by Calculated Risk on 5/08/2012 06:55:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the February Case-Shiller report, were off 61.7% from the peak according, and off 8.6% over the last year.

Sales in 2011 were at record levels - even more than during the bubble - and it looks like 2012 will be an even stronger year, even with some new rules that slow the foreclosure process.

From the GLVAR: GLVAR reports local home prices increased for third straight month, as supply of homes for sale continues to shrink

Even with fewer homes to sell,[ GLVAR President Kolleen] Kelley said existing home sales remain ahead of the record pace set in 2011, when GLVAR reported that 48,186 existing properties were sold in Southern Nevada.
...
According to GLVAR, the total number of local homes, condominiums and townhomes sold in April was 3,924. That’s down from 4,388 in March, but still up from 3,902 total sales in April 2011.
...
The local housing inventory, which was already tightening throughout 2011, began to contract more rapidly after Oct. 1, 2011, when a new state law known as AB284 took effect, requiring lenders to prove they have all the necessary documents in place before proceeding with a foreclosure. Since Oct. 1, Kelley said there has been a dramatic drop in the notices of default lenders file to begin the foreclosure process and in the number of bank-owned homes put on the market in Southern Nevada.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service again decreased from March to April, with a total of 17,884 single-family homes listed for sale at the end of the month. That’s down 1.7 percent from 18,200 single-family homes listed for sale at the end of March and down 20.3 percent from one year ago ... GLVAR reported a total of 3,836 condos and townhomes listed for sale on its MLS at the end of April. That’s down 1.7 percent from 3,901 condos and townhomes listed at the end of March, and down 27.8 percent from one year ago. As in past months, the number of available homes listed for sale without any sort of pending or contingent offer also dropped sharply compared to the previous month and year. By the end of April, GLVAR reported 4,162 single-family homes listed without any sort of offer. That’s down 15.1 percent from 4,901 such homes listed in March and down 63.4 percent from one year ago.

Some of the decline in inventory is related to the new rules, but the decline in active listing (not pending or contingent) is down 63.4% year-over-year for single family homes!

by Calculated Risk on 5/08/2012 03:47:00 PM

It appears no party will be able to form a coalition government, so there will be another election in June. A record large number of registered voters didn't vote in the recent election, and the outcome next month probably depends on if these people participate in June. The odds of Greece exiting the euro zone in the near term (and the euro) have clearly increased.

From the WSJ: New Election in Greece Looks Likely

Greece's political turmoil showed no signs of abating Tuesday as hopes faded that leading political parties can form a coalition government after Sunday's splintered election result, increasing the possibility that Greeks will be called back to the polls as early as next month.
...
At stake is Greece's ability to implement next month agreed budget cuts and overhauls it must take in order to secure continued financing from its European partners and the International Monetary Fund. Failure to do so could delay—and potentially imperil—further aid promised to Greece as part of a €130 billion ($170 billion) bailout agreed only in March, rendering the country unable to meet its obligations.

From the NY Times: Greek Leftists Rule Out Coalition With Incumbents

Greece’s post-election political and economic chaos deepened on Tuesday, when the leader of a leftist anti-austerity party that gained in the balloting ruled out a coalition with the two formerly dominant parties that had backed hugely unpopular budget cuts.

The announcement raised further doubts about the country’s future in the euro zone, as well as fears about the stability of the common currency itself.

From the Athens News: Elections 2012: Live news blog, May 8

6.24pm An article making the rounds about the Eurozone surviving without Greece can be read here. Over the past couple of days, articles such as this one have been flooding media outlets. While it is nothing that we haven't read before, it makes you wonder if we're finally reaching the point when the Eurozone will find a formula and cut their losses.

From the Athens News: Eurozone can survive without Greece

Voters' rejection of pro-bailout political parties in Sunday's election has raised the chances of Greece leaving the euro, but this unprecedented step is seen as manageable rather than catastrophic for the currency bloc.

Some banks have raised estimates of the likelihood of Greece quitting the euro. But after a year of investors shedding bonds issued by highly indebted euro zone countries and big injections of central bank cash, they said the damage could be contained.

by Calculated Risk on 5/08/2012 12:54:00 PM

First a bit of an apology: Back in February, when I wrote “The Housing Bottom is Here”, I received a number of positive emails (even from people who disagreed with me), and many more negative emails. One person wrote: “No credible informed analyst would call the housing bottom now. You are doing a disservice to your readers.” I’d like to think I’m impervious to criticism, but I admit that comment bothered me.

That is why I posted the list yesterday of “informed” analysts who now believe we are at or near the bottom for house prices. Of course we could all be wrong – these are just forecasts – and house prices don’t care who calls the bottom. But I’d only be doing a disservice to my readers if I didn’t write what I believe – and I do think there is a good chance nominal house prices have bottomed on a national basis.

Just to be clear: there are also informed and credible analysts who think house prices will fall further.

But if I’m correct about house prices – and the CoreLogic report released this morning is another indicator that prices may be stabilizing - I think we should start asking what the economic impact of stabilizing house prices will be.

