by Calculated Risk on 3/04/2010 06:58:00 PM

First a quote from a Bloomberg story: U.S. Economy: Pending Sales of Existing Homes Decline

“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”

This is no surprise and suggests that the extension and expansion of the home buyer tax credit will probably cost taxpayers over $100,000 for each additional home sold.

Just about every economist opposed the tax credit as expensive and ineffective. Here are some quotes from a post last September from an article by Patrick Coolican in the Las Vegas Sun: Economists say extending tax credit for first-time homebuyers is bad policy

It’s terrible policy,” says Mark Calabria of the libertarian Cato Institute.

“It’s awful policy,” says Andrew Jakabovics, associate director for housing and economics at the liberal Center for American Progress. “It’s incredibly expensive. It’s not well targeted.”
...
“We paid $8,000 to at least 1.5 million people to do something they were going to do anyway,” Jakabovics says.
...
“A heck of a lot of people would have bought the house anyway,” says Ted Gayer, an economist at the Brookings Institution.
...
The tax break, due to expire at the end of November, is on track to cost $15 billion, twice what Congress had planned. In other words, it will cost $43,000 for every new homebuyer who would not have bought a house without the tax break.

Gayer also questions whether moving people from renting to owning is really all that useful ...

The tax credit is one, albeit very expensive, way to create more households, but rental vouchers to get people out of their parents’ basements should also be considered, economists say.

The only good news is the tax credit supporters have promised "practically in blood" that they will not ask for another extension.

by Calculated Risk on 3/04/2010 04:36:00 PM

Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights released today (as of last week):

Click on graph for larger image in new window.

Graph Source: Altanta Fed.

From the Atlanta Fed:

The balance sheet expanded $9.7 billion, to $2.3 trillion, for the week ended February 24.

Holdings of agency debt and mortgage backed securities, which rose by $8 billion, accounted for the majority of the expansion of the balance sheet and continue to replace lending to nonbank credit markets and short-term lending to financials.

The balance sheet is expected to peak during the first half of this year after the MBS purchase program is completed and purchases settle on the balance sheet.

The second graph shows the cumulative MBS purchases by week. From the Atlanta Fed:

The Fed purchased a net total of $11 billion of agency-backed MBS through the week of February 24, bringing its total purchases up to $1.210 trillion, and by the end of the first quarter 2010 the Fed will have purchased $1.25 trillion (thus, it is 97% complete).

The NY Fed purchased an additional net $10 billion in MBS for the week ending ending March 3rd. This puts the total purchases at $1.220 trillion or almost 98% complete. Just $30 billion more to go ...

The Fed's balance sheet released today shows "only" $1.027 trillion in MBS. The difference is that the NY Fed announces the purchases when they contract to buy; the Federal Reserve places the MBS on the balance sheet when the contract settles. Most of the agency MBS market is "To-Be-Announced" trading, and many of the contracts will not settle for a couple of months.

To understand ""To-Be-Announced", here is a discussion from SIFMA (ht Windward.Broach):

"To-Be-Announced" Trading of Agency Passthrough Securities

Much of the volume in the agency MBS market today is in the form of “To-Be-Announced” (TBA) trading. A TBA is a contract for the purchase or sale of agency mortgage-backed securities to be delivered at a future agreed-upon date; however, the actual pool identities or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade.
...
For example, in a typical trade, a buyer may ask to purchase $100 million of 30 year Fannie Mae MBS with a 6% coupon for delivery next month. The buyer does not know the exact bonds that will be delivered. According to industry practice, two days before the contractual settlement date of the trade, the seller will communicate to the buyer the exact details of the MBS pools that will be delivered.

It takes some time for the purchases to settle, and this has confused some people. The NY Fed number is the one to follow when tracking the Fed MBS purchase program. The Fed's MBS balance sheet holdings will continue to expand even after the MBS purchase program ends on March 31st as contracts settle.

by Calculated Risk on 3/04/2010 02:58:00 PM

From Freddie Mac:

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.97 percent with an average 0.7 point for the week ending March 4, 2010, down from last week when it averaged 5.05 percent. Last year at this time, the 30-year FRM averaged 5.15 percent.

Click on graph for larger image in new window.

As an aside, in a research note yesterday, Goldman Sachs argued "our analysis only points to a modest rise in mortgage rates of around 10bp when the Fed stops buying MBS in a few weeks." Further they argue the large increase (maybe 80 bps increase in spread) will not happen until the Fed announces they will be selling MBS.

by Calculated Risk on 3/04/2010 11:53:00 AM

From HotelNewsNow.com: San Francisco leads weekly results

Overall the U.S. industry’s occupancy ended the week with a 2.5-percent increase to 55.3 percent, ADR dropped 4.7 percent to US$96.06, and RevPAR fell 2.3 percent to US$53.15.

The following graph shows the occupancy rate by week since 2000, and the rolling 52 week average occupancy rate.

Click on graph for larger image in new window.

Note: the scale doesn't start at zero to better show the change.

The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays.

The YoY change suggests that occupancy rates may have bottomed, but the level is still very low - the average occupancy rate for this week is around 62%, well above the current 55.3%. This low occupancy rate is still pushing down room rates and revenue per available room (RevPAR).

Business travel is very important for the next few months, and right now it appears the weekday occupancy rate (mostly business travel) is slightly above the levels of last year during the worst of the recession.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/04/2010 10:02:00 AM

From the NAR: Pending Home Sales Down; Severe Weather Impacting Market

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.6 percent to 90.4 from an upwardly revised 97.8 in December ...

