by Calculated Risk on 10/29/2012 04:26:00 PM

Near the end of the year, I collect housing forecasts from a number of analysts. From Mark Vitner and Anika Khan at Wells Fargo:

We have raised our forecast for new home sales and housing starts in 2013 and 2014 due to recent reports from homebuilders, strong gains in building permits and starts, record low new home inventories, and the Fed’s stated intentions to purchase large quantities of mortgage-backed securities on an ongoing basis. ...

[G]iven the strong gain in permits, which are running slightly ahead of starts, the gain in the Wells Fargo/NAHB Homebuilders’ Index and robust orders data from several large homebuilders, we raised our expectations for 2013 and 2014 to 990,000 and 1.17 million homes, respectively.

Wells Fargo is now forecasting total starts of 990 thousand in 2013, and 1.17 million in 2014 (from around 770 thousand in 2012).

They are forecasting single family starts of 680 thousand in 2013, and 820 thousand in 2014 (around 530 thousand this year).

Their forecast for new home sales is 465 thousand in 2013, and 530 thousand in 2014 (from 370 thousand this year).

That is an increase of around 25%+ next year, and an additional 15% to 20% in 2014.

For 2012, Wells Fargo forecast 350 thousand new home sales, 457 single family starts, and 690 total starts. All too low.

by Calculated Risk on 10/29/2012 02:51:00 PM

From the WSJ: UPDATE: Labor Department ‘Working Hard’ to Ensure Jobs Report Released on Time

The U.S. Labor Department on Monday said it is “working hard to ensure the timely release” of the October jobs report, saying it intends to released the report on schedule Friday despite Hurricane Sandy.

“It is our intention that Friday will be business as usual,” said Carl Fillichio, a senior press advisor at Labor. Mr. Fillichio’s statement provided clarity to an earlier Labor statement that said the agency would assess how to handle data releases this week after the “weather emergency” is over.

From the NY Times: Still at Sea, Storm Drenches East Coast

Hurricane Sandy churned relentlessly through the Atlantic Ocean on Monday on the way to carving what forecasters agreed would be a devastating path on land that is expected to paralyze life for millions of people in more than a half-dozen states, with extensive evacuations, once-in-a-generation flooding, widespread power failures and mass transit disruptions.

The huge storm, which picked up speed over the water on Monday morning, was producing sustained winds of 90 miles per hour by 11 a.m., up from 75 m.p.h. on Sunday night. The center of Hurricane Sandy made its expected turn toward the New Jersey coast early on Monday. ...

According to forecasters, the storm is on a scale that weather historians say has little precedent along the East Coast. Landfall is predicted on Monday night somewhere between central New Jersey and southern Delaware. But most of the eastern United States will feel Hurricane Sandy’s effects, making the exact landfall spot less important than the overall trajectory.
emphasis added

Oh my. Please stay safe.

by Calculated Risk on 10/29/2012 12:20:00 PM

From the WSJ: Labor Department May Delay Jobs Report

The U.S. Labor Department on Monday said it hasn’t made a decision yet on whether to delay Friday’s October jobs report ... The U.S. Census Bureau also said it hasn’t made a decision on whether to delay economic reports it plans to release this week, including construction spending on Thursday and factory orders on Friday.

This is minor compared to other storm related issues, but I'll check up on this.  They will probably know any schedule changes by Wednesday. Stay safe.

Update: For anyone interested, the WSJ online is free today.

by Calculated Risk on 10/29/2012 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Expands but at a Slower Pace

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped from 10 to 7.9, indicating slightly slower growth.

Most other measures of current manufacturing activity also suggested growth in October, although new orders declined. The capacity utilization index edged up from 9.3 to 11.4, with more than one-quarter of manufacturers noting an increase. The shipments index held steady at 4.7, suggesting shipments rose at about the same pace as in September. The new orders index fell from 5.3 to –4.5, reaching its lowest level this year and indicating a decrease in demand.

Perceptions of general business conditions improved slightly in October. The general business activity index rose to 1.8, registering its first positive reading since June. The company outlook index was positive for the sixth month in a row and remained unchanged at 2.4.

