Fin/Inv

A couple of quotes from Kathleen Pender at the San Francisco Chronicle: Little support for new home-buyer tax credit

"We are not advocating another one. We think it's important for the market to have time to recover on its own," says Walter Molony, spokesman for the National Association of Realtors.
...
"From a political standpoint, with Congress not wanting to increase the debt, it would be too expensive," [Bernard Markstein, senior economist with the National Association of Home Builders] says. "In terms of advisable, we are bordering on where tax credits become ineffective."

And HUD Secretary Shaun Donovan said yesterday, via Reuters: No talk of new homebuyer tax credit

"It is not high on anyone's list that we have heard. We have not heard Congress talking about renewing it," Housing and Urban Development Secretary Shaun Donovan said in response to a reporter's question about a possible tax credit renewal.

Hotel occupancy is one of several industry specific indicators I follow ...

From HotelNewsNow.com: STR: Chain scales report weekly increases

Overall, the industry’s occupancy increased 10.6% to 60.1%, ADR rose 2.4% to US$96.50, and revenue per available room increased 13.2% to US$57.98.

The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).

Click on graph for larger image in new window.

Notes: the scale doesn't start at zero to better show the change. The graph shows the 4-week average, not the weekly occupancy rate.

On a 4-week basis, occupancy is up 7.9% compared to last year (the worst year since the Great Depression) and 3.9% below the median for 2000 through 2007.

The occupancy rate is just below the levels of 2008 - but 2008 was a tough year for the hotel industry!

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

Here is a graph from the Council of Foreign Relations blog: Greek Debt Crisis – Apocalypse Later

Click on graph for larger image in new window.

This graph from Paul Swartz at the CFR shows the default probabilities on three different dates:

On April 30th, no European plan was yet in place to address the ballooning Greek debt, and default was considered a real possibility in the short term. On May 11th, just after the European Stabilization Mechanism (ESM) was announced, markets sharply cut their view on the odds of default across all time horizons. ... On September 1st, the market’s view of the probability of default within two years was lower than before the ESM was announced, but higher over longer time frames.

So initially the policy response lowered the default probabilities across all time frames (from red to light blue), but now - after further analysis - the default probabilities have increased for longer time frames (green).

From the NAR: Pending Home Sales Rise

The Pending Home Sales Index ... rose 5.2 percent to 79.4 based on contracts signed in July from a downwardly revised 75.5 in June, but remains 19.1 percent below July 2009 when it was 98.1. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, cautioned that there would be a long recovery process. “Home sales will remain soft in the months ahead ..."

This suggests a small increase in existing home sales in September (reported when transactions close), but this also suggests double digit months of supply for some time.

The DOL reports on weekly unemployment insurance claims:

In the week ending Aug. 28, the advance figure for seasonally adjusted initial claims was 472,000, a decrease of 6,000 from the previous week's revised figure of 478,000. The 4-week moving average was 485,500, a decrease of 2,500 from the previous week's revised average of 488,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 2,500 to 485,500.

Claims for last week were revised up from 473,000 to 478,000. So the level this week is about the same as initially reported last week.

The current level of the 4-week average suggests a weak job market.

Note: The number of filings is volatile month to month - and August is frequently a bit lower than July.

From the American Bankruptcy Institute: August Consumer Bankruptcy Filings fall 8 Percent this Month

The 127,028 consumer bankruptcies filed in August represented a 8 percent decrease nationwide over the 137,698 filings recorded in July 2010, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). Though a decrease from the previous month, NBKRC’s data also showed that the August 2010 consumer filings represented a 6 percent increase from the 119,874 consumer filings recorded in August 2009. ...

“While monthly filings are volatile, consumer bankruptcies are still the highest they have been since Congress overhauled the bankruptcy law in 2005,” said ABI Executive Director Samuel J. Gerdano. “Consumer filings remain on track to top 1.6 million filings in 2010.”

Click on graph for larger image in new window.

This graph shows the non-business bankruptcy filings by quarter using monthly data from the ABI and previous quarterly data from USCourts.gov.

In 2005 the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" was enacted. Since then the number of bankruptcy filings has increased steadily.

Based on an estimate from Autodata Corp, light vehicle sales were at a 11.47 million SAAR in August. That is down 18.9% from August 2009 (cash-for-clunkers), and down 0.5% from the July sales rate.

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for August (red, light vehicle sales of 11.47 million SAAR from Autodata Corp).

The high for the year was in March, and sales have moved mostly sideways since then.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current month sales rate. The current sales rate is still below the bottom of the '90/'91 recession - when there were fewer registered drivers and a smaller population.

This was below most forecasts of around 11.6 million SAAR.

The Institute for Supply Management reported this morning that the PMI increased to 56.3 from 55.5 in July. Expectations were for a decrease to 53.0.

Click on graph for larger image in new window.

Here is an update to the graph showing the regional Fed manufacturing surveys and the ISM index through August.

The Fed surveys suggested that the ISM index would probably decline, but the relationship is noisy. Based on this graph I'd expect either the Fed surveys to bounce back in September - or the ISM to decline.

Here is a long term graph that hopefully puts the uptick in August in perspective.

In addition to the increase in the PMI, the production index increased to 59.9 from 57.0, and the employment index increased from 58.6 in July to 60.4. That suggests increased manufacturing employment in August.

However the new orders index declined in August to 53.1 from 53.5 in July (still expanding, but at a slower pace). And the inventory index was up for the 2nd month in a row to 51.4.

This report was somewhat better than expected, but I still expect the index to decline over the next couple of months.

Note: Sales in August 2009 were boosted by "Cash-for-clunkers".

From MarketWatch: GM August U.S. sales down 24.9% to 185,176 units

General Motors Co. said Wednesday that U.S. sales in August slumped 24.9% to 185,176 vehicles from 246,479 in August 2009.

Note: in August 2009 U.S. light vehicle sales were 14.1 million (SAAR). This was related to "Cash-for-clunkers" - also General Motors emerged from bankruptcy on July 10, 2009.

I'll add reports from the other major auto companies as updates to this post.

Update1: From MarketWatch: Ford U.S. August sales slide 10.7% to 157,503

From MarketWatch: Chrysler U.S. August sales rise 7% to 99,611 units

NOTE: Once all the reports are released, I'll post a graph of the estimated total August light vehicle sales (SAAR: seasonally adjusted annual rate) - usually around 4 PM ET. Most estimates are for an increase to 11.6 million SAAR in August from the 11.5 million SAAR in July.

Note: the ISM PMI increased to 56.3 from 55.5 in July (I'll have more later).

Overall construction spending decreased in July.

Click on graph for larger image in new window.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

From the Census Bureau: July 2010 Construction at $805.2 Billion Annual Rate

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2010 was estimated at a seasonally adjusted annual rate of $805.2 billion, 1.0 percent (±1.4%)* below the revised June estimate of $813.1 billion. The July figure is 10.7 percent (±1.8%) below the July 2009 estimate of $901.2 billion.
...
Spending on private construction was at a seasonally adjusted annual rate of $506.4 billion, 0.8 percent (±1.3%)* below the revised June estimate of $510.7 billion. Residential construction was at a seasonally adjusted annual rate of $240.3 billion in July, 2.6 percent (±1.3%) below the revised June estimate of $246.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $266.1 billion in July, 0.8 percent (±1.3%)* above the revised June estimate of $264.0billion.

Private residential construction spending has turned down again - after the tax credit expired - and residential investment (RI) will be a drag on Q3 GDP. The "good" news is the overall drag from RI will be much smaller than during 2006, 2007 and 2008.

ADP reports:

Private sector employment decreased by 10,000 from July to August on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from June to July was revised down slightly, from the previously reported increase of 42,000 to an increase of 37,000.

The decline in private employment in August confirms a pause in the recovery already evident in other economic data.
...
Unlike the estimate of total establishment employment to be released on Friday by the Bureau of Labor Statistics (BLS), today’s figure does not include the effects of federal hiring — and now firing — for the 2010 Census.

Note: ADP is private nonfarm employment only (no government jobs).

The consensus was for ADP to show an increase of about 20,000 private sector jobs in August, so this was below consensus.

The BLS reports on Friday, and the consensus is for a decrease of 90,000 payroll jobs in August, on a seasonally adjusted (SA) basis, with the loss of around 116,000 temporary Census 2010 jobs (+26,000 ex-Census).

The MBA reports: Mortgage Applications Increase as Rates Hit New Low in MBA Weekly Survey

The Refinance Index increased 2.8 percent from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 1.8 percent from one week earlier.
...
"Refinancing activity picked up again last week, reaching new 15-month highs, as borrowers took advantage of even lower mortgage rates. The drop in mortgage rates was in line with Treasury rates as the latest data continue to show weak economic growth and an exceptionally weak housing market," said Michael Fratantoni, MBA's Vice President of Research and Economics. "The sharp decline in MBA's Purchase Application index in May had provided a clear leading indicator of the drops in new and existing home sales that were reported for June and July. Despite the slight increase in purchase activity in the past week, the continued low level of purchase applications indicates we are unlikely to see an increase in new home sales reported for August or existing home sales reported for September."
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.43 percent from 4.55 percent, with points increasing to 1.34 from 0.89 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The contract rate is a new low for this survey.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 2002.

Usually I start the graph in January 1990, but this shorter term graph shows that the purchase index has been moving sideways since May of this year.

As the MBA's Fratantoni noted, this suggests existing home sales in August and September will be around the same level as in July.

Tom Lawler reports that at the end of August, listings on Realtor.com totaled 4,007,860, down 0.7% from 4,038,133 at the end of July. This is 2.5% above August 2009.

The NAR reported inventory at 3.98 million at the end of July, and at 3.924 million in August 2009. So they will probably report inventory at close to 4 million for August.

Since sales probably only increased slightly in August, the months-of-supply metric will be in double digits again in August and probably still over 12 months.

Note: there is a seasonal pattern for existing home inventory. Usually inventory peaks in July and declines slightly through October - and then declines sharply at the end of the year as sellers take their homes off the market for the holidays.

This is one of several industry specific indexes I track each month.

Click on graph for larger image in new window.

Same store sales and customer traffic both declined in July (on a year-over-year basis). This is the fourth consecutive month of declines.

Unfortunately the data for this index only goes back to 2002.

Note: Any reading above 100 shows expansion for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain in July as Restaurant Performance Index Remains Essentially Flat

As a result of soft sales and traffic levels and a deteriorating outlook among restaurant operators, the National Restaurant Association’s comprehensive index of restaurant activity remained essentially flat in July. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.4 in July, down 0.1 percent from June and its fourth consecutive decline. In addition, the RPI stood below 100 for the third consecutive month, which signifies contraction in the index of key industry indicators.
...
Restaurant operators reported negative same-store sales for the fourth consecutive month in July, with the overall results similar to the June performance.
...
Restaurant operators also reported a net decline in customer traffic levels in July.
...
Restaurant operators have become less optimistic about their prospects for sales growth in recent months.
emphasis added

Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.

From the Fed: Minutes of the Federal Open Market Committee

Economic outlook:

Members still saw the economic expansion continuing, and most believed that inflation was likely to stabilize near recent low readings in coming quarters and then gradually rise toward levels they consider more consistent with the Committee's dual mandate for maximum employment and price stability. Nonetheless, members generally judged that the economic outlook had softened somewhat more than they had anticipated, particularly for the near term, and some saw increased downside risks to the outlook for both growth and inflation. Some members expressed a concern that in this context any further adverse shocks could have disproportionate effects, resulting in a significant slowing in growth going forward. While no member saw an appreciable risk of deflation, some judged that the risk of further near-term disinflation had increased somewhat. More broadly, members generally saw both employment and inflation as likely to fall short of levels consistent with the dual mandate for longer than had been anticipated.

And on policy:

All but one member concluded that it would be appropriate to begin reinvesting principal received from agency debt and MBS held in the SOMA by purchasing longer-term Treasury securities in order to keep constant the face value of securities held in the SOMA and thus avoid the upward pressure on longer-term interest rates that might result if those holdings were allowed to decline. Several members emphasized that in addition to continuing to develop and test instruments to facilitate an eventual exit from the period of unusually accommodative monetary policy, the Committee would need to consider steps it could take to provide additional policy stimulus if the outlook were to weaken appreciably further. Given the softer tone of recent data and the more modest near-term outlook, members agreed that some changes to the statement's characterization of the economic and financial situation were necessary.

Not much new ...

As we've discussed for some time, the Case-Shiller index is seriously lagged to real time data. The release today was for "June", but it is really an average of April, May and June.

Home sales were strong in April, May and June, and then collapsed in July. And prices have probably been falling for two months now - but that won't show up in Case-Shiller until the end of next month or even October (the Case-Shiller release at the end of October will be for June, July and August).

Note: The title for this post is from Rolfe Winkler at the WSJ's Heard on the Street (last week): Housing's Witching Hour

[T]he S&P/Case-Shiller home-price index ... could be set for another leg down. The index is computed using a three-month rolling average, meaning last month's weakness really should assert itself in late October.

RadarLogic released a statement today: As Predicted, June S&P/Case-Shiller Home Price Indices Overstate Housing Market Strength

[T]he latest S&P/Case-Shiller home price indices show healthy improvement in home prices while other housing market indicators, including the RPX Composite price, show that housing markets are starting to weaken.

... We believe that these figures overstate the current strength of the U.S. housing markets. As we reported in this month’s RPX Monthly Housing Market Report, the RPX 25-MSA Composite Price declined 0.2% through the end of June on a year-over-year basis. ...

The conflict between the strