by Calculated Risk on 12/30/2013 08:47:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: LPS Home Price Index Report: October Transactions, U.S. Home Prices Up 0.1 Percent for the Month; Up 8.8 Percent Year-Over-Year

Lender Processing Services ... based on October 2013 residential real estate transactions. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The year-over-year increase was slightly less in October than in September. The LPS HPI is off 14.1% from the peak in June 2006.

Note: The press release has data for the 20 largest states, and 40 MSAs. Prices declined slightly in eight of the 20 largest states in October, and 18 of the 40 largest MSAs. LPS shows prices off 44.6% from the peak in Las Vegas, off 37.4% in Orlando, and 35.4% off from the peak in Riverside-San Bernardino, CA (Inland Empire). "After months of setting new highs, Texas - and the major metropolitan areas of Austin and Dallas - saw a slight pullback in October."

Note: Case-Shiller for October will be released tomorrow.

by Calculated Risk on 12/29/2013 08:28:00 PM

From Nick Timiraos at the WSJ: Home Prices Back at Peaks in Some Areas

The 10 metro areas enjoying a full-scale rebound are based on figures for the entire region. The Wall Street Journal also analyzed Zillow price data individually in more than 4,400 cities and towns in the country's largest metro areas. Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. Nationally, values fell 23.8% between 2007 and 2011 before rebounding 9.9% after hitting bottom in late 2011; they are now 16.3% below the high of the last decade, according to Zillow.

The story has this example:

At the top of the housing bubble in 2006, Mr. Long paid $667,500 for a five-bedroom home in Lafayette, Colo., which is about 20 miles northwest of Denver. Prices then fell 12% through 2011. This summer, he sold the home for $710,000.

That is a price increase of about 6% over 7 years. Inflation was up 15% over the same period, so in real terms, Mr. Long sold at a loss (he probably also had significant transaction fees). But people think in nominal terms ... and prices are at new nominal highs in a few areas.

Monday:
• At 10:00 AM ET, the Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for December. The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

Weekend:
• Schedule for Week of December 29th, Happy New Year!

• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

The Nikkei is up about 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 8 (fair value).

Oil prices have been moving up with WTI futures at $100.23 per barrel and Brent at $112.22 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.29 per gallon.  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 12/29/2013 11:35:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

8) Housing Credit: Will we see easier mortgage lending in 2014? Will we see positive mortgage equity withdrawal (MEW) after six years of negative MEW?

There is no exact measure of the tightness of mortgage lending, and any change in lending may be hard to detect. During the bubble, there were essentially no standards ("fog a mirror, get a loan", "NINJA Loans: No income, jobs or assets", Alt-A, etc.). In recent years, lending has been very tight with only a few exceptions - and for the most part only the most credit worthy borrowers could get loans - and it was very difficult to do a cash out loan.  No one wants a return of NINJA and Alt-A loans, but a little looser mortgage credit would give the economy a boost.

Mortgage broker Lou Barnes wrote on Friday:

Credit: Next to incomes the most important thing to watch. We cannot accelerate, or even get off Fed life support without it. My very smart friend, Paul Kasriel, has detected an acceleration in bank credit, one strong enough to offset the gradual end of QE. I can't find it. I will look, early and often.
...
Mortgages. Under the heading, Everybody Gets Lucky, the White House has at last succeeded in replacing the Fannie-Freddie regulator. ... Now they've got their guy, Mel Watt [and] he may be just the man to lift the dead hand choking mortgage credit. At the top of the we'll-see list.

Even before taking over at the FHFA, Mel Watt has announced he will delay the recently announced fee hikes at Fannie and Freddie:

"I intend to announce that the FHFA will delay implementation" of the loan-fee increases "until such time as I have had the opportunity to evaluate fully the rationale for the plan,"

I suspect Watt will work to loosen lending standards a little at Fannie and Freddie.

Looser standards (combined with more confidence) might show up as positive mortgage equity withdrawal (MEW).   For Q3 2013, the Net Equity Extraction was minus $24 billion, or a negative 0.8% of Disposable Personal Income (DPI).   MEW has been negative for 22 consecutive quarters.

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $10.0 billion in Q3. This was the first increase in mortgage debt since Q1 2008. Since some mortgage debt is related to new home purchases, net negative equity extraction was still slightly negative in Q3.

This is an indirect measurement of mortgage standards (and other factors impact MEW), but if standards are loosened a little - and debt cancellation via foreclosures and short sales, and modifications decline - it is very possible MEW will turn positive in 2014.  

Bottom line: I expect lending standards to loosen a bit in 2014 from the tight level of the last few years.   It will be difficult to measure, but I'll be watching what Mel Watt says, what private lenders say, comments from mortgage brokers, and MEW.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/28/2013 02:58:00 PM

The key reports this week are October Case-Shiller house price index and December vehicle sales.

For manufacturing, the December ISM Manufacturing index, and the Dallas Fed December survey will be released this week.

Happy New Year to All!

