by Calculated Risk on 8/23/2012 08:30:00 AM

The DOL reports:

In the week ending August 18, the advance figure for seasonally adjusted initial claims was 372,000, an increase of 4,000 from the previous week's revised figure of 368,000. The 4-week moving average was 368,000, an increase of 3,750 from the previous week's revised average of 364,250.

The following graph shows the 4-week moving average of weekly claims since January 2000.



Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 368,000.

This was above the consensus forecast of 365,000.


And here is a long term graph of weekly claims:

The 4-week average post-bubble low is 363,000; this week the average was at 368,000.

All current Employment Graphs

by Calculated Risk on 8/22/2012 08:41:00 PM

From Jon Hilsenrath and Kristina Peterson at the WSJ: Fed Moving Closer to Action

The Federal Reserve sent its strongest signal yet that it is preparing new steps to bolster the economic recovery, saying measures would be needed fairly soon unless growth substantially and convincingly picks up.

Here is Tim Duy's take: It's All About The Data

Lots of possibilities at this point. If you were looking for additional asset purchases at the last FOMC meeting, you were not crazy. There was obviously widespread concern about the mid-year slowdown and its implications for the stability of the Fed's forecasts. Moreover, policymakers appear to have concluded that additional asset purchases could be effective. If the data had continued to progress as it had since the July/August meeting, I would say that another round of QE was a slam-dunk. But the data has not progressed in the same direction; rather than falling short of expectations, it has tended toward upside surprises. That of course could change over the next few weeks. In short, we need to ask ourselves what will constitute a "substantial and sustainable strengthening." If Lockhart is a guide, I am thinking we have seen such a shift already. If so, I would expect that on the basis of current data the Fed would delay action until closer to the end of Operation Twist II and to see if Congress has come to any agreement on the fiscal situation in 2013. If the change in the data has not reached the threshold of "substantial and sustainable strengthening" then we would expect action. It will be interesting to see if any of the doves back off on their dreary forecasts in the coming days; such shifts in tone would be telling. Also note that there is a middle ground in the possibility of further changes to the communication strategy; something that could placate both the doves and the hawks until a clearer image of the path of the US economy emerges.

On Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 365 thousand from 366 thousand.

• At 9:00 AM, the Markit US PMI Manufacturing Index Flash. This is a new release and might provide hints about the ISM PMI for August. The consensus is for a reading of 51.0, down from 51.8 in July.

• At 10:00 AM, New Home Sales for July will be released by the Census Bureau. The consensus is for an increase in sales to 362 thousand Seasonally Adjusted Annual Rate (SAAR) in July from 350 thousand in June. Watch for upgrades to the sales rate for previous months.

• Alst at 10:00 AM, the FHFA House Price Index for June 2012 will be released. This is based on GSE repeat sales and the consensus is for a 0.6% increase in house prices.

Another question for the monthly economic prediction contest:

Europe Note: German Chancellor Merkel and French President Hollande will meet in Berlin

by Calculated Risk on 8/22/2012 04:02:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Architecture Billings Index Downturn Moderates as Negative Conditions Continue

The Architecture Billings Index (ABI) pointed to a slower decline in July in design activity at U.S. architecture firms. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the July ABI score was 48.7, up considerably from the mark of 45.9 in June. This score reflects a decrease in demand for design services (any score below50 indicates a decline in billings). The new projects inquiry index was 56.3, up from mark of 54.4 the previous month.

“Even though architecture firm billings nationally were down again in July, the downturn moderated substantially,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “As long as overall economic conditions continue to show improvement, modest declines should shift over to growth in design activity over the coming months.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.7 in July, up from 45.9 in June. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further weakness in CRE investment later this year and into next year (it will be some time before investment in offices and malls increases).