Prices don’t have to start increasing to have a positive impact on the economy; just stop falling. As an example, Freddie Mac just noted that “stabilizing home prices in certain geographical areas with significant REO activity” led to lower REO expenses in Q1.

We are probably already seeing the impact of stabilizing prices on housing inventory. If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. But if potential sellers think prices are stabilizing, and may even increase, they are more willing to wait for a better market or to sell when it is most convenient. I think we are seeing that right now.

More importantly, I think stabilizing prices will give hope to some “underwater” homeowners and we will probably see mortgage default rates fall quicker. And over time, buyers will gain confidence that prices have stopped falling, and I expect demand to increase – and also for more private lenders to reenter the mortgage market and help support that demand (here is an example).

And this demand will also boost homebuilding and new home sales – since homebuilders will have a better idea of the pricing needed to compete in a market (falling prices makes it hard to plan).

These are just some preliminary thoughts ...

by Calculated Risk on 5/08/2012 10:37:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 3.7 million job openings on the last business day of March, little changed from February but up significantly from a year earlier, the U.S. Bureau of Labor Statistics reported today.
...
The number of total nonfarm job openings has increased by 1.3 million since the end of the recession in June 2009.
...
The quits rate can serve as a measure of workers’ willingness or ability to change jobs. In March, the quits rate was unchanged for total nonfarm, total private, and government. The number of quits was 2.1 million in March 2012, up from 1.8 million at the end of the recession in June 2009.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for March, the most recent employment report was for April.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in March to 3.737 million, up from 3.565 million in February. The number of job openings (yellow) has generally been trending up, and openings are up about 17% year-over-year compared to March 2011. This is the highest level for job openings since July 2008.

Quits increased in March, and quits are now up about 8.5% year-over-year and quits are now at the highest level since 2008. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs

by Calculated Risk on 5/08/2012 09:04:00 AM

Notes: This CoreLogic House Price Index report is for March. The Case-Shiller index released two weeks ago was for February. 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® March Home Price Index Shows Slight Year-Over-Year Decrease of Less Than One Percent

[CoreLogic March Home Price Index (HPI®) report] shows that nationally home prices, including distressed sales, declined on a year-over-year basis by 0.6 percent in March 2012 compared to March 2011. On a month-over-month basis, home prices, including distressed sales, increased by 0.6 percent in March 2012 compared to February 2012, the first month-over-month increase since July 2011.

Excluding distressed sales, month-over-month prices increased for the third month in a row. The CoreLogic HPI also shows that year-over-year prices, excluding distressed sales, rose by 0.9 percent in March 2012 compared to March 2011. Distressed sales include short sales and real estate owned (REO) transactions.

“This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices,” said Mark Fleming, chief economist for CoreLogic. “Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.”

“While housing prices remain flat nationally, in many markets tighter inventories are beginning to lift home prices,” said Anand Nallathambi, president and chief executive officer of CoreLogic.

Click on graph for larger image.

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

The index was up 0.6% in March, and is down 0.6% over the last year.

The index is off 34% from the peak - and is just above the post-bubble low set last month.

The second graph is from CoreLogic. The year-over-year declines are getting smaller - this is the smallest year-over-year decline since 2010 when prices were impacted by the housing tax credit.

The year-over-year change will probably turn positive in April or May. The "stabilization" of house prices is a significant story.

by Calculated Risk on 5/08/2012 08:06:00 AM

From the National Federation of Independent Business (NFIB): Small-Business Optimism Gains Two Points in April

After taking a dip in March, the Index of Small Business Optimism gained 2 points in April, settling at 94.5. The reading is the highest since December 2007, however, April’s gain only returns the Index to its February 2011 level, indicating that in a year, the net gain has been zero. While March did not post strong job creation numbers, labor market indicators did improve, suggesting better job growth in the next few months.
...
“While the Index remains historically weak, there was good news in the details of April’s report. Job creation plans, job openings and capital spending plans all increased. Hopefully, this performance will hold in the coming months,” said NFIB Chief Economist Bill Dunkelberg.
...
The percent of owners reporting positive sales trends quarter on quarter reached the highest level seen since April 2006.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index increased to 94.5 in April from 92.5 in March. This ties February 2011 as the highest level since December 2007.

Another positive sign is that the "single most important problem" was not "poor sales" in April - for the first time in years. In the best of times, small business owners complain about taxes and regulations, and that is starting to happen again.

This index remains low, but as housing continues to recover, I expect this index to increase (there is a high concentration of real estate related companies in this index).

by Calculated Risk on 5/07/2012 11:17:00 PM

From the NY Times: Bank of America Starts Mortgage Reduction Effort (ht bearly)

Bank of America has started sending letters to thousands of homeowners in the United States, offering to forgive a portion of the principal balance on their mortgages by an average of $150,000 each.

The reduction for qualifying homeowners could amount to monthly savings of up to 35 percent on mortgage payments, Bank of America said in a news release on Monday evening.