----- Monday, December 30th -----
10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for December.  The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

----- Tuesday, December 31st -----
9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through July 2012 (the Composite 20 was started in January 2000).

The consensus is for a 13.7% year-over-year increase in the Composite 20 index (NSA) for October. The Zillow forecast is for the Composite 20 to increase 13.9% year-over-year, and for prices to increase 1.0% month-to-month seasonally adjusted.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a decrease to 61.3, down from 63.0 in November.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 76.8 from 70.4.

Fixed income market will close early.

----- Wednesday, January 1st -----
All US markets will be closed in observance of the New Year's Day Holiday.

----- Thursday, January 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 338 thousand.

9:00 AM ET: The Markit US PMI Manufacturing Index for December.  The consensus is for an decrease to 54.5 from 54.7 in November.

10:00 AM ET: ISM Manufacturing Index for December. The consensus is for a decrease to 57.0 from 57.3 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion in November at 57.3%. The employment index was at 56.5%, and the new orders index was at 63.6%.

10:00 AM: Construction Spending for November. The consensus is for a 1.0% increase in November construction spending.

----- Friday, January 3rd -----
All day: Light vehicle sales for November.

The consensus is for light vehicle sales to decrease to 16.0 million SAAR in December (Seasonally Adjusted Annual Rate) from  16.3 million SAAR in November.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

by Calculated Risk on 12/28/2013 11:16:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for December 27, 2013.

Changes and comments from surferdude808:

As expected, the FDIC released its enforcement action activity through November 2013 this week. That release coupled with a periodic list review led to many changes to the Unofficial Problem Bank List. This week, there were 15 removals and one addition that leave the list at 619 institutions with assets of $205.7 billion. A year ago, the list held 838 institutions with assets of $313.1 billion. During December 2013, the list declined by a net 26 institutions and $7.7 billion in assets after 20 action terminations, six mergers, one failure, and one addition.

Removals included 14 action terminations; however, half of the total should have been removed earlier. Actions have been terminated against Cadence Bank, N.A., Birmingham, AL ($6.2 billion); Spirit of Texas Bank, SSB, College Station, TX ($542 million); Community Bank of Broward, Dania Beach, FL ($483 million); CoastalStates Bank, Hilton Head Island, SC ($378 million); Vantage Bank Texas, San Antonio, TX ($309 million); Terrabank, National Association, Miami, FL ($273 million); Lake Area Bank, Lindstrom, MN ($272 million); Southport Bank, Kenosha, WI ($257 million); The First National Bank & Trust Company of Rochelle, Rochelle, IL ($247 million); First State Bank and Trust, Tonganoxie, KS ($223 million); Synergy Bank, S.S.B., McKinney, TX ($119 million); University Bank, Pittsburg, KS ($111 million); First National Bank, Chisholm, MN ($82 million); and Peoples Bank, Lyons, GA ($49 million). Roma Bank, Robbinsville, NJ ($1.5 billion) found its way of the list through an unassisted merger.

The addition this week was Liberty Bell Bank, Marlton, NJ ($170 million Ticker: LBBB). Also, the FDIC issued a Prompt Corrective Action order against AztecAmerica Bank, Berwyn, IL ($79 million).

Several banks have undergone a name change including Independence Federal Savings Bank, Washington, DC now known as Colombo Bank, Rockville, MD; The Citizens Bank of East Tennessee, Rogersville, TN now known as Civis Bank; The Patterson Bank, Patterson, GA now known as First Southern Bank; White Rock Bank, Cannon Falls, MN now known as First Farmers & Merchants Bank; BNB Bank, National Association, Fort Lee, NJ now known as BNB Hana Bank, National Association; and First Carolina State Bank, Rocky Mount, NC now known as First Carolina Bank. Several banks have changed their headquarter city within their respective state but Frontier Bank, FSB, Park City, UT moved out of state to Palm Desert, CA.

With the close of the fourth quarter of 2013, we have updated the Unofficial Problem Bank List transition matrix. Full details may be found in the accompanying table and a visual of the trends may be found in accompanying chart.

Click on graph for larger image.

Since its inception, 1,662 institutions have made an appearance on the list. To date, about 63 percent or 1,043 of the banks that have appeared on the list have been removed. Action termination is the now the primary way banks are exiting the list as 495 banks have had their enforcement action terminated. During the fourth quarter of 2013, action terminations slowed a bit from the torrid pace last quarter, but there were the second highest quarterly amount at 54. At the start of the fourth quarter, the list had 685 banks, which means the terminations represented 7.9 percent of the starting balance.