Earlier on existing home sales:
• Existing Home Sales in July: 4.47 million SAAR, 6.4 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 8/22/2012 02:00:00 PM

Update: Here is a key sentence:

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery"

From the Fed: Minutes of the Federal Open Market Committee, July 31-August 1, 2012. Excerpt:

Participants discussed a number of policy tools that the Committee might employ if it decided to provide additional monetary accommodation to support a stronger economic recovery in a context of price stability. One of the policy options discussed was an extension of the period over which the Committee expected to maintain its target range for the federal funds rate at 0 to 1/4 percent. It was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed. Given the uncertainty attending the economic outlook, a few participants questioned whether the conditionality of the forward guidance was sufficiently clear, and they suggested that the Committee should consider replacing the calendar date with guidance that was linked more directly to the economic factors that the Committee would consider in deciding to raise its target for the federal funds rate, or omit the forward guidance language entirely.

Participants also exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly. In addition, some participants noted that a new program might boost business and consumer confidence and reinforce the Committee's commitment to making sustained progress toward its mandated objectives. Participants also discussed the merits of purchases of Treasury securities relative to agency MBS. However, others questioned the possible efficacy of such a program under present circumstances, and a couple suggested that the effects on economic activity might be transitory. In reviewing the costs that such a program might entail, some participants expressed concerns about the effects of additional asset purchases on trading conditions in markets related to Treasury securities and agency MBS, but others agreed with the staff's analysis showing substantial capacity for additional purchases without disrupting market functioning. Several worried that additional purchases might alter the process of normalizing the Federal Reserve's balance sheet when the time came to begin removing accommodation. A few participants were concerned that an extended period of accommodation or an additional large-scale asset purchase program could increase the risks to financial stability or lead to a rise in longer-term inflation expectations. Many participants indicated that any new purchase program should be sufficiently flexible to allow adjustments, as needed, in response to economic developments or to changes in the Committee's assessment of the efficacy and costs of the program.

Some participants commented on other possible tools for adding policy accommodation, including a reduction in the interest rate paid on required and excess reserve balances. While a couple of participants favored such a reduction, several others raised concerns about possible adverse effects on money markets. It was noted that the ECB's recent cut in its deposit rate to zero provided an opportunity to learn more about the possible consequences for market functioning of such a move. In light of the Bank of England's Funding for Lending Scheme, a couple of participants expressed interest in exploring possible programs aimed at encouraging bank lending to households and firms, although the importance of institutional differences between the two countries was noted.

This seems to suggest that "many participants" are supportive of QE3, although an alternative might be an extension of the period of exceptionally low rates.

by Calculated Risk on 8/22/2012 11:42:00 AM

The NAR had some issues with the report this morning. Here is the press release: Existing-Home Sales Improve in July, Prices Continue to Rise

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.3 percent to a seasonally adjusted annual rate of 4.47 million in July from 4.37 million in June, and are 10.4 percent above the 4.05 million-unit pace in July 2011.
...
Total housing inventory at the end July increased 1.3 percent to 2.40 million existing homes available for sale, which represents a 6.4-month supply at the current sales pace, down from a 6.5-month supply in June. Listed inventory is 23.8 percent below a year ago when there was a 9.3-month supply.
...
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of July sales (12 percent were foreclosures and 12 percent were short sales), down from 25 percent in June and 29 percent in July 2011.
...
Given population and demographic demand, [Lawrence Yun, NAR chief economist] said existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said.

Based on historical turnover rates, I think "normal" sales would be in the 4.5 to 5.0 million range. So existing home sales are close to "normal" now, however, of course, "normal" would have very few distressed sales - so in that sense the market is a long ways from "normal". But no one should expect existing home sales to go back to 6 or 7 million per year.   Instead the key to returning to "normal" is more conventional sales and fewer distressed sales.

As I've noted before, what matters the most in the NAR's existing home sales report is inventory; and what matters the most in the new home sales report tomorrow is sales. It is active inventory that impacts prices (although the "shadow" inventory will keep prices from rising). Those looking at the number of existing home sales for a recovery in housing are looking at the wrong number. For existing home sales, look at inventory first and then at the percent of conventional sales.

The NAR reported inventory increased to 2.40 million units in July, up slightly from June. This is down 23.8% from July 2011, and down 13% from the inventory level in July 2005 (mid-2005 was when inventory started increasing sharply). This is the same level for inventory as in July 2004.

