to 3.90%, down from 3.91% in December. This is down from 4.45% in January 2011. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate increased to 3.59% in January, up from 3.58% in December. This is the fifth month in a row with a small increase in the delinquency rate. Freddie's rate is down from 3.82% in January 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The serious delinquency rate has been declining, but declining very slowly. The recent uptrend for Freddie Mac would seem to require an explanation (I have none). The reason for the slow decline is most likely the backlog of homes in the foreclosure process due to processing issues (aka robo-signing), and with the mortgage servicer settlement, I'd expect the delinquency rate to start to decline faster.

The "normal" serious delinquency rate is under 1%, so there is a long way to go.

by Calculated Risk on 2/29/2012 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts suggest that overall economic activity continued to increase at a modest to moderate pace in January and early February. Activity expanded at a moderate pace in the Cleveland, Chicago, Kansas City, Dallas, and San Francisco Districts. St. Louis noted a modest pace of growth and Minneapolis characterized the pace of growth as firm. Economic activity rose at a somewhat faster pace in the Philadelphia and Atlanta Districts, while the New York District noted a somewhat slower pace of expansion. The Boston and Richmond Districts, in turn, noted that economic activity expanded or improved in most sectors.
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Reports of consumer spending were generally positive except for sales of seasonal items, and the sales outlook for the near future was mostly optimistic.

And on real estate:

Residential real estate activity increased modestly in most Districts. Boston, Cleveland, Richmond, Atlanta, Kansas City, and Dallas reported growth in home sales, while New York noted steady to slightly softer home sales. Philadelphia reported strong residential real estate activity. In contrast, home sales declined in St. Louis and San Francisco noted that home demand persisted at low levels. Contacts' outlooks on home sales growth were mostly optimistic.
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Commercial real estate markets displayed positive results in some Districts, as leasing showed overall improvement. Minneapolis, Richmond, Chicago, and Dallas noted increased leasing. Boston, however, reported mostly unchanged leasing fundamentals with some modest improvement since the previous report.

This was based on data gathered on or before February 17th. Mostly sluggish growth, but perhaps the most "positive" comments on residential real estate a long long time.

by Calculated Risk on 2/29/2012 12:20:00 PM

This morning Fannie Mae reported results for Q4 and all of 2011. Fannie reported that they acquired 47,256 REO in Q4 (Real Estate Owned via foreclosure or deed-in-lieu) and disposed of 51,344 REO. This has been the pattern all year; Fannie has sold more REO than they acquired (acquisitions slowed because of the process issues, but dispositions picked up sharply in 2011). Here is a table for the last two years:

Fannie Mae REO Acquisitions and Dispositions
	2011	2010
Acquisitions	199,696	262,078
Dispositions	243,657	185,744
Net	-43,961	76,334

This has been true for most lenders - they sold more REO than they acquired in 2011 - not just Fannie and Freddie. A common misperception is that when the lenders start foreclosing again at a higher level, that there will be a surge in REO sales. Fannie could increase acquisitions by 20%, and keep the sales pace the same, and their REO inventory wouldn't increase.

The following graph shows Fannie REO inventory, acquisition and dispositions over the last several years.

Click on graph for larger image.

When the blue line is above the red line, acquisitions are higher than dispositions, and REO inventory increases. In 2011 the opposite was true, and REO inventory declined by 27% from Q4 2010.

A few comments from Fannie:

Foreclosures generally take longer to complete in states where judicial foreclosures are required than in states where non-judicial foreclosures are permitted. For foreclosures completed in 2011, measuring from the last monthly period for which the borrowers fully paid their mortgages to when we added the related properties to our REO inventory, the average number of days it took to ultimately foreclose ranged from a low of 391 days in Missouri, a non-judicial foreclosure state, to a high of 890 days in Florida, a judicial foreclosure state. As of December 31, 2011, Florida accounted for 30% of our loans that were in the foreclosure process.

The non-judicial states will recover first.

