by Calculated Risk on 4/25/2012 08:35:00 PM

From the San Francisco Chronicle: S.F. rental market on a tear

The Wall Street Journal wrote recently about renters eyeing to live in San Francisco scrambling and begging to sign a lease. ...

Some ran as short as 15 minutes, with crowds of other would-be tenants vying for sometimes lackluster digs. One 600-square-foot loft in the South of Market neighborhood that was “just basically a massive kitchen” listed for $3,200 a month, he says. Still, people were competing for the owner’s attention to submit a rental application.

They were “backing him into a corner to see who could talk to him first…I thought there was going to be a fistfight.”

While rents in other parts of the country are rising around the pace of inflation, at 2.7%, the average rental price in San Francisco shot up by 15.8% from a year ago. Landlords are seeing the demand and acting accordingly, looking to mark up rents significantly when they can.

San Francisco rental-home owners and brokers say they are being deluged with applicants for apartments that would have barely gotten a nibble a year or two ago. Some property managers say they are boosting rental prices by 30% to 40% when units turn over.

It’s always been more expensive to buy than rent in San Francisco, but it looks like the rental market is starting to make up some ground.

Manhattan and San Francisco are both very tight markets, but rents are rising in most areas - and rising rents eventually help support house prices (that is why I track the price-to-rent index).

by Calculated Risk on 4/25/2012 04:43:00 PM

This is not an appeal to authority - house prices don't care who calls a bottom - but earlier this morning I mentioned a few former housing bears who now think prices are at or very near a bottom. Here is another article with comments from Ivy Zelman and Christopher Thornberg; two of the biggest housing bears at one point ...

From Alejandro Lazo at the LA Times: Housing market may be on rebound at last. A couple of excerpts:

"What are important are sales and inventory, and those are pointing in the right direction," said Christopher Thornberg, a principal at Beacon Economics who was one of the early callers of the housing crash. "I would say that by the end of the year, they should translate into better prices."

Thornberg added, "The recovery is here."
...
"This is not a robust recovery, but I feel confident that we are not sitting here lingering," said [Ivy Zelman, chief executive of Zelman & Associates], who predicts that home prices will end the year up about 1%. "There really is more meat to the bone."
...
"The foreclosure market is turning into a drought, not a wave, and that has resulted in a lack of inventory," said Sean O'Toole, chief executive of the firm ForeclosureRadar.com. "If it continues, it will likely mean that we've either seen a bottom — or have passed a bottom — in prices because of limited supply and still strong demand."

Ivy Zelman, formerly at Credit Suisse, became an internet favorite when she asked Toll Brothers CEO Bob Toll "Which Kool-aid are you drinking?" on the Q4 2006 Toll Brothers conference call.

A couple of key points:
• None of these former housing bears see prices rising significantly any time soon.

• However if prices do stop falling that would impact psychology. Many homeowners with a little negative equity would start feeling that they can work their out from under their debt, and I'd expect delinquencies to fall further. And some potential buyers would start feeling a little more confident about buying. If sellers feel prices will increase a little, some will wait for the "better market", and that will keep inventory down. And lenders will start becoming more confident too. Prices do not have to increase to change psychology, just stop falling!

by Calculated Risk on 4/25/2012 02:00:00 PM

Here are the updated projections from the April meeting.

Fed Chairman Ben Bernanke's press conference starts at 2:15 PM ET. Here is the video stream.

Below are the update projections starting with when participants project the initial increase in the target federal funds rate should occur, and the participants view of the appropriate path of the federal funds rate. I've included the chart from the January meeting to show the change.


The four tables shows the FOMC April meeting projections, and the previous two projections (November and January) to show the change.

Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

Here is the January chart for comparison.

There was a slight shift to 2014.

Probably two participants moved from 2015 to 2014, and both participants who viewed 2016 as appropriate have moved to 2015.

A key is the same number of participants think the FOMC should raise rates before 2014.

"The dots represent individual policymakers’ projections of the appropriate federal funds rate target at the end of each of the next several years and in the longer run. Each dot in that chart represents one policymaker’s projection."

Most participants still think the Fed Funds rate will be in the current range into 2014.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0
November 2011 Projections	2.5 to 2.9	3.0 to 3.5	3.0 to 3.9

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

GDP projections have been revised up slightly for 2012, and revised down for 2013 and 2014.

The unemployment rate declined to 8.2% in March, and the projection for 2012 has been revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6
November 2011 Projections	8.5 to 8.7	7.8 to 8.2	6.8 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation were revised up to reflect the recent increase in inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0
November 2011 Projections	1.4 to 2.0	1.5 to 2.0	1.5 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2012	2013	2014
April 2012 Projections	1.8 to 2.0	1.7 to 2.0	1.8 to 2.0
January 2012 Projections	1.5 to 1.8	1.5 to 2.0	1.6 to 2.0
November 2011 Projections	1.5 to 2.0	1.4 to 1.9	1.5 to 2.0

by Calculated Risk on 4/25/2012 12:32:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

Here is the previous FOMC Statement for comparison.

by Calculated Risk on 4/25/2012 11:37:00 AM

First a comment: Back in February, I argued that The Housing Bottom is Here. My previous house price call was back in December 2010, and at that time I thought we'd see another 5% to 10% decline on the repeat sales indexes. Corelogic is down 7.3% since October 2010, and the Case-Shiller composites indexes (NSA) are down about 7.6% (both will probably fall further with the March report). About what I expected.

Here are some more bottom calls (or close to bottom calls). Most of the following analysts and economists haven't called a bottom before - so this isn't the usual annual "Rite of Spring" bottom calls, but we have to be careful about an echo chamber since we all look at the similar data. Also these are just forecasts ...

From John Gittelsohn and Prashant Gopal at Bloomberg: Housing Declared Bottoming in U.S.

Economists including Bank of Tokyo-Mitsubishi UFJ's Chris Rupkey, Bank of America Corp.'s Michelle Meyer and Mark Fleming of CoreLogic Inc. are also predicting prices are close to a trough after a 35 percent slump from a July 2006 peak, even as the threat of more foreclosures loom to boost supply.
...
Meyer, senior economist with Bank of America in New York, said the recovery will be led by the parts of the country with fewer foreclosures and more job growth. She estimates that U.S. prices will reach bottom this year and stay little changed until 2014, when they may gain about 2.5 percent.
...
"It's just a matter of months before we get positive year- over-year numbers in the overall index," Fleming said in a telephone interview from Washington. "Our data lags the reality. The turnaround is happening in the March, April and May time frame."

The article also has some more bearish comments including some from Robert Shiller.

From Zillow: U.S. Home Values Post Largest Monthly Gain Since 2006; Majority of Markets Covered by Zillow Home Value Forecast To Hit Bottom by Late 2012

Home values in the United States increased, rising 0.5 percent from February to March, according to Zillow's first quarter Real Estate Market Reports. This marks the largest monthly increase in the Zillow Home Value Index (ZHVI) since May 2006, when home values also rose 0.5 percent.

Nationally, the Zillow Home Value Forecast shows that home values will fall 0.4 percent over the next 12 months, with many months showing no change or slight appreciation late this year, suggesting that U.S. home values could reach a bottom in late 2012.

"For people who have been waiting to time their home purchase close to market bottom, it's time to start shopping," said Zillow Chief Economist Dr. Stan Humphries. "When the bottom will hit will vary by market, and it's nearly impossible to time a purchase exactly right."

And NDD at the Bonddad Blog has a summary of recent data: Housing overview part 2: prices

And finally, a well known private forecasting group (that I can't name) put a research note this morning, based on their own surveys, saying that house prices have probably found a bottom.