by Calculated Risk on 6/06/2012 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from early April to late May.

This is a slight upgrade from the previous beige book that reported "modest to moderate" growth.

And on real estate:

Activity in residential real estate markets improved in most Districts since the previous report. Several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile. The apartment market continued to improve, and multifamily construction increased in several Districts.

Home sales were above year-ago levels in most areas of the country and several Districts noted sales had improved since the previous report, although some noted that the pace was well below the historical average. In particular, the New York, Cleveland, and Richmond Districts noted a pickup in the pace of distressed sales. Residential brokers and some builders in the Philadelphia, Atlanta, and Dallas Districts said home sales were exceeding expectations. Contacts in the Richmond District said homes were being snapped up as investors become more confident in the housing recovery, and the Atlanta report noted stronger sales to cash buyers and investors in Florida. Chicago said more sales had multiple offers. Apartment rental markets improved in the New York, Atlanta, and Dallas Districts. One contact from the New York District noted rising apartment rents have made buying more attractive, contributing to a slight uptick in sales.

Most Districts reported that home inventories decreased. Overall, home prices remained unchanged in many Districts, although reports were mixed. There were a few reports that sellers were lowering asking prices, leading to downward pressure on housing prices.

New home construction increased in a number of Districts, including Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. Contacts in the Philadelphia District said demand for new home construction eased slightly. Builders in Kansas City noted housing starts were down, but they expected an increase in the next three months. The Boston, Atlanta, and Chicago Districts reported an increase in multifamily construction, and the Minneapolis District noted numerous multifamily projects were in the pipeline.

Commercial real estate conditions improved in most Districts, and there were some reports that commercial construction picked up.

Prepared at the Federal Reserve Bank of Dallas and based on information collected on or before May 25, 2012.

More sluggish growth - but not a slow down. And a few positive comments on residential real estate ...

by Calculated Risk on 6/06/2012 10:58:00 AM

From the WSJ: Draghi Sees Increased Risks to Economy

European Central Bank President Mario Draghi said the euro-zone economy faces "increased downside risks" and that inflation will fall below 2% early next year.
...
"Growth remains weak with heightened risks," the ECB chief said in his opening statement to the monthly news conference following the governing council's meeting.
...
Mr. Draghi noted that growth was flat in the first three months of the year and that so far indicators point to it weakening in the second quarter. However, he said the bank was sticking to its view that the economy would recover gradually in the course of the year.

"Heightened risks"? Hoocoodanode? I doubt that the Eurozone economy will gradually recover in the 2nd half ... more likely the recession will get worse.

Meanwhile in Greece: Greece Warns of Going Broke as Tax Proceeds Dry Up

Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. ...

Officials, scrambling for solutions, have considered dipping into funds that are supposed to be for Greece’s troubled banks. Some are even suggesting doling out i.o.u.’s.

Greek leaders said that despite their latest bailout of 130 billion euros, or $161.7 billion, they face a shortfall of 1.7 billion euros because tax revenue and other sources of potential income are drying up. A wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.

by Calculated Risk on 6/06/2012 07:00:00 AM

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

The Refinance Index increased 2 percent from the previous week to its highest level since February 10, 2012. The seasonally adjusted Purchase Index decreased slightly from one week earlier to its lowest level since April 13, 2012.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.87 percent, the lowest rate in the history of the survey, from 3.91 percent, with points remaining unchanged at 0.46 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The purchase index is still very weak. The purchase index has mostly moved sideways for the last two years.

Refinance activity continues to increase as mortgage rates fell to another record low last week.

by Calculated Risk on 6/05/2012 09:25:00 PM

The most interesting information tomorrow are the ECB meeting in Europe (no rate change expected), and the speech by Fed Vice Chair Janet Yellen. Here is a story on the Fed from Jon Hilsenrath at the WSJ: Fed Considers More Action Amid New Recovery Doubts

Disappointing U.S. economic data, new strains in financial markets and deepening worries about Europe's fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery.
...
The Fed's next meeting, June 19 and 20, could be too soon for conclusive decisions. Fed policy makers have many unanswered questions and have had trouble forming consensus in the past. Top Fed officials have said that they would support new measures if they became convinced the U.S. wasn't making progress on bringing down unemployment. Recent disappointing employment reports have raised this possibility, but the data might be a temporary blip.
...
Their options include doing nothing and continuing to assess the economic outlook—or more strongly signaling a willingness to act later if the outlook more clearly worsens. Fed policy makers could take a small precautionary measure, like extending for a short period its "Operation Twist" program, in which the Fed is selling short-term securities and using the proceeds to buy long-term securities. Or, policy makers could take bolder action such as launching another large round of bond purchases if they become convinced of a significant slowdown.