The principal reduction offers from Bank of America Home Loans are the result of a $25 billion settlement agreement earlier this year ...

by Calculated Risk on 5/07/2012 10:01:00 PM

There are two minor economic indicators schedule for release tomorrow.

• The NFIB Small Business Optimism Index for April will be released at 7:30 AM ET. This index has been moving up, but remains very weak. The consensus is for an increase to 93.0 in April from 92.5 in March.

• At 10:00 AM, the BLS is scheduled to release the Job Openings and Labor Turnover Survey for March. Job openings have generally been trending up, and quits (voluntary separations) have been increasing too.

For the monthly economic question contest, here are two question for later this week (Thursday and Friday):

by Calculated Risk on 5/07/2012 07:30:00 PM

There has been some discussion about the causes of the decline in the participation rate. Here is a post from Catherine Rampell today at the NY Times economix today: Baby Boomers and the Shrinking Work Force

[A]s America ages, its overall labor force participation rate will fall because older people are less likely to work. But even excluding older Americans, labor force participation rates have still fallen sharply over the last few decades, and especially in the last five years.

This is an excuse to update some graphs to look at the long term trends. (update: see Brad Plumer's The incredible shrinking labor force )

The following graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

Click on graph for larger image in graph gallery.

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out this year - the rate increased slightly in April to 74.3%. The participation rate for men has decreased from the high 90s a few decades ago, to 88.7% in April.

There might be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

Rampell writes:

You may notice that the labor force participation rate had been climbing from the 1940s through about 1990. That rise reflects the fact that more women entered the labor force as gender roles evolved. Women’s labor force participation rate continued rising through the late 1990s, dropped a couple of percentage points, and then more or less flat-lined.

The main reason the labor force has been declining in the last couple of decades, then, is that men have been dropping out in droves.

There are other key trends. The next graph shows that participation rates for several key age groups.

• The participation rate for the '16 to 19' age group has been falling for some time (red). This was at 33.8% in April.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical). This was at 40.3% in April.

• The participation rate for the '20 to 24' age group fell recently too (perhaps more people are focusing on eduction before joining the labor force). This appears to have stabilized - although it was down to 70.6% in April. I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups.

Eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

These trends feed into the overall participation rate. A few weeks ago I posted: Labor Force Participation Rate Projection Update

Here is a repeat of a couple of graphs based on BLS economist Mitra Toossi's projections.

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

An increase in the participation rate for an age group (like the 60 to 64 group) is just on part of the equation. We also have to recognize that a large cohort is moving from the 55 to 59 age category into the 60 to 64 age group, and the participation rate for that cohort is falling. (this post had a great graph on the age of the population).

The last graph shows the actual annual participation rate and two forecasts based on changes in demographics. Now that the leading edge of the baby boom generation is starting to retire, the participation rate is declining and will probably continue to decline for the next 20 years. Note: the yellow line is from a forecast by Austin State University Professor Robert Szafran in September 2002.

This suggests that any bounceback in the participation rate as the economy recovers will probably be fairly small, and that the decline in the overall participation rate is mostly due to demographic factors.

by Calculated Risk on 5/07/2012 03:58:00 PM

Last week Freddie Mac reported results for Q1 2012. Freddie reported that they acquired 23,805 REO in Q1 2012 (Real Estate Owned via foreclosure or deed-in-lieu); this is down from 24,707 in Q1 2011.

Freddie disposed of 25,033 REO in Q1 2012, down from 31,627 in Q1 2011. Since Freddie disposed of more REO than they acquired, Freddie's REO inventory fell slightly in Q1 2012 to 59,307.

A few comments from Freddie:

REO operations expense declined to $171 million in the first quarter of 2012, as compared to $257 million in the first quarter of 2011, primarily due to stabilizing home prices in certain geographical areas with significant REO activity, which resulted in gains on disposition of properties as well as lower write-downs of single-family REO inventory during the first quarter of 2012. However, we also experienced lower recoveries on REO properties during the first quarter of 2012, compared to the first quarter of 2011, primarily due to reduced recoveries from mortgage insurers, in part due to the continued weakness in the financial condition of our mortgage insurance counterparties, and a decline in reimbursements of losses from seller/servicers associated with repurchase requests.

Although our servicers have resumed the foreclosure process in most areas, we believe the volume of our single-family REO acquisitions during the first quarter of 2012 was less than it otherwise would have been due to delays in the foreclosure process, particularly in states that require a judicial foreclosure process. The lower acquisition rate, coupled with high disposition levels, led to a lower REO property inventory level at March 31, 2012, compared to March 31, 2011. We expect that the length of the foreclosure process will continue to remain above historical levels.

Click on graph for larger image.

The following graph shows REO inventory for Freddie.

REO inventory for Freddie decreased slightly in Q1, but has mostly been steady over the last year.

A couple of key points:
1) Freddie is seeing "stabilizing home prices in certain geographical areas with significant REO activity".
2) Serviers have resumed foreclosure activity "in most areas", but acquisitions are still slow, especially in judicial foreclosure areas.