Labor market indicators reflected slow but steady labor demand growth and shrinking workweeks. The employment index was 5.2 in October, largely unchanged from last month but well below the higher levels seen earlier in the year. About 15 percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index fell back into negative territory with a reading of –5.9, down from 2.8 in September.

This was at expectations of a reading of 2 for the general business activity index. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through October), and five Fed surveys are averaged (blue, through October) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through September (right axis).

The ISM index for October will be released Thursday, Nov 1st, and these surveys suggest another weak reading close to 50.

by Calculated Risk on 10/29/2012 08:30:00 AM

The BEA released the Personal Income and Outlays report for September:

Personal income increased $48.1 billion, or 0.4 percent ... in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $87.9 billion, or 0.8 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in September, compared with an increase of 0.1 percent in August. ... The price index for PCE increased 0.4 percent in September, the same increase as in August. The PCE price index, excluding food and energy, increased 0.1 percent in September, the same increase as in August.
...
Personal saving -- DPI less personal outlays -- was $395.0 billion in September, compared with $445.1 billion in August. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 3.3 percent in September, compared with 3.7 percent in August.

The following graph shows real Personal Consumption Expenditures (PCE) through September (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE. The September pickup in PCE is clear.

A key point is the PCE price index has only increased 1.7% over the last year, and core PCE is up only 1.7%. In August, core PCE increased at a 1.4% annualized rate.

by Calculated Risk on 10/28/2012 09:50:00 PM

UPDATE: US Markets closed on Monday. From NBC abd Reuters: NYSE and Nasdaq to close on Monday due to Hurricane Sandy

U.S. stock trading will be closed on Monday and possibly Tuesday in response to Hurricane Sandy, NYSE Euronext said late on Sunday.

NYSE Euronext, which runs the New York Stock Exchange, had previously said that electronic trading would remain open and that only the exchange's trading floor would close.

In a statement, the company said that "the dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority."

Nasdaq said it would also close all U.S. equity and derivatives exchanges, as well as the Nasdaq/FINRA TRF on Monday, CNBC reported late Sunday night. It is likley the markets will also be closed on Tuesday, according to the statement from the exchange.

To all in the path of Sandy: Stay safe and dry!

Monday:
• At 8:30 AM ET, the Personal Income and Outlays report for September is expected to be released. The consensus is for a 0.4% increase in personal income in September, and for 0.6% increase in personal spending. And for the Core PCE price index to increase 1.7% year-over-year.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for October. The consensus is for a reading of 2, up from -0.9 last month. This is the last of the regional survey for October.

• At 2:00 PM, The Federal Reserve is expect to release the October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices.

• Expected: the National Multi Housing Council (NMHC) Quarterly Apartment Survey. This is a key survey for apartment vacancy rates and rents.

The Asian markets are mixed tonight, with the Nikkei up 0.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 2 and DOW futures are down 10.

Oil prices are down recently with WTI futures at $86.28 per barrel and Brent down to $110.12 per barrel.

Weekend:
• Summary for Week Ending Oct 26th
• Schedule for Week of Oct 28th

Three more questions this week for the October economic prediction contest and four question for the November contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/28/2012 06:15:00 PM

Stay safe! Here is the National Hurricane Center website.

From the U.S. Office of Personnel Management: Monday, October 29, 2012, FEDERAL OFFICES in the Washington, DC, area are CLOSED TO THE PUBLIC.

From the NY Times: N.Y.S.E. Plans to Close Its Trading Floor

The New York Stock Exchange plans to close its trading floor on Monday as Hurricane Sandy approaches, in its first weather-related closure in 27 years. Trading operations will be conducted through its electronic market instead.
...
Clients should not notice any differences in the way their orders are executed, Duncan L. Niederauer, the chief executive of NYSE Euronext, said by telephone on Sunday.

I think the economic releases scheduled for Monday will still be released (Personal Income and Spending, Senior Loan Officer Survey), but there could be delays.

Yesterday:
• Summary for Week Ending Oct 26th
• Schedule for Week of Oct 28th

by Calculated Risk on 10/28/2012 01:45:00 PM

For fun on a Sunday: I've been asked frequently how investors will react to the election. First, every election is different. Sometimes it is obvious who is going to win, and the election results are completely expected (like Reagan in 2004 or Clinton in 1996). Other times the election is close (this election is close although I expect President Obama to be reelected).

