by Calculated Risk on 6/07/2012 09:57:00 PM

First, the next two key dates in Europe:
• Monday, June 11th: IMF Report on Spanish Banks
• Sunday, June 17th: Greek Election.

And the last two weeks of June will be very busy!

Also China will be releasing several key economic indicators on Saturday. From Reuters: China rate cut raises fears of grim May economic data

China's surprise rate cut unveiled late on Thursday boosted hopes that cheaper credit would help combat its faltering economic growth ...

But the central bank's cut ... has also raised concerns about a deluge of May Chinese data due this weekend, with Asian shares losing ground on Friday, bracing for ugly numbers.

"The concern is that with industrial production and CPI data coming out of China at the weekend that it's indicative of them knowing something about weak data going forward," said Adrian Schmidt, currency strategist at Lloyds Bank in London.

In the US on Friday:

• At 8:30 AM ET, the Trade Balance report for April will be released. The consensus is for the U.S. trade deficit to decrease to $49.3 billion in April, down from from $51.8 billion in March. Export activity to Europe will be closely watched due to economic weakness. Also oil prices started to decline in April, but that probably won't reduce import prices until May.

• At 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories for April will be released. The consensus is for a 0.5% increase in inventories.

by Calculated Risk on 6/07/2012 07:29:00 PM

Just an update because the effective date is next week ... As announced back in March, HUD is lowering the costs on the FHA's Streamline Refinance Program effective Monday, June 11th.

From HUD back in March: FHA Announces Price Cuts to Encourage Streamline Refinancing

Acting Federal Housing (FHA) Commissioner Carol Galante announced significant price cuts to FHA’s Streamline Refinance Program that could benefit millions of borrowers whose mortgages are currently insured by FHA. Beginning June 11, 2012, FHA will lower its Upfront Mortgage Insurance Premium (UFMIP) to just .01 percent and reduce its annual premium to .55 percent for certain FHA borrowers.

To qualify, borrowers must be current on their existing FHA-insured mortgages which were endorsed on or before May 31, 2009. [In February], FHA also announced it will increase its upfront premiums on most other loans by 75 basis points to 1.75 percent. In addition, FHA will raise annual premiums 10 basis points and 35 basis points on mortgages higher than $625,500. ...

Currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a five percent annual interest rate on their FHA-insured mortgages. By refinancing through this streamlined process, it’s estimated that the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month. FHA’s new discounted prices assume no greater risk to its Mutual Mortgage Insurance (MMI) Fund and will allow many of these borrowers to refinance into a lower cost FHA-insured mortgage without requiring additional underwriting.

I expect this program will add to the recent increase in refinance activity.

by Calculated Risk on 6/07/2012 03:45:00 PM

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

Freddie Mac reported earlier today that 30 year mortgage rates had fallen to a record low 3.67% in the PMMS®.

And the MBA reported yesterday that refinance activity increased another 2 percent last week.

Earlier from Freddie Mac: Record-Setting Low Fixed Mortgage Rates Persist

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates falling to new all-time record lows for the sixth consecutive week ...

30-year fixed-rate mortgage (FRM) averaged 3.67 percent with an average 0.7 point for the week ending June 7, 2012, down from last week when it averaged 3.75 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates are there! The 30 year conforming mortgage rates were at 4.23% in October 2010, so a 50 bps drop would be 3.73% - and rates hit 3.67% last week.

There has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie.

The second graph shows the 15 and 30 year fixed rates from the Freddie Mac survey. The Primary Mortgage Market Survey® started in 1971 (15 year in 1991). Both rates are at record lows for the Freddie Mac survey, and rates for 15 year fixed loans are now below 3%.

Note: The Ten Year treasury yield is just off the record low at 1.65% (the record low was last week at 1.44%).

by Calculated Risk on 6/07/2012 12:00:00 PM

The Federal Reserve released the Q1 2012 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth peaked at $67.5 trillion in Q3 2007, and then net worth fell to $51.3 trillion in Q1 2009 (a loss of $16.2 trillion). Household net worth was at $62.9 trillion in Q1 2012 (up $11.6 trillion from the trough, but still down $4.6 trillion from the peak).

The Fed estimated that the value of household real estate increased $372 billion to $16.05 trillion in Q1 2012. The value of household real estate has fallen $6.3 trillion from the peak.

Click on graph for larger image.

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles. The ratio has been increasing a little recently.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2012, household percent equity (of household real estate) was at 40.7% - up from Q4, and the highest since 2008. This was because of a small increase in house prices in Q1 (the Fed uses CoreLogic) and a reduction in mortgage debt..

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 40.7% equity - and over 10 million have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt declined by $85 billion in Q1. Mortgage debt has now declined by $885 billion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, is near the lows of the last 30 years, however household mortgage debt, as a percent of GDP, is still historically very high, suggesting more deleveraging ahead for households.

by Calculated Risk on 6/07/2012 10:04:00 AM

Federal Reserve Chairman Ben Bernanke testimony "Economic Outlook and Policy" before the Joint Economic Committee, U.S. Senate:

Concerns about sovereign debt and the health of banks in a number of euro-area countries continue to create strains in global financial markets. The crisis in Europe has affected the U.S. economy by acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions. European policymakers have taken a number of actions to address the crisis, but more will likely be needed to stabilize euro-area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area, and lay the foundations for long-term economic growth. U.S. banks have greatly improved their financial strength in recent years, as I noted earlier. Nevertheless, the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely. As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.

Here is the CNBC feed.

Here is the C-Span Link

by Calculated Risk on 6/07/2012 08:30:00 AM

The DOL reports:

In the week ending June 2, the advance figure for seasonally adjusted initial claims was 377,000, a decrease of 12,000 from the previous week's revised figure of 389,000. The 4-week moving average was 377,750, an increase of 1,750 from the previous week's revised average of 376,000.

The previous week was revised up from 383,000 to 389,000.

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 377,750.

The average has been between 363,000 and 384,000 all year, and this is the highest level since early May.

And here is a long term graph of weekly claims:

Initial weekly claims remain elevated.

This was close to the consensus forecast of 379,000.

All current Employment Graphs

by Calculated Risk on 6/06/2012 09:53:00 PM

The focus on Thursday will be on the comments from Fed Chairman Ben Bernanke during his Senate testimony. Here is the schedule:

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decline to 379 thousand from 383 thousand last week.

• At 10:00 AM, Fed Chairman Ben Bernanke will testify before the Joint Economic Committee, U.S. Senate, "Economic Outlook and Policy"

• At noon, the Fed will release the Q1 Flow of Funds report.

• And at 3:00 PM, the Fed will release Consumer Credit for April. The consensus is for a $12.0 billion increase in consumer credit.

by Calculated Risk on 6/06/2012 08:00:00 PM

From Vice Chair Janet Yellen: Perspectives on Monetary Policy. Excerpt:

Recent labor market reports and financial developments serve as a reminder that the economy remains vulnerable to setbacks. Indeed, the simulations I described above did not take into account this new information. In our policy deliberations at the upcoming FOMC meeting we will assess the effects of these developments on the economic forecast. If the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective, I am convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions.

Clearly Yellen is considering QE3.

by Calculated Risk on 6/06/2012 03:30:00 PM

Yesterday I asked "Dude, Where's my inventory?"

In the comments, 'TJ and The Bear' wrote: "My take is that when there's an expectation of rising prices buyers are motivated but sellers are not."

Exactly! This is something I mentioned earlier this year. And it doesn't even take rising prices to change the dynamics.

When the expectation is that prices will fall further, marginal sellers will try to sell their homes immediately. And marginal buyers will decide to wait for a lower price. This leads to more inventory on the market.

But when the expectation is that prices are stabilizing (the current situation), sellers will wait until it is convenient to sell. And buyers will start feeling a little more confident. Also, as prices stabilize, private lenders will start thinking about entering the mortgage market (something we are starting to see).

So expectations matter. And so do price fundamentals. Since we are close to normal prices, based on real prices (inflation adjusted) and the price-to-rent ratio, I think expectations of price stabilization have now taken over, and buyers, sellers and lenders are acting accordingly - and that is a key reason inventory has fallen sharply.

There are other reasons for the decline in inventory, but price expectations are probably a key factor.

by Calculated Risk on 6/06/2012 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from early April to late May.

This is a slight upgrade from the previous beige book that reported "modest to moderate" growth.

And on real estate:

Activity in residential real estate markets improved in most Districts since the previous report. Several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile. The apartment market continued to improve, and multifamily construction increased in several Districts.

Home sales were above year-ago levels in most areas of the country and several Districts noted sales had improved since the previous report, although some noted that the pace was well below the historical average. In particular, the New York, Cleveland, and Richmond Districts noted a pickup in the pace of distressed sales. Residential brokers and some builders in the Philadelphia, Atlanta, and Dallas Districts said home sales were exceeding expectations. Contacts in the Richmond District said homes were being snapped up as investors become more confident in the housing recovery, and the Atlanta report noted stronger sales to cash buyers and investors in Florida. Chicago said more sales had multiple offers. Apartment rental markets improved in the New York, Atlanta, and Dallas Districts. One contact from the New York District noted rising apartment rents have made buying more attractive, contributing to a slight uptick in sales.

Most Districts reported that home inventories decreased. Overall, home prices remained unchanged in many Districts, although reports were mixed. There were a few reports that sellers were lowering asking prices, leading to downward pressure on housing prices.

New home construction increased in a number of Districts, including Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. Contacts in the Philadelphia District said demand for new home construction eased slightly. Builders in Kansas City noted housing starts were down, but they expected an increase in the next three months. The Boston, Atlanta, and Chicago Districts reported an increase in multifamily construction, and the Minneapolis District noted numerous multifamily projects were in the pipeline.

Commercial real estate conditions improved in most Districts, and there were some reports that commercial construction picked up.

Prepared at the Federal Reserve Bank of Dallas and based on information collected on or before May 25, 2012.

More sluggish growth - but not a slow down. And a few positive comments on residential real estate ...