Clearly inventory will be below the comparable month in 2005 for the rest of the year and will probably track close to the level in 2004. It looks like inventory peaked this year in April.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

The following graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

Click on graph for larger image.

This year (dark red for 2012) inventory is at the lowest level for the month of July since 2004, and inventory is below the level in July 2005 (not counting contingent sales). However inventory is still elevated using months-of-supply, but I expect months-of-supply to be below 6 later this year.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are above the sales for 2008, 2010 and 2011. Sales are well below the bubble years of 2005 and 2006.

Earlier:
• Existing Home Sales in July: 4.47 million SAAR, 6.4 months of supply99
• Existing Home Sales graphs

by Calculated Risk on 8/22/2012 10:00:00 AM

Note: The NAR had release issues this morning.

From the WSJ: Home Resales Jump

Existing-home sales increased 2.3% in July from a month earlier to a seasonally adjusted annual rate of 4.47 million, the National Association of Realtors said Wednesday. The month's sales were 10.4% above the same month a year earlier.

The sales pace for June was unrevised at 4.37 million per year.

The median sales price in July, meanwhile, was $187,300, up 9.4% from the same month a year earlier and the strongest year-over year gain since January 2006.

At the end of July, meanwhile, the inventory of previously owned homes listed for sale rose 1.3% to 2.4 million. That represented a 6.4 month supply at the current sales pace

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July 2012 (4.47 million SAAR) were 2.3% higher than last month, and were 10.4% above the July 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 2.4 million in July from 2.39 million in June. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 23% year-over-year in July from July 2011. This is the seventeenth consecutive month with a YoY decrease in inventory, and near the largest year-over-year decline reported.

Months of supply decreased to 6.4 months in July.

This was slightly below expectations of sales of 4.50 million. However, as I've noted before, those focusing on sales of existing homes, looking for a recovery for housing, are looking at the wrong number. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...


All current Existing Home Sales graphs

by Calculated Risk on 8/22/2012 07:01:00 AM

From the MBA: Refinance Applications Decline as Rates Increase

The Refinance Index decreased 9 percent from the previous week to the lowest level since early July. The seasonally adjusted Purchase Index increased 0.9 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.86 percent from 3.76 percent, with points decreasing to 0.42 from 0.47 (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 "The 30-year fixed mortgage rate on Zillow(R) Mortgage Marketplace is currently 3.5 percent, up eight basis points from 3.42 percent at this same time last week."

The second graph shows the refinance index.

The refinance activity has declined for three straight weeks as mortgage rates have moved higher. This is still a fairly high level of activity.

by Calculated Risk on 8/21/2012 09:07:00 PM

Europe is coming back from vacation, from the WSJ: Europe Pressures Intensify

After a summer lull, Greece is again Ms. Merkel's biggest headache.

The Greek government, struggling with depression-like conditions that have pushed the economy to the brink, is likely to need many billions of euros of additional aid to avoid bankruptcy.

... The chancellor is set to meet with French President François Hollande on Thursday and Greek Prime Minister Antonis Samaras on Friday, meetings the chancellor's aides say will help determine Berlin's course.

... The chancellor isn't likely to reach a decision for several weeks, German officials said. In part, they said, she is waiting for two developments that could expand or constrain her options: Germany's constitutional court is due to rule on Sept. 12 on whether the euro zone can launch its permanent bailout fund, and inspectors from the European Union and the IMF are due to report on the size of Greece's finance shortfall. The latter could take until October, some euro-zone officials say.

Merkel and Samaras will meet on Friday with a press conference following ... The following week ECB President Mario Draghi will speak at the Jackson Hole Economic Symposium on Saturday, Sept 1st at 10 AM.

On Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

• At 10:00 AM, Existing Home Sales for July is scheduled for release by the National Association of Realtors (NAR). The consensus is for sales of 4.50 million on seasonally adjusted annual rate (SAAR) basis. Sales in June 2012 were 4.37 million SAAR.

• At 2:00 PM, the FOMC Minutes for the meeting of July 31-August 1, 2012 will be released. Once again the minutes will be closely scrutinized for hints about QE3.