Sometimes the economy is clearly headed into recession like in 2008. The 2000 election was during the ongoing decline following the stock bubble, and the election was especially unsettling because the Supreme Court made the final decision.

There are always some partisan analysts who predict doom if their candidate doesn't win (see Bruce Bartlett's Partisan Bias and Economic Forecasts). But any "doom" related to the election will be in the intermediate or long term, not in 2013.

The following graph shows the change in the S&P 500 from election day through the end of the year for all elections since 1952. Note: The number of trading days varied mostly because of the timing of the election.

Click on graph for larger image in graph gallery.

The two worst performing years - no surprise - were 2000 and 2008. The 2000 election followed the stock market bubble, and the economy was collapsing in 2008.

The other elections with a slight negative change were 1956, 1964, and 1984. These were all presidents being reelected and the results were obvious in advance: Eisenhower won reelection with 57.4% of the vote, Johnson won with 61.1%, and Reagan with 58.8%.

But most of the time the market has increased following the election, and the median increase from election day to the end of the year was 3.6%. Every election is different and this is NOT investment advice!

by Calculated Risk on 10/28/2012 09:44:00 AM

From Kathleen Pender at the San Francisco Chronicle: Principal relief for stressed homeowners

A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.
...
... in mid-September, Fannie and Freddie told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury's Hardest Hit Fund, including Keep Your Home California.

Fannie's and Freddie's willingness to accept money from Hardest Hit Funds does not signal a change of heart on the part of their regulator, the Federal Housing Finance Agency. ... Fannie Mae spokesman Andrew Wilson says, "This in fact for us is not a principal reduction. It's a principal payment. It's as if your grandmother wanted to give you $50,000 to apply to your mortgage. In this case, the grandmother, as it were, was the Hardest Hit Fund."
...
The fund was set up in 2010 to provide $17 billion in homeowner assistance to 18 states hardest hit by the housing crisis. ... The California Housing Finance Agency set up four programs under the Keep Your Home name to distribute California's share - $1.9 billion. It allocated $772 million to principal reduction ...
...
To qualify for principal reduction in California, homeowners must live in the home, owe more than it is worth, be of low-to-moderate income, and be delinquent or have some hardship that puts them in imminent risk of default.
...
To date, 2,511 homeowners have received principal reductions totaling $185.6 million - or roughly $74,000 apiece.

This is a fairly small program, but this will provide some principal relief for a few borrowers.

Earlier:
• Summary for Week Ending Oct 26th
• Schedule for Week of Oct 28th

by Calculated Risk on 10/27/2012 03:55:00 PM

Earlier:
• Summary for Week Ending Oct 26th

The key report this week is the October employment report to be released on Friday. Other key reports include the August Case-Shiller house price index on Tuesday, October auto sales on Thursday, and the October ISM manufacturing index, also on Thursday.

There are two interesting surveys that will be released on Monday; the Fed's Senior Loan Officer Survey that might show some slight increase in loan demand or loosening of lending standards, and the NMHC apartment survey that tends to lead other indicators of changes in the apartment market.

----- Monday, Oct 29th ----- 8:30 AM ET: Personal Income and Outlays for September. The consensus is for a 0.4% increase in personal income in September, and for 0.6% increase in personal spending. And for the Core PCE price index to increase 1.7% year-over-year.

10:30 AM: Dallas Fed Manufacturing Survey for October. This is the last of the regional survey for October.

2:00 PM: The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.

Expected: National Multi Housing Council (NMHC) Quarterly Apartment Survey. This is a key survey for apartment vacancy rates and rents.

----- Tuesday, Oct 30th ----- 9:00 AM: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August.

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

The consensus is for a 2.1% year-over-year increase in the Composite 20 prices (NSA) for August. The Zillow forecast is for the Composite 20 to increase 1.7% year-over-year, and for prices to increase 0.2% month-to-month seasonally adjusted. The CoreLogic index increased 0.2% in August (NSA).