The FHFA announced a pilot program to sell REO, and many analysts were surprised that most of the REO in the pilot were already leased. That will not continue since Fannie only has 9,000 leased properties:

We currently lease properties to tenants who occupied the properties before we acquired them into our REO inventory, which can minimize disruption by providing additional time to find alternate housing, help stabilize local communities, provide us with rental income, and support our compliance with federal and state laws protecting tenants in foreclosed properties. As of December 31, 2011, over 9,000 tenants leased our REO properties.

In February 2012, FHFA announced that it was beginning the pilot phase of an REO initiative that will allow qualified investors to purchase pools of foreclosed properties from us with the requirement to rent the purchased properties for a specified number of years. During the pilot phase, we will offer for sale pools of various types of assets including rental properties, vacant properties and nonperforming loans with a focus on the hardest-hit areas. The pilot transactions are expected to provide insight into how the participation of private investors can maximize the value of foreclosed properties and stabilize communities. We do not yet know whether this initiative will have a material impact on our future REO sales and REO inventory levels.

Freddie is expected to report results tomorrow.

by Calculated Risk on 2/29/2012 10:00:00 AM

Q4 GDP revised up to 3.0% from 2.8% in advance estimate.

Chicago PMI comes in at 64.0 well above expectations.

Chicago Purchasing Managers reported the February CHICAGO BUSINESS BAROMETER rose to its highest level in ten months. The barometer also marked a 29th month of expansion and its fourth consecutive month above 60. Increases were seen in six of eight Business Activity Indexes, highlighted by a very large advance in Employment. BUSINESS ACTIVITY: • EMPLOYMENT highest since May 1984; • ORDER BACKLOGS moved back into expansion; • INVENTORIES dipped; • NEW ORDERS highest level since March 2011:

Note: Testimony starts at 10 AM ET.

Here is the CSpan feed

Here is the CNBC feed.

Prepared testimony from Fed Chairman Ben Bernanke: Semiannual Monetary Policy Report to the Congress

by Calculated Risk on 2/29/2012 07:38:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 2.2 percent from the previous week. The seasonally adjusted Purchase Index increased 8.2 percent from one week earlier.
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"Mortgage rates remained near survey lows last week, but refinance volume fell slightly," said Michael Fratantoni, Vice President of Research and Economics at the Mortgage Bankers Association. Fratantoni continued, "According to survey participants, more than 20 percent of refinance applications were for HARP loans. The HARP share of total refinance applications has increased over the past month. Purchase application volume increased over the week, but remains within the narrow and anemic range of activity we have seen since the expiration of the homebuyer tax credit in May 2010."
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.07 percent from 4.09 percent

From the Financial Times Alphaville on the ECB's Long-Term Refinancing Operation (LTRO): LTRO.2 €530bn

That’s €530bn with 800 bidders — 277 more than participated last time, when the uptake was €489bn.

by Calculated Risk on 2/28/2012 09:03:00 PM

From HousingWire: Wells Fargo, Goldman receive Wells notices over MBS disclosures

Wells Fargo and Goldman Sachs received Wells notices over mortgage-backed securities disclosures, according to regulatory filings.

Goldman Sachs disclosed the Wells notice in its 10-K, while Wells reported the notice in its 2011 annual report to shareholders.

The notice from the Securities and Exchange Commission concerns "the disclosures contained in the offering documents used in connection with a late 2006 offering of approximately $1.3 billion of subprime residential mortgage-backed securities underwritten by GS&Co.," Goldman said in its regulatory filing. "The firm will be making a submission to, and intends to engage in a dialogue with, the SEC staff seeking to address their concerns."

At Wells Fargo, the Wells notice also relates to the bank's disclosures in mortgage-backed securities offering documents.

The earlier Goldman settlement was related to CDO derivatives (Collateralized Debt Obligations). Now the SEC is investigating the securitization of the underlying MBS.

Earlier on House Prices:
• Case Shiller: House Prices fall to new post-bubble lows in December
• Real House Prices and Price-to-Rent fall to late '90s Levels
• All current house price graphs

by Calculated Risk on 2/28/2012 02:53:00 PM

The FDIC released the Quarterly Banking Profile today for Q4. The report showed that 1-4 family Real Estate Owned (REO) by FDIC insured institutions declined to $11.64 billion in Q4, from $11.9 billion in Q3 - and from $14.05 billion in Q4 2010.