Another question for the monthly economic prediction contest:

• During the day: The AIA's Architecture Billings Index for July (a leading indicator for commercial real estate) will be released.

by Calculated Risk on 8/21/2012 05:10:00 PM

From the FHFA: New Standard Short Sale Guidelines for Fannie Mae and Freddie Mac

The Federal Housing Finance Agency (FHFA) today announced that Fannie Mae and Freddie Mac are issuing new, clear guidelines to their mortgage servicers that will align and consolidate existing short sales programs into one standard short sale program. The streamlined program rules will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.

The new guidelines, which go into effect Nov. 1, 2012, will permit a homeowner with a Fannie Mae or Freddie Mac mortgage to sell their home in a short sale even if they are current on their mortgage if they have an eligible hardship. Servicers will be able to expedite processing a short sale for borrowers with hardships such as death of a borrower or co-borrower, divorce, disability, or relocation for a job without any additional approval from Fannie Mae or Freddie Mac.

“These new guidelines demonstrate FHFA’s and Fannie Mae’s and Freddie Mac’s commitment to enhancing and streamlining processes to avoid foreclosure and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job.”

A few details:

Fannie Mae and Freddie Mac will waive the right to pursue deficiency judgments in exchange for a financial contribution when a borrower has sufficient income or assets to make cash contributions or sign promissory notes: Servicers will evaluate borrowers for additional capacity to cover the shortfall between the outstanding loan balance and the property sales price as part of approving the short sale.

Offer special treatment for military personnel with Permanent Change of Station (PCS) orders: Service members who are being relocated will be automatically eligible for short sales, even if they are current on their existing mortgages, and will be under no obligation to contribute funds to cover the shortfall between the outstanding loan balance and the sales price on their homes.

Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale. Previously, second lien holders could slow down the short sale process by negotiating for higher amounts.

Short sales are already more common than foreclosures in many areas, and these new guidelines will probably lead to an even higher percentage of short sales next year (compared to foreclosures).

More from Fannie Mae: Fannie Mae Announces New Short Sale Guidelines

Under the new guidelines, servicers will be permitted to approve a short sale for borrowers who have certain hardships but have not yet gone into default. Those hardships include the death of a borrower or co-borrower, divorce or legal separation, illness or disability or a distant employment transfer. In addition, Fannie Mae is significantly reducing the documentation required to complete a short sale, including requiring no documentation of a borrower’s hardship 90 days or more delinquent and have a credit score lower than 620. This will remove barriers for those homeowners who are most in danger of foreclosure and increase servicer efficiency in completing a short sale.

Fannie Mae will also limit subordinate-lien payments to $6,000. Previously, subordinate lien holders often attempted to negotiate higher payments. The servicer will be able to offer the maximum payment of $6,000 in order to facilitate the transaction. By setting a standard payout amount and a limit for every transaction, Fannie Mae is removing the guess work and standardizing the transaction to help accelerate the short sale process.

... Fannie Mae completed 38,717 short sales through the first six months of 2012 and 70,025 in full year 2011.

by Calculated Risk on 8/21/2012 01:06:00 PM

Two weeks ago I posted a graph of mortgage delinquencies by state. This raised a question of how the current delinquency rate compares to before the crisis - and also a comparison to the peak of the delinquency crisis in each state.

The following graph shows the range of percent seriously delinquent and in-foreclosure for each state (dashed blue line) since 2007. The red diamond indicates the current serious delinquency rate (this includes 90+ days delinquent or in the foreclosure process).

Click on graph for larger image.

Many states have seen declines, and several states have seen significant declines in the serious delinquency rate including Arizona, Michigan, Nevada and California. Other states, like New Jersey and New York, have made little or no progress in reducing serious delinquencies.

Arizona, Michigan, Nevada and California are all non-judicial foreclosure states. States with little progress like New Jersey and New York are judicial states. Florida is a judicial states - and has the highest serious deliquency rate - but Florida has seen some improvement.

The second graph shows total delinquencies (including less than 90 days) and in-foreclosure.

Although some states have seen significant declines in delinquency rates, all states are still above the Q1 2007 levels - and some states have seen little progress.