10:00 AM: Conference Board's consumer confidence index for October. The consensus is for an increase to 72.0 from 70.3 last month.

10:00 AM: Q3 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. However, based on the initial evaluation, it appears the vacancy rates are too high. The Census Bureau is looking into the differences between the HVS, the ACS, and the decennial Census, and until the issues are resolved, this survey probably shouldn't be used to estimate the excess vacant housing supply.

----- Wednesday, Oct 31st ----- 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

9:45 AM: Chicago Purchasing Managers Index for October. The consensus is for an increase to 51.7, up from 49.7 in September.

----- Thursday, Nov 1st ----- 8:15 AM: The ADP Employment Report for October. This report is for private payrolls only (no government). The consensus is for 135,000 payroll jobs added in October. This is the first report using the new methodology, and the consensus probably doesn't reflect the change. I expect something lower than the consensus.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 365 thousand from 369 thousand.

8:30 AM: Productivity and Costs for Q3. The consensus is for a 1.3% increase in unit labor costs.

10:00 AM ET: ISM Manufacturing Index for October.

Here is a long term graph of the ISM manufacturing index. The ISM index indicated expansion in September, after three consecutive months of contraction. The consensus is for a decrease to 51.0, up from 51.5 in September. (above 50 is expansion).

10:00 AM: Construction Spending for September. The consensus is for a 0.7% increase in construction spending.

All day: Light vehicle sales for October. The consensus is for light vehicle sales to increase to 15.0 million SAAR in October (Seasonally Adjusted Annual Rate).

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

TrueCar is forecasting:

The October 2012 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 14.9 million new car sales, up from 13.3 million in October 2011 and down from 14.94 million in September 2012

Edmunds.com is forecasting:

Edmunds.com ... forecasts that 1,132,878 new cars will be sold in October for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 14.8 million light vehicles.

----- Friday, Nov 2nd ----- 8:30 AM: Employment Report for October. The consensus is for an increase of 120,000 non-farm payroll jobs in October; there were 114,000 jobs added in September.

The consensus is for the unemployment rate to increase to 7.9% in October, up from 7.8% in September.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through September.

The economy has added 5.2 million private sector jobs since employment bottomed in February 2010 including preliminary benchmark revision (4.6 million total jobs added including all the public sector layoffs).

There are still 3.7 million fewer private sector jobs now than when the recession started in 2007 (including benchmark revision).

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for September. The consensus is for a 4.0% decrease in orders.

by Calculated Risk on 10/27/2012 01:11:00 PM

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

Here is the unofficial problem bank list for Oct 26, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

The FDIC released its actions through September 2012 and closed a bank this week. There were five removals and four additions leaving the Unofficial Problem Bank List with 864 institutions with assets of $330.4 billion. A year ago, the list had 985 institutions with assets of $406.6 billion. For the month, changes included 11 action terminations, four failures, one unassisted merger, and six additions. Overall, it was a quiet month as it was the fewest action terminations since February 2012 and the fewest additions since the publication of the list.

Actions were terminated against Metro Bank, Lemoyne, PA ($2.4 billion Ticker: METR); Heritage Bank of Central Illinois, Trivoli, IL ($308 million); Minnwest Bank South, Tracy, MN ($213 million); and Freedom Bank, Sterling, IL ($76 million). The failure was Nova Bank, Berwyn, PA ($483 million), which the FDIC could not find a buyer for.

The additions were First State Financial, Inc., Pineville, KY ($395 million); Golden Eagle Community Bank, Woodstock, IL ($152 million); Signature Bank of Georgia, Sandy Springs, GA ($136 million); and Talbot State Bank, Woodland, GA ($72 million). Who would have guessed there are still some unidentified problem banks in Georgia.

CR Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

When the list was increasing, the official and "unofficial" counts were about the same. Now, with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.

Earlier:
• Summary for Week Ending Oct 26th

by Calculated Risk on 10/27/2012 08:09:00 AM

There was some disappointing data last week - mostly from some regional manufacturing surveys, but also mortgage delinquencies increased - but overall this was the fourth week in a row with somewhat better than expected data, and this suggests a little pickup in economic activity.

