by Calculated Risk on 6/18/2012 09:53:00 PM

With Spanish 10 year bond yields solidly above 7%, the focus will remain on Europe, especially Greece and Spain. And there will be another meaningless statement from the G20 tomorrow, which reminds me of this great line (and funny commentary) from Matthew O'Brien at the Atlantic: 'Call Me Maybe' Explains the Euro Crisis—Seriously

The only thing more maddening than "Call Me Maybe" is the euro crisis. One is a banal string of saccharine statements, punctuated by swift choruses of action. The other is a pop song. And neither will go away.

• At 8:30 AM ET, Housing Starts for May will be released. The consensus is for total housing starts to increase to 720,000 (SAAR) in May, up from 717,000 in April.

• At 10:00 AM, the BLS will release the Job Openings and Labor Turnover Survey for April. The number of job openings has generally been trending up.


Did I mention Spanish 10 year bond yields are above 7%?

by Calculated Risk on 6/18/2012 06:45:00 PM

From Jon Hilsenrath at the WSJ: Clogged Credit Weighs on Fed Policy Makers

The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve ...
...
Fed officials are weighing new steps at their policy meetings Tuesday and Wednesday, following a period of disappointing jobs growth and financial turbulence in Europe. ... The credit divide factors into their thinking.

Analysts think the policy options under discussion are:

1) extend the extended period to 2015, the current statement reads "the Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014".

2) Expand and extend the "program to extend the average maturity of its holdings of securities" (Operation Twist).

3) Launch QE3 (probably with more MBS buying).

None of these programs will bridge the credit divide.  And not much of a hint from a usual source ...

by Calculated Risk on 6/18/2012 03:30:00 PM

From economist Tom Lawler:

Last Friday FHFA released its GSE “Foreclosure Prevention Report” for Q1/2012, which has data on Fannie Mae’s and Freddie Mac’s foreclosure prevention activity, foreclosure and other “home forfeiture” activity, delinquencies, and REO. Starting with last quarter’s report, FHFA began showing individual state data, for folks who like to track such things. Here is the report.

Included in the report is the number of delinquent loans by length of delinquency. In some states the percentage of “seriously delinquent (90+) loans that have been delinquent for a year or more is astonishingly high. Below is a chart showing the serious delinquency rate for combined GSE conventional SF mortgages by state broken out by length of delinquency.

Click on graph for larger image.

Florida, of course, is still “off the charts” in terms of its SDQ rate, and 73% of the seriously-delinquent SF loans in Florida have been delinquent for a year or more.

For the combined GSEs, states with the highest “really super-seriously” delinquency rates – i.e., 365+ -- at the end of March were Florida (8.15%), New Jersey (4.27%), Nevada (3.65%), Illinois (2.84%), New York (2.83%), Maine (2.68%), and Maryland (2.54%). For Maryland vs. Virginia “fans,” the “really super-seriously” delinquency rate in Virginia in March was 0.56%.

by Calculated Risk on 6/18/2012 12:47:00 PM

In addition to Case-Shiller, CoreLogic, and LPS, I'm also watching the FNC, Zillow and other house price indexes.

FNC released their April index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.6% in April (Composite 100 index). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased about 1.0% in April. These indices are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

The year-over-year trends continued to show improvement in April, with all four composite indexes down about 2.4% compared to April 2011. For the 10, 20, and 30 city indexes, this is the smallest year-over-year decline in the FNC index since 2007 (five years ago).

Click on graph for larger image.

This graph is based on the FNC index (four composites) through April 2012. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Some of the month-to-month gain is seasonal since this index is NSA. The key is the indexes are showing less of a year-over-year decline in April. If house prices have bottomed, the year-over-year decline should turn positive later this year or early in 2013.

The April Case-Shiller index will be released next Tuesday, June 26th.

by Calculated Risk on 6/18/2012 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased 1 point in June to 29 (May was revised down to 28, so this was unchanged). Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Rises One Point in June

Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This is the highest level the index has attained since May of 2007.
“While the June HMI is in keeping with our forecast for gradually improving single-family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain,” said NAHB Chief Economist David Crowe. “In addition, builders across the country continue to report that overly tight lending conditions and inaccurate appraisals are major obstacles to completing sales at this time.”

...
In June, the HMI component measuring current sales conditions rose two points to 32, which is its highest level since April of 2007. Meanwhile, the components measuring sales expectations in the next six months and traffic of prospective buyers held unchanged at 34 and 23, respectively.

Regionally, the HMI results were mixed in June, with two areas of the country posting gains and two posting declines. The Midwest registered a five-point gain to 31 and the West registered a four-point gain to 33, while the Northeast and South each posted two-point declines, to 29 and 26, respectively.

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the June release for the HMI and the April data for starts (May housing starts will be released tomorrow). A reading of 29 was at the consensus.

Housing Investment and Construction Graphs

by Calculated Risk on 6/18/2012 08:59:00 AM

From the WSJ: Spanish Yields Surge; Greek Relief Wanes

Spain's 10-year government bond yield soared above 7% and equities lost early gains ...

"Greek election results are unlikely to resolve euro-zone uncertainty," said Barclays. "Instead, the focus should shift to the June 28-29 EC summit, the likely renegotiation of the Greek austerity package, and to Spanish yields."