As economist Tom Lawler has pointed out before, the FDIC does not collect data on the number of properties held by FDIC-insured institutions, instead they aggregate the carrying value of 1-4 family residential REO on FDIC-insured institutions’ balance sheets.

Using an average of $150,000 per unit would suggest the number of 1-4 family REOs declined from 79,335 in Q3 to 77,584 in Q4.

Here is a graph of the 1-4 family REO carrying value for FDIC insured institutions since Q1 2003.

Click on graph for larger image in new window.

The left scale is the dollars reported in the FDIC Quarterly Banking Profile, and the right scale is an estimate of REOs using an average of $150,000 per unit. Using this estimate for the average per REO gives 77.6 thousand REO at the end of Q4.

Note: FDIC insured institutions have other REO and this is just the 1-4 family residential REO (other REO includes Construction & Development, Multi-family, Commercial, Farm Land).

Of course this is just a small portion of the total 1-4 family REO. The FHA has already reported that REO declined sharply in Q4, and Fannie and Freddie are expected to report declines in REO later this week.

Although REO inventories declined over the last year - a combination of more sales and fewer acquisitions due to the slowdown in the foreclosure process - there are still many more foreclosures coming.

by Calculated Risk on 2/28/2012 12:06:00 PM

Case-Shiller, CoreLogic and others report nominal house prices. It is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1998 and early 2000 levels depending on the index.

Nominal House Prices

Click on graph for larger image.

The first graph shows the quarterly Case-Shiller National Index SA (through Q4 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through December) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q3 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to January 2003 levels, and the CoreLogic index is back to February 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 1998 levels, the Composite 20 index is back to March 2000, and the CoreLogic index back to December 1999.

In real terms, all appreciation in the '00s - and more - is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to October 1998 levels, the Composite 20 index is back to March 2000 levels, and the CoreLogic index is back to December 1999.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels, and will all probably be back to late '90s levels within the next few months.

All current house price graphs
Earlier:
• Case Shiller: House Prices fall to new post-bubble lows in December

by Calculated Risk on 2/28/2012 10:48:00 AM

• From the Richmond Fed: Manufacturing Activity Expanded for the Third Straight Month; Expectations Remain Upbeat

In February, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — increased eight points to 20 from January's reading of 12.
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Labor market conditions at District plants strengthened further in February. The manufacturing employment index moved up nine points to end at 13, and the average workweek indicator increased six points to 10. In contrast, wage growth eased, losing three points to 7.

Every regional survey showed faster expansion in February compared to January. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through February), and five Fed surveys are averaged (blue, through February) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

The ISM index for February will be released Thursday, March 1st and the regional surveys suggest another increase in February. The consensus is for a slight increase to 54.6 from 54.1 in January.

• The Conference Board Consumer Confidence Index® Increases

The Conference Board Consumer Confidence Index®, which had decreased in January, increased in February. The Index now stands at 70.8 (1985=100), up from 61.5 in January. The Present Situation Index increased to 45.0 from 38.8. The Expectations Index rose to 88.0 from 76.7 in January.

This was well above expectations of an increase to 64.

• From the FDIC: Quarterly Banking Profile

Fourth-quarter earnings totaled $26.3 billion, an increase of $4.9 billion (23.1 percent) compared with the same period of 2010. ... For the third time in the last four quarters, net operating revenue posted a year-over-year decline. ... Net charge-offs totaled $25.4 billion in the fourth quarter, a decline of $17.1 billion (40.2 percent) from a year ago. The fourth quarter total represents the lowest level for quarterly charge-offs since first quarter 2008. This is the sixth consecutive quarter in which charge-offs have posted a year-over-year decline. Improvements occurred across all major loan types. ... The amount of loan balances that were noncurrent (90 days or more past due or in nonaccrual status) declined for the seventh quarter in a row, falling by $4.3 billion (1.4 percent).

The number of problem institutions decreased to 813 in Q4 from 844 in Q3, and assets of problem institutions declined to $319.4 billion from $339 billion in Q3.