Once again housing beat expectations.  New home sales increased to 389,000, a pace well above the 306,000 sales in 2011, and the highest level since the tax credit related spike in April 2010.  Q3 GDP was weak, but slightly above expectations - and residential investment was a fairly strong contributor to growth.

The Architecture Billings Index is now showing expansion (an indicator for commercial real estate including apartments).  And the trucking index increased in  September (although this index has been moving sideways this year). 

On the downside, the Richmond and Kansas City Fed manufacturing surveys were weak and indicated contraction in October. The recent trend is continuing: housing is improving, but manufacturing is struggling.

Here is a summary of last week in graphs:

• New Home Sales at 389,000 SAAR in September

Click on graph for larger image in graph gallery.

The Census Bureau reported New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 389 thousand. This was up from a revised 368 thousand SAAR in August (revised down from 373 thousand). This is the highest level since April 2010 (tax credit related bounce).

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was at a record low 38,000 units in September. The combined total of completed and under construction is just above the record low since "under construction" is starting to increase.

Even though sales are still very low, new home sales have clearly bottomed. New home sales have averaged 364 thousand SAAR over the first 9 months of 2012, after averaging under 300 thousand for the previous 18 months.  Sales are finally above the lows for previous recessions too.

This was slightly above expectations of 385,000, and was another fairly solid report. This indicates an ongoing recovery in residential investment.

New Home Sales graphs
• Real GDP increased 2.0% annual rate in Q3

This graph shows the quarterly real GDP growth (at an annual rate) for the last 30 years.

The Red column (and dashed line) is the advance estimate for Q3 GDP.

The Q3 GDP report was weak, with 2.0% annualized real GDP growth, but slightly better than expected. Final demand increased in Q3 as personal consumption expenditures increased at a 2.0% annual rate (up from 1.5% in Q2), and residential investment increased at a 14.4% annual rate (up from 8.5% in Q2).

Investment in equipment and software was flat in Q3, and investment in non-residential structures was negative.   However, it appears the drag from state and local governments will end soon (after declining for 3 years).

The next graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 6 quarters (through Q3 2012).

However the drag from state and local governments is ongoing, although the drag in Q3 was very small. State and local governments have been a drag on GDP for twelve consecutive quarters. Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline has been relentless and unprecedented. The good news is the drag appears to be ending.

In real terms, state and local government spending is now back to 2001 levels, even with a larger population.

Residential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.

Last year the increase in RI was mostly from multifamily and home improvement investment. Now the increase is from most categories including single family. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The key story is that residential investment is continuing to increase, and I expect this to continue (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2013 (with the usual caveats about Europe and policy errors in the US).

• AIA: Architecture Billings Index increased in September

This graph shows the Architecture Billings Index since 1996. The index was at 51.6 in September, up from 50.2 in August. Anything above 50 indicates expansion in demand for architects' services.

This increase is mostly being driven by demand for design of multi-family residential buildings - and this suggests there are more apartments coming (there are already quite a few apartments under construction). Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests increase in CRE investment next year (it will be some time before investment in offices and malls increases).

• ATA Trucking Index increased in September

From ATA: ATA Truck Tonnage Index Rose 0.4% in September

Note: ATA Chief Economist Bob Costello says, for trucking, the pickup in housing is offsetting the "flattening in manufacturing output".

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. The index is above the pre-recession level and up 2.4% year-over-year - but has been mostly moving sideways in 2012.

• Final October Consumer Sentiment at 82.6

The final Reuters / University of Michigan consumer sentiment index for October declined to 82.6 from the preliminary reading of 83.1, and was up from the September reading of 78.3.

This was slightly below the consensus forecast of 83.1. Overall sentiment is still weak - probably due to a combination of the high unemployment rate and the sluggish economy - but consumer sentiment has been improving.

by Calculated Risk on 10/26/2012 10:50:00 PM

From Nick Timiraos at the WSJ: Cost of Bailing Out Fannie and Freddie Expected to Fall Sharply

Fannie Mae and Freddie Mac are expected to begin repaying taxpayers for their bailout faster than initially projected, in part because of an improving housing market.