While terminations have increased, the sum of the other ways to exit -- failure, voluntary liquidation, or merger, still exceed those leaving through action termination. At 370 institutions and $294.1 billion in assets, failures are not to be ignored as failed assets still greatly overshadow the $211.5 billion removed through action terminations. At 22.3 percent, the failure rate for the Unofficial Problem Bank List is still well above the low double digit failure rate cited by the media for banks that appear on the official list. Voluntary closings and mergers sum to nearly 11 percent of banks that have appeared on the list. The list was first published in August 2009 with 389 banks, so after more than four years, 81 still remain, indicating that its taking many banks a long time to rehabilitate themselves after experiencing difficulties during the Great Recession.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	123	(40,710,021)
	Unassisted Merger	30	(6,470,016)
	Voluntary Liquidation	4	(10,584,114)
	Failures	151	(183,816,648)
	Asset Change		(11,818,692)
Still on List at 12/31/2013		81	22,913,938
Additions after 8/7/2009		538	182,843,876
End (12/31/2013)		619	205,757,814
Intraperiod Deletions1
	Action Terminated	372	170,802,027
	Unassisted Merger	137	63,392,166
	Voluntary Liquidation	7	1,760,816
	Failures	219	110,286,710
	Total	735	346,241,719
1Institution not on 8/7/2009 or 12/31/2013 list but appeared on a weekly list.

by Calculated Risk on 12/27/2013 07:37:00 PM

Goldman Sachs chief economist Jan Hatzius writes: 10 Questions for 2014 (Here are the 10 questions at Business Insider: Goldman's Top Economists Just Answered The Most Important Questions For 2014 — And Boy Are His Answers Bullish)

A few excerpts from the research note:

We expect the US economy to accelerate to an above-trend growth pace in 2014, as the fiscal drag diminishes sharply but the private sector impulse remains positive. The acceleration is likely to be led by faster growth in personal consumption and business capital spending, with continued support from housing.

The unemployment rate is likely to fall about as fast as in 2013, with faster job growth offset by a flattening in labor force participation. But we expect the slack in the labor market to remain large enough in 2014 to keep wage growth subdued, profit margins high, and inflation well below the Fed’s 2% target.

The Federal Reserve is likely to conclude its QE3 program in late 2014. But we still see no hikes in short-term interest rates until early 2016 ...

Goldman is projecting around 3% GDP growth in 2014. A similar drop in the unemployment rate next year as in 2013 would put the rate in the low 6% range.

And on housing:

Barring another sharp increase in mortgage rates, we think that the upward trend should continue in 2014 because the longer-term fundamentals for housing activity remain very favorable. ... We are a bit less optimistic about house prices. ... we would expect somewhat slower growth of 5%-6% in 2014—still decent but no longer nearly as rapid as the double-digit rates seen over the past 12-18 months.

by Calculated Risk on 12/27/2013 02:55:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for November next week.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen from 0.82 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015. 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2+ years (mostly in judicial states).

by Calculated Risk on 12/27/2013 11:23:00 AM

Towards the end of each year I collect some housing forecasts for the following year.

Here was a summary of forecasts for 2013. Right now it looks like new home sales will be around 433 thousand this year, and total starts around 935 thousand or so.  David Crowe (NAHB) was very close on New Home sales for 2013.  Fannie Mae was the closest on housing starts.

The table below shows a few forecasts for 2014.

From Fannie Mae: Housing Forecast: December 2013

From NAHB: Housing and Interest Rate Forecast, 12/7/2013 (excel)

I haven't worked up a forecast yet for 2014.

Housing Forecasts for 2014
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
NAHB	607	825	1,147
Fannie Mae	518	768	1,106	5.9%2
Merrill Lynch	517		1,100	6.3%
Wells Fargo	535	800	1,140	2.7%
Zillow				4.6%3
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index 3Zillow Home Value Index

by Calculated Risk on 12/27/2013 09:55:00 AM

I'd like to repeat something I wrote 2 1/2 years ago:

[I]t really isn't much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is "dirty" in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings - and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don't want to see Depression era unemployment - but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK.

Not much has changed (the unemployment rate is still high at 7%).  And I still think unemployment should be the #1 political issue.

For more, see Paul Krugman's The Plight of the Employed and Why Corporations Might Not Mind Moderate Depression and The Fear Economy

[M]ay I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy. I don’t think I’d go so far as to say that there’s a deliberate effort to keep the economy weak; but corporate America certainly isn’t feeling much pain, and the plight of workers is actually a plus from their point of view.

A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor.   This is not an ideal economic situation for most Americans (but ideal for a few).   Enough rant - and I hope I don't repeat this again in another 2 years.

best to all

 

by Calculated Risk on 12/26/2013 07:32:00 PM

The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 2.3% (5.8 billion vehicle miles) for October 2013 as compared with October 2012.

◦ Travel for the month is estimated to be 258.7 billion vehicle miles.

◦ ◦Cumulative Travel for 2013 changed by 0.6% (15.6 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.


Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 71 months - almost 6 years - and still counting.  Currently miles driven (rolling 12 months) are about 2.3% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

 In October 2013, gasoline averaged of $3.42 per gallon according to the EIA.  that was down sharply from 2012 when prices in October averaged $3.81 per gallon.

Gasoline prices were down sharply year-over-year in November too, so I expect miles driven to be up in November too.  

As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven - but it appears miles driven are increasing again.