by Calculated Risk on 7/25/2012 07:01:00 AM

From the MBA: As Low Rate Environment Persists, Refinance Applications Reach Highest Level Since 2009 in Latest MBA Weekly Survey

The Refinance Index increased 2 percent from the previous week to its highest level since April 19, 2009. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier to its lowest level since June 22, 2012.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 3.74 percent, the lowest rate in the history of the survey, with points decreasing to 0.43 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The first graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

Note: Yesterday Zillow reported record low mortgage rates in their survey: "30-year fixed mortgage rate on Zillow(R) Mortgage Marketplace is currently 3.35 percent, down seven basis points from 3.42 percent at the same time last week."

The second graph shows the refinance index.

The refinance index is at the highest level since 2009.

This increase in refinance activity is probably a result of both record low mortgage rates and HARP activity.

by Calculated Risk on 7/24/2012 09:28:00 PM

Perhaps a little good housing news on Wednesday, but first, on Europe from Tim Duy: Is There Even a Panic Button in Europe?

I didn't think it was possible, but my confidence in the ability of European policymakers to pull the Continent out of crisis continues to fall. This is saying a lot because I had virtually no confidence to begin with.
...
The Greeks were never given a bailout plan that had any hope of success.
...
Whether or not Greece can be forced from the Euro with little impact elsewhere remains to be seen. I doubt we will need to wait much longer to learn the outcome of Grexit. But the devastating train that is the debt crisis keeps rolling right along, currently crashing through Spain's economy.

And make no mistake, European policymakers have learned nothing from the Greek experience. One gets the sense that policymakers think the prescription was correct, but that the patient was simply unwilling to take the medicine. Where Greece failed, Spain will succeed ...

Europe is still getting "Schäuble'd" as policymakers continue to repeat the same mistakes. Oh well, the beatings will continue until morale improves.

On Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the mortgage purchase applications and refinance indexes. I expect record low mortgage rates and more refinance activity.


• At 10:00 AM, the New Home Sales report for June is scheduled to be released by the Census Bureau. The consensus is for an increase in sales to 370 thousand Seasonally Adjusted Annual Rate (SAAR) in June from 369 thousand in May.

by Calculated Risk on 7/24/2012 04:34:00 PM

From Jon Hilsenrath at the WSJ: Fed Sees Action if Growth Doesn't Pick Up Soon

Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.

Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.

Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act. ... There are several reasons why Fed officials might wait for their September meeting to decide whether to proceed. By then they will have seen two more monthly unemployment reports and two more months of data on output, spending and investment. Fed officials update their economic projections at the September meeting and Mr. Bernanke holds his a quarterly news conference after, which would give him an opportunity to publicly explain the Fed's thinking.
...
A new round of bond-buying would be politically controversial so close to the November presidential election. ... Another option is a change in the Fed's public communication about its plans.

There are arguments for waiting until September (more data, updated projections), but I think there is a reasonable chance they will move on August 1st since their current projections are already unacceptable - and the data has been mostly disappointing since their last meeting.

The Q2 GDP report to be released on Friday will be an important piece of data - not just the Q2 growth rate, but the annual revisions. If GDP is revised down, then that would suggest a larger "output gap" - and that would probably influence many FOMC members to vote for more accommodation now.

by Calculated Risk on 7/24/2012 01:14:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for June 2012. In the past month, the indexes increased in 30 states, decreased in nine states, and remained stable in 11 states, for a one-month diffusion index of 42. Over the past three months, the indexes increased in 39 states, decreased in nine states, and remained stable in two states, for a three-month diffusion index of 60.

Note: These are coincident indexes constructed from state employment data. From the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In June, 35 states had increasing activity, unchanged from May. The last two months have been weak following eight months of widespread growth geographically. The number of states with increasing activity is at the lowest level since June of last year.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession.

And the map was all green just just a couple of months ago.

Now there are a number of red states.

by Calculated Risk on 7/24/2012 10:14:00 AM

• From the FHFA: House Price Index Up 0.8 Percent in May

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from April to May, according to the Federal Housing Finance Agency’s monthly House Price Index. ... For the 12 months ending in May of 2012, U.S. prices rose 3.7 percent. The U.S. index is 17.0 percent below its April 2007 peak and is roughly the same as the May 2004 index level.

The FHFA monthly index is calculated using purchase prices of houses with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

This is GSE loans only, and these loans have performed better than the non-GSE loans.

• From the Richmond Fed: Manufacturing Activity Contracted in July; Manufacturers' Optimism Waned

The pullback in manufacturing activity in the central Atlantic region deepened in July, after edging lower in June, according to the Richmond Fed's latest seasonally adjusted survey. The index of overall activity was pushed lower as shipments and new orders declined further into negative territory. Employment remained in positive territory, but grew at a pace below June's rate. Other indicators also suggested additional softness.
...
In July, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — fell sixteen points to −17 from June's reading of −1. Among the index's components, shipments declined twenty-three points to −23, new orders dropped eighteen points to end at −25, and the jobs index moved down seven points to 1.

• Comments from UPS (ht Brian):

Global trade is lagging GDP growth currently. Only 2nd time in last 10 years that this has happened. Think this is temporary.

They see US GDP growth at 1% in 2nd half ... ”we think current 2H econ forecasts are too high”

Non-US domestic volumes down 3.2%. Southern Europe had double digit declines

US outlook see rev up 1-2%, see B2B deteriorating further – weaker US outlook is primary driver behind reduced outlook “sees concerning trends in US”

by Calculated Risk on 7/24/2012 09:07:00 AM

From Markit: PMI signals slowest manufacturing expansion since December 2010

The July Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) indicated the weakest improvement in U.S. manufacturing sector business conditions in 19 months, according to the preliminary ‘flash’ reading which is based on around 85% of usual monthly replies. At 51.8, down from 52.5 in June, the headline index was the second-lowest since the manufacturing recovery was first signalled by the PMI in late-2009 (only December 2010 saw a weaker PMI reading).