The Federal Housing Finance Agency, the companies' federal regulator, released a report on Friday that estimated they will pay between $32 billion and $78 billion to the U.S. Treasury through 2015. The baseline forecast assumes that the companies would end up costing taxpayers $76 billion by the end of 2015, down from the current tab of $142 billion.
...
The regulator's latest forecasts show that Freddie Mac won't require additional government support, even under a "worst case" scenario that envisions further home-price declines. Fannie might need government aid this year to pay the 10% dividend but would only need additional aid in subsequent years if home prices were to fall sharply.

Here is the report from the FHFA: FHFA Updates Projections of Potential Draws for Fannie Mae and Freddie Mac.

by Calculated Risk on 10/26/2012 06:08:00 PM

NOVA es no va
Ahora supernova
Abandonado
by Soylent Green is People
From the FDIC: FDIC Approves the Payout of the Insured Deposits of NOVA Bank, Berwyn, Pennsylvania

The FDIC was unable to find another financial institution to take over the banking operations of NOVA Bank. The FDIC will mail checks directly to depositors of NOVA Bank for the amount of their insured money.
...
As of June 30, 2012, NOVA Bank had approximately $483.0 million in total assets and $432.2 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $91.2 million. NOVA Bank is the 47th FDIC-insured institution to fail in the nation this year, and the second in Pennsylvania.

No one wanted this one.

by Calculated Risk on 10/26/2012 03:32:00 PM

Note: The Case-Shiller report to be released next Tuesday is for August (really an average of prices in June, July and August).

Zillow Forecast: August Case-Shiller Composite-20 Expected to Show 1.7% Increase from One Year Ago

On Tuesday Oct. 30, the Case-Shiller Composite Home Price Indices for August will be released. Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) will be up by 1.7 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will be up 1.2 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from July to August will be 0.2 percent for the 20-City Composite and 0.3 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below and are based on a model incorporating the previous data points of the Case-Shiller series, the August Zillow Home Value Index data and national foreclosure re-sales.

As the housing market recovery continues, home prices are expected to modestly appreciate, with growth rates being below “normal” pre-housing recession levels. Zillow’s Home Value Index for September was released on Monday night and shows the largest quarterly appreciation since March 2006, showing that the market is regaining some of its strength. National home values are up 3.2 percent from year-ago levels and have now seen four consecutive quarters of appreciation. While the national housing market is showing consistent signs of improvement, the recovery is uneven across the country. Some markets, such as Phoenix, Riverside and Miami are doing exceptionally well, while St. Louis and Atlanta are still faltering. Part of the strong home value appreciation we are seeing is driven by acute inventory shortages in many markets with foreclosures and foreclosure re-sales down and many people still locked up in negative equity, limiting overall supply. In these last months of 2012, Case-Shiller indices are expected to moderate and likely report monthly declines toward the end of the year tracking the Zillow Home Value Index. Monthly depreciation toward the end of the year is largely a function of declining overall monthly sales volume, which will increase the percentage of foreclosure re-sales in the transactional mix being tracked by Case-Shiller.

Zillow's forecasts for Case-Shiller have been pretty close.

		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	August 2011	156.51	153.49	142.97	140.11
Case-Shiller (last month)	July 2012	157.3	154.85	144.61	142.1
Zillow June Forecast	YoY	1.2%	1.2%	1.7%	1.7%
	MoM	0.7%	0.3%	0.5%	0.2%
Zillow Forecasts1		158.4	155.3	145.4	142.4
Current Post Bubble Low		146.52	149.19	134.10	136.45
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		8.1%	4.1%	8.4%	4.4%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 10/26/2012 02:20:00 PM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses August 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: U.S. Home Prices Up 0.2 Percent for the Month; Up 2.6 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on August 2012 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 15,500 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 LPS HPI is off 23.0% from the peak in June 2006.

In May, the LPS HPI was up 0.4% year-over-year, in June, the index was up 0.9% year-over-year, and 1.8% in July, and now 2.6% in August. This is steady improvement on a year-over-year basis. Note: Case-Shiller for August will be released this coming Tuesday.

by Calculated Risk on 10/26/2012 12:15:00 PM

The Q3 GDP report was weak, with 2.0% annualized real GDP growth, but slightly better than expected. Final demand increased in Q3 as personal consumption expenditures increased at a 2.0% annual rate (up from 1.5% in Q2), and residential investment increased at a 14.4% annual rate (up from 8.5% in Q2).