“We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June,” [Lawrence Yun, NAR chief economist] said. “The real question is what happens in the second half of the year."

The Pending Home Sales Index isn't perfect, but this does generally lead existing home sales by about 45 days. The January index suggests sales in February and March will probably be lower than the 5.05 million SAAR in January (Seasonally Adjusted Annual Rate).

I also expect sales to increase in May and June (above the normal seasonal factors) because of the deadline for the home buyer tax credit. Although I don't think we will see an increase like last year when sales spiked to 6.54 million SAAR in November.

The NAR is currently forecasting an annualized existing home sales rate of 5.1 million homes in Q1, 5.8 million in Q2, and about 5.5 million in the 2nd half of 2010. I think those numbers are generally high - especially in the 2nd half of 2010.

by Calculated Risk on 3/04/2010 08:29:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 27, the advance figure for seasonally adjusted initial claims was 469,000, a decrease of 29,000 from the previous week's revised figure of 498,000. The 4-week moving average was 470,750, a decrease of 3,500 from the previous week's revised average of 474,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Feb. 20 was 4,500,000, a decrease of 134,000 from the preceding week's revised level of 4,634,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 3,500 to 470,750.

The current level of 469,000 (and 4-week average of 470,750) are very high and suggest continuing job losses in February.

by Calculated Risk on 3/03/2010 11:33:00 PM

From the Financial Times: Greece prepared to turn to IMF

Mr Papandreou said that the latest austerity package ... fulfilled Greece’s commitment to its eurozone partners ... “We are waiting for European support – the other side of the agreement,” Mr Papandreou said ... he told ministers that Greece could turn to the IMF for an emergency loan if its EU partners were unable to deliver adequate assistance ...
excepted with permission

And from Bloomberg: Greece Aid Plea Snubbed by Germany in ‘Historic Moment’ for EU

“We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript. “It is a historic moment for the European Union.”
...
“I expressly want to say that Friday isn’t about aid commitments, but about good relations between Germany and Greece,” [German Chancellor Angela Merkel] said yesterday in an interview with N-TV ...

The story remains fluid, and a key date is March 16th when the euro-zone finance ministers meet.

by Calculated Risk on 3/03/2010 08:06:00 PM

Just an update:

H.R. 4691: Temporary Extension Act of 2010 was signed into law last night.

Extends the final date for entering a federal-state agreement under the Emergency Unemployment Compensation (EUC) program through April 5, 2010.

From Ron Scherer at the Christian Science Monitor:

The extension means if an individual was about to exhaust their state benefits and about to exhaust a tier of emergency unemployment compensation, they are eligible to apply to move up to the next tier. However, if an individual is about to exhaust their final tier or extended benefits, this will not help them.

“This does not add more weeks of benefits, it just extends the deadline in which people can qualify for either Emergency Unemployment Compensation or extended benefits,” says Judy Conti of NELP in Washington.

The 30-day extension of the benefits will cost the federal government about $10 billion.

I wonder how many people have exhausted all of their unemployment benefits?

by Calculated Risk on 3/03/2010 04:50:00 PM

The BLS released the annual average state unemployment rates today.

Here is a scatter graph comparing the delinquency rate for mortgage loans (including all loans in foreclosure) vs. unemployment rate for all states as of Q4 2009.

Click on graph for larger image in new window.

There definitely is a relationship between delinquency rates and the unemployment rate, although some states stand out (like Florida), because of state specific foreclosure laws. Arizona and Nevada also have higher than expected foreclosure rates - possibly because of high investor activity during the housing bubble.

This does suggest that a large part of the delinquency problem is related to the unemployment problem.

Imagine if there were no unemployment benefits. As Mark Thoma noted yesterday, Unemployment Compensation has Broad Based Benefits, but one benefit he didn't mention is that it keeps households in place. Even though there is a relationship between the unemployment rate and the delinquency rate, I suspect the trend line would be steeper without unemployment benefits (so there would be even more delinquencies as the unemployment rate rises without benefits).

Here is a sortable table to find the data for each state (use scroll bar to see all data).

by Calculated Risk on 3/03/2010 02:00:00 PM

From the Fed: Beige Book

Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.

On real estate:

Residential real estate markets improved in a number of Districts, remained weak or softened further in the New York, Atlanta, and Chicago Districts, was little changed in the San Francisco District, and characterized as mixed in the St. Louis District. Richmond also reported overall housing activity as mixed, but one contact noted that absent the harsh weather, market conditions might have improved. Adverse weather conditions also hampered home sales and construction in the New York, Philadelphia, and Atlanta Districts. Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30. ... Home construction was down or stagnant in most Districts, with the exception of the Minneapolis, Kansas City, and Dallas Districts. Atlanta said the most pronounced weakness was among Georgia homebuilders, and San Francisco attributed weak construction activity to elevated home inventory levels. Home prices mostly remained flat or declined slightly, but signs of improvement were noted in the Boston and San Francisco Districts. ...

Commercial real estate conditions remained weak or declined further in most Districts, although some Districts noted slight stabilization or modest signs of improvement. ... Several Districts also noted that many tenants were pushing for, and in some cases receiving, concessions on rents. All Districts reporting on commercial construction said that activity remained weak or slow, except for some moderate boost from federal stimulus projects and other public construction.

Even without the snow, the increases were "modest".