Here are the Spanish and Italian 10-year yields from Bloomberg. The Spanish 10 year yield is up to 7.28%, and the Italian 10 year yield is at 6.16%.

Note: The preliminary results of the independent Spanish Bank Stress Tests are due today. This is the results of the tests by Oliver Wyman Ltd. and Roland Berger Strategy Consultants.

On Thursday, June 21st, there is a meeting of the euro zone finance ministers, and the following week, starting on June 28th, is a two day European summit in Brussels.

by Calculated Risk on 6/17/2012 09:17:00 PM

The election in Greece was THE story on Sunday. New Democracy received the largest percentage of the vote - around 30% - and they still need to form a coalition government. There is no way they can meet the terms of the memorandum - so even if a government is formed, this will blow up again without further concessions. Meanwhile the Greek economy is collapsing and the unemployment rate is at record levels. Very sad.

For a few questions about what comes next, see from Joseph Cotterill at the Financial Times Alphaville: Greece, the post-election questions

• At 10:00 AM ET on Monday, the June NAHB homebuilder survey. The consensus is for a reading of 29, unchanged from May. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.

The Asian markets are up tonight. The Nikkei is up about 2%, and the Shanghai Composite is up 0.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are up about 9, and Dow futures are up 90.

Oil: WTI futures are up to $85.21 (this is down from $109.77 in February) and Brent is up to $99.20 per barrel.

Saturday:
• Summary for Week Ending June 15th
• Schedule for Week of June 17th
For the monthly economic question contest (three more questions for June):

by Calculated Risk on 6/17/2012 06:56:00 PM

Some analysts think the FOMC will announce QE3 this week, others think the FOMC will wait until August or September.

It is also possible that the Greek election will influence some FOMC participants to wait until "Operation Twist" ends in a few weeks and then see what happens.

Usually the Fed provides pretty clear signals in advance of additional accommodation, but this time the smoke signals have been a little confused. From Tim Duy: Communications Failure

Reading Cardiff Garcia's preview of next week's Fed meeting, I was struck by [a] chart from Nomura

The extensive discussion of options with arguments for and against reminded me of the fog that hangs over this next meeting. We really have no idea what the Fed is going to do or why they are going to do it. Reasonable analysis ranges from nothing to massive quantitative easing.

Goldman analysts recently put the odds of QE3 this week at 75%, from Goldman economist Sven Jari Stehn on June 8th:

Although the uncertainty is significant, our model points to a probability of easing of 75% at the June meeting. Moreover, financial conditions are critical: were European stress to ease between now and the meeting the estimated probability of easing could drop to around 50%. Conversely, any further tightening in financial conditions from here—such as turmoil surrounding the June 17 Greek election—would push up the likelihood of easing in June.

I think the odds of QE3 are very high, but I'm uncertain on the timing. One key is changes in the FOMC financial projections that will be released this week.  Here are the projections from the April meeting.

The following April chart shows when participants projected the initial increase in the target federal funds rate should occur.


Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

I expect some movement towards later years - and that would be an argument for QE3 this week.

The following table shows the FOMC's projections for GDP. Given the recent weak data, I'd expect the June projections to be lower for 2012 than the April projections.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

It is also likely that the unemployment rate forecast will be unchanged or revised upwards. Currently the FOMC expects the unemployment rate to be in the 7.8% to 8.0% in Q4. Even that level argues for additional accommodation. At the same time, the recent inflation data suggests the FOMC's inflation forecasts will be revised down (or unchanged).

The data suggests the FOMC will announce QE3 soon. But it is hard to tell when, and maybe we will see some clearer signals tonight or tomorrow.

by Calculated Risk on 6/17/2012 02:56:00 PM

From Reuters: Greek conservatives to win election: official projection (ht curious)

Greece's New Democracy conservatives are set to win ... The projection showed New Democracy taking 29.5 percent of the vote, with SYRIZA in second place with 27.1 percent. The Socialist PASOK followed in third place with 12.3 percent.

The result translates into 128 seats for New Democracy and 33 seats for PASOK, giving the two pro-bailout parties a slender majority in the 300-seat parliament.

New Democracy and PASOK back an EU/IMF bailout providing Greece with funds to stay afloat.

From the Telegraph: Greek election: Live

Official exit numbers are in, and New Democracy are on course to win. The numbers: ND 29.5pc, Syriza 27.1pc, Pasok 12.3pc, Independent Greeks 7.6pc, Golden Dawn 7pc, Democratic Left 6.2pc, Communist Party of Greece 4.5pc. These are numbers from Singular Logic, commissioned for the job by the Greek government.

This suggests New Democracy will be able to form a government. New Democracy's leader, Antonis Samaras, will try to change the terms of the bailout agreement, but generally supports the bailout - and strongly supports staying in the euro.

With the Greek economy in free fall, this just buys a little time until the next review shows Greece is far short of the bailout goals.

by Calculated Risk on 6/17/2012 12:12:00 PM

The Greek media is reporting on some early exit polls. This shows that it is very close between New Democracy and Syriza:

New Democracy: 27.5% to 30.5%

Syriza: 27% to 30%

Pasok: 10 to 12%

The 1st place party gets a 50 seat bonus (out of 300 total seats) and the parties split the remaining seats by the percent of the vote (excluding all parties with less than 3% of the vote).

If ND wins, they will probably form a government with Pasok (it would be close with the 50 seat bonus). However if Syriza wins, no one knows.