Investment in equipment and software was flat in Q3, and investment in non-residential structures was negative.   However, it appears the drag from state and local governments will end soon (after declining for 3 years).

Overall this was another weak report indicating sluggish growth.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential Investment (RI) made a positive contribution to GDP in Q3 for the sixth consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory, but now RI is contributing. The good news: Residential investment has clearly bottomed.

The contribution from RI will probably continue to be sluggish compared to previous recoveries, but the ongoing positive contribution to GDP is a significant story.

Equipment and software investment was unchanged in Q3 (compared to Q2). This followed twelve consecutive quarters with a positive contribution.

The contribution from nonresidential investment in structures was negative in Q3. Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week).

The second graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 6 quarters (through Q3 2012).

However the drag from state and local governments is ongoing, although the drag in Q3 was very small. State and local governments have been a drag on GDP for twelve consecutive quarters. Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline has been relentless and unprecedented. The good news is the drag appears to be ending.

In real terms, state and local government spending is now back to 2001 levels, even with a larger population.

Residential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.

Last year the increase in RI was mostly from multifamily and home improvement investment. Now the increase is from most categories including single family. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The last graph shows non-residential investment in structures and equipment and software.

I'll add details for investment in offices, malls and hotels next week.

The key story is that residential investment is continuing to increase, and I expect this to continue (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2013 (with the usual caveats about Europe and policy errors in the US).

Earlier with revision graphs:
• Real GDP increased 2.0% annual rate in Q3

by Calculated Risk on 10/26/2012 09:55:00 AM

Note: I'll have much more on GDP soon.


Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for October declined to 82.6 from the preliminary reading of 83.1, and was up from the September reading of 78.3.

This was slightly below the consensus forecast of 83.1. Overall sentiment is still weak - probably due to a combination of the high unemployment rate and the sluggish economy - but consumer sentiment has been improving.

by Calculated Risk on 10/26/2012 08:38:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and residential fixed investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.

Click on graph for larger image.

This graph shows the quarterly real GDP growth (at an annual rate) for the last 30 years.

The Red column (and dashed line) is the advance estimate for Q3 GDP.

A few comments:
• Consumer spending picked up a little. Real personal consumption expenditures increased 2.0 percent in the third quarter, compared with an increase of 1.5 percent in the second.

• Residential investment increased. Real residential fixed investment increased 14.4 percent, compared with an increase of 8.5 percent.

• State and local government made a negative contribution to GDP for the twelfth straight quarter, but the negative contribution was very minor.

This was slightly above expectations. I'll have more on GDP later ...

by Calculated Risk on 10/25/2012 09:06:00 PM

Expectations for Q3 GDP are pretty low ... and moving lower. From the WSJ: GDP Estimates Move Lower Following Durables Report

The consensus estimate of economists surveyed by Dow Jones Newswires is that Friday’s report will show the economy grew at a seasonally adjusted annual rate of 1.8% in the July-to-September quarter. But after Thursday’s figures on business investment, some economists said they are bracing for a weaker GDP report than the consensus figure.

Wells Fargo — pointing out that shipments of core capital goods fell at an annual pace of 4.9% over three months — lowered its estimate of third-quarter GDP growth to an annual rate of 1.4% from 1.6%. J.P. Morgan Chase lowered its forecast to 1.6% from 1.8%.

“The downside risks are mounting to our already below-consensus estimate that GDP increased by only 1.3% in the third quarter,” Paul Ashworth, chief U.S. economist at London-based Capital Economics, said in a note to clients. “At 1.8%, the consensus forecast looks way to high.”

Friday:
• At 8:30 AM ET, the advance release for Q3 GDP will be released by the BEA. The consensus is that real GDP increased 1.9% annualized in Q3.

• At 9:55 AM, the Reuters/University of Michigan's Consumer sentiment index (final for October). The consensus is for no change from the preliminary reading of 83.1.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).