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

“The U.S. manufacturing sector is clearly struggling under the pressure from falling exports ... Reassuringly, domestic demand appears to be showing ongoing signs of resilience, encouraging firms to take on more staff.

“Overall, the third quarter is so far shaping up to be worse than the second quarter in terms of growth, which is a growing concern for policymakers. Some comfort can be drawn from the fall in prices, which should help keep inflation at bay and increase the scope for further stimulus. However, falling prices are also a worrying sign of just how much demand has weakened in recent weeks.”

This suggests another weak ISM PMI (due next week).

by Calculated Risk on 7/24/2012 12:14:00 AM

From Zillow: U.S. Home Values Post First Annual Increase In Nearly Five Years

Home values in the United States have reached a bottom. The Zillow Home Value Index (ZHVI) rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300, according to Zillow’s second quarter Real Estate Market Reports. Values have risen for four consecutive months.
...
“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.

“Of course, there is still some risk as we look down the foreclosure pipeline and see foreclosure starts picking up. This will translate into more homes on the market by the end of the year, but we think demand will rise to absorb that, particularly in markets where there are acute inventory shortages now. Looking forward, we expect home values to remain relatively flat as the market works through a backlog of foreclosures and high rates of negative equity.”

by Calculated Risk on 7/23/2012 10:08:00 PM

The key stories today were about Europe (once again). The yields on Spanish and Italian bond yields increased. Ezra Klein calls a graph of Spanish bond yields the scariest chart in the world today.

Also Spain and Italy banned some short selling and Moody's downgraded their outlook on Germany's rating to negative. Another day in the eurozone crisis.

On Tuesday:
• At 9:00 AM ET, the Markit US PMI Manufacturing Index Flash will be released. This is a new release and might provide hints about the ISM PMI for July. The consensus is for a reading of 52.6, down slightly from 52.9 in June.

• At 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for July will be released. The consensus is for an increase to 0 for this survey from -3 in June (above zero is expansion).

• Also at 10:00 AM, the FHFA House Price Index for May is scheduled to be released. The consensus is for a 0.3% increase in house prices.

by Calculated Risk on 7/23/2012 04:12:00 PM

From DataQuick: California Q2 Foreclosure Activity Lowest in Five Years

The number of California homes entering the formal foreclosure process dropped in the second quarter to its lowest level since early 2007. The decline stems from a combination of factors, including an improving housing market, the gradual burning off of the most egregious mortgages originated from 2005 through 2007, and the growing use of short sales, a real estate information service reported.

A total of 54,615 Notices of Default (NODs) were recorded on houses and condos during the April-though-June period. That was down 2.9 percent from 56,258 for the prior three months, and down 3.6 percent from 56,633 in second-quarter 2011, according to San Diego-based DataQuick.
...
Most of the loans going into default are still from the 2005-2007 period. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for three years, indicating that weak underwriting standards peaked then. ...
The all-time peak for Trustees Deeds was 79,511 in third-quarter 2008. The state's all-time low was 637 in the second quarter of 2005, DataQuick reported.
...
Foreclosure resales accounted for 27.9 percent of all California resale activity last quarter, down from a revised 33.6 percent the prior quarter and 35.6 percent a year ago. It peaked at 57.8 percent in the first quarter of 2009. Foreclosure resales varied significantly by county last quarter, from 7.3 percent in San Francisco County to 47.4 percent in Madera County.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 18.0 percent of statewide resale activity last quarter. That was down from an estimated 20.1 percent the prior quarter and up from 17.4 percent a year earlier. In terms of the number of short sales, last quarter's estimated 20,141 was up 13.0 percent from the prior quarter and up 10.2 percent from a year earlier.

Click on graph for larger image.

This graph shows the number of NODs filed per year (according to DataQuick). The estimate for 2012 is twice the Q1 and Q2 level.

The number of NODs is still very high - well above the peak of the early '90s bust, but the number of NODs has been falling. When the number of NODs falls below the 1996 level (peak of previous housing bust) - that will really be progress.

by Calculated Risk on 7/23/2012 01:55:00 PM

Here is a series I'm looking forward to reading ... from David Leonhardt at the NY Times: A Closer Look at Middle-Class Decline

Arguably no question is more central to the country’s global standing than whether the economy will perform better in the future than it has in the recent past.

Over the next few months on this blog, several colleagues and I will look in some detail at the challenge and at possible ways forward, and we’ll encourage you to weigh in with questions, ideas and other feedback.

Leonhardt starts with:

Since median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won’t find another 12-year period with an income decline since the aftermath of the Depression.

This unhappy phenomenon has two major sources. First, economic growth in this country has been relatively slow in recent years, which means the total bounty that the American economy produces, to be shared by all of its citizens, has not been growing very rapidly. Even before the financial crisis began in 2008, economic growth in the decade that started in 2001 was on pace to be slower than growth in any decade since World War II.

Then of course came a deep recession that caused the economy to shrink.
...
In addition to the slow growth in overall size of the pie, the share that has been going to anyone but the richest Americans has been declining. ... In the simplest terms, the relatively meager gains the American economy has produced in recent years have largely flowed to a small segment of the most affluent households, leaving middle-class and poor households with slow-growing living standards.

A very important topic.