And the economic releases on Wednesday:

• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Expect record low mortgage rates and probably an increase in refinance activity.

• At 8:30 AM, the final Productivity and Costs for Q1 will be released.

• At 2:00 PM the Federal Reserve Beige Book will be released. This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This will receive extra attention this month as investors look for signs of a slowdown.

• And at 7:00 PM, Fed Vice Chair Janet Yellen will speak on "The Economic Outlook and Monetary Policy" at the Boston Economic Club Dinner, Boston, Massachusetts.

by Calculated Risk on 6/05/2012 04:38:00 PM

Yesterday I mentioned a post I wrote over four years ago - back when I was a housing grizzly bear - where I discussed housing and recoveries and pointed out that 1) housing is usually "an engine of recovery" and 2) "Given the current [back in early 2008] fundamentals of housing – significant oversupply, falling demand – it is very unlikely that housing will act as an engine of growth any time soon. We need to see a significant reduction in supply before there will be any increase in residential investment."

I've been asked to update the last two graphs in that post comparing the current recovery with previous recoveries.

The first graph is constructed by normalizing new home sales at the end of the previous six recessions. Then the median is plotted as a percent from the recession bottom. Note that month zero is the last month of each recession. Since sales are normalized, this doesn't show the recent historic collapse in sales - rather this is intended to show the relative strength of the recovery in percentage terms.

Click on graph for larger image.

I've made two updates to the graph since four years ago: 1) I added the current recession and recovery, and 2) I extended the period after the end of the recession

Usually housing bottoms a few months before the rest of the economy, and then acts as an engine of growth coming out of the recession. Obviously housing performed terribly following the recent recession - with a small increase due to the tax credit, and then new lows and moving sideways for several years - just as predicted.

The second graph is the data for each of the last 7 recessions (including 2007). Housing didn't boom coming out of the 2001 recession because there was no significant collapse during the recession (an investment led recession). And new home sales faltered following the recession ending in July 1980 (green line) because of the double dip recession of 1980 and '81/'82.

These graphs show exactly what I expected over four years ago - a long period before housing recovers - and even now the recovery is sluggish.

Technical Note: For the median in the first graph, I used the median sales after normalizing to the low for the recession. Then I calculated the percent recovery from the median. This shows an increase of about 52% over 3 years for the median - less than the usual recovery. This is because the recessions bottomed at different points (relative to the end of the recession), so the bottom for the median was higher (and the percent recovery less). If anything, this understates the usual strength of a housing recovery.

by Calculated Risk on 6/05/2012 01:45:00 PM

I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 22.0% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through April (left axis) and the HousingTracker data for the 54 metro areas through early June.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms in December and January and then starts to increase again through the summer. So inventory might increase a little over the next couple of months, but the forecasts for a "surge" in inventory this summer appear to be incorrect.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early June listings, for the 54 metro areas, declined 22.0% from the same period last year. So far in 2012, there has only been a small seasonal increase in inventory.

This decline in active inventory remains a huge story, and lower levels of inventory will help with the stabilization of house prices.

All current Existing Home Sales graphs

by Calculated Risk on 6/05/2012 12:43:00 PM

Press Release: Trulia Reports Flat Asking Prices in May After Three Straight Months of Increases, as Foreclosure Prices Decline

Based on the for-sale homes and rentals listed on Trulia, these monitors take into account changes in the mix of listed homes and reflect trends in prices and rents for similar homes in similar neighborhoods through May 31, 2012.

Asking prices on for-sale homes–which lead sales prices by approximately two or more months – were unchanged in May month-over-month, seasonally adjusted. Together with increases in April and March, asking prices in May rose nationally 1.6 percent quarter over quarter (Q-o-Q), seasonally adjusted. The price increase unadjusted for seasonality was even higher: 5.2 percent Q-o-Q, since prices typically jump in springtime. Year over year (Y-o-Y) asking prices fell slightly by 0.2 percent. Nationally, 41 out of the 100 largest metros had Y-o-Y price increases, and 86 out of the 100 largest metros had Q-o-Q price increases, seasonally adjusted.

More from Jed Kolko, Trulia Chief Economist: Home Prices Stall, Breaking 3-Month Streak of Rising Prices

On Rents:

In May, rents were 6.0 percent higher than they were a year ago, up from the 5.4 percent Y-o-Y rent increase in April, and 4.8 percent in March

Note that Trulia adjusts asking prices for both mix and seasonality. A 1.6% increase for the quarter is pretty significant.

by Calculated Risk on 6/05/2012 10:00:00 AM

The May ISM Non-manufacturing index was at 53.7%, up from 53.5% in April. The employment index decreased in May to 50.8%, down from 54.2% in April - the lowest level since November 2011. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: May 2012 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in May for the 29th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 53.7 percent in May, 0.2 percentage point higher than the 53.5 percent registered in April. This indicates continued growth this month at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 55.6 percent, which is 1 percentage point higher than the 54.6 percent reported in April, reflecting growth for the 34th consecutive month. The New Orders Index increased by 2 percentage points to 55.5 percent, and the Employment Index decreased by 3.4 percentage points to 50.8 percent, indicating continued growth in employment at a slower rate. The Prices Index decreased 3.8 percentage points to 49.8 percent, indicating lower month-over-month prices for the first time since July 2009. According to the NMI, 13 non-manufacturing industries reported growth in May. The majority of the respondents' comments are positive and optimistic about business conditions and the direction of the economy."

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was slightly above the consensus forecast of 53.5% and indicates faster expansion in May than in April.

by Calculated Risk on 6/05/2012 09:22:00 AM

Notes: This CoreLogic House Price Index report is for April. The Case-Shiller index released last week was for March. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Shows Year-Over-Year Increase of Just Over One Percent

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 1.1 percent in April 2012 compared to April 2011. This was the second consecutive year-over-year increase this year, and the first time two consecutive increases have occurred since June 2010. On a month-over-month basis, home prices, including distressed sales, increased by 2.2 percent in April 2012. This marks the second consecutive month-over-month increase this year.

Excluding distressed sales, prices increased 2.6 percent in April 2012 compared to March 2012, the third month-over-month increase in a row. The CoreLogic HPI also shows that year-over-year prices, excluding distressed sales, rose by 1.9 percent in April 2012 compared to April 2011. Distressed sales include short sales and real estate owned (REO) transactions.

Beginning with the April 2012 HPI report, CoreLogic is introducing a ... pending HPI that provides the most current indication of trends in home prices. The pending HPI indicates that house prices will rise by at least another 2.0 percent, from April to May. Pending HPI is based on Multiple Listing Service (MLS) data that measure price changes in the most recent month.

“We see the consistent month-over-month increases within our HPI and Pending HPI as one sign that the housing market is stabilizing,” said Anand Nallathambi, president and chief executive officer of CoreLogic. “Home prices are responding to a restricted supply that will likely exist for some time to come—an optimistic sign for the future of our industry.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 2.2% in April, and is up 1.1% over the last year.

The index is off 32% from the peak - and is just above the post-bubble low set two months ago.

The second graph is from CoreLogic. The year-over-year comparison has turned positive.

Excluding the tax credit period, this is the first year-over-year increase since 2006 (March was revised up to a year-over-year increase too). This "stabilization" of house prices is a significant story.

by Calculated Risk on 6/05/2012 08:51:00 AM

From the WSJ: Spain Warns Market Access Being Shut

Spain's Budget Minister Cristobal Montoro on Tuesday urged euro-zone partners to act faster to help support its enfeebled banks, saying that the government has effectively lost access to capital markets because of steep risk premiums demanded by sovereign bond investors.

In making this dramatic admission, Mr. Montoro joined recent calls by the Spanish government for direct aid from European Union institutions for Spanish banks as the government hopes to avoid a full-blown bailout package ...

"What this premium tells us is that the state, and Spain as a whole, has a problem when it comes to accessing markets, when we need to refinance our debt," Mr. Montoro said in a radio interview. "What that premium says is that Spain doesn't have the market's door open, as such, the challenge is to open that door and regain the confidence of those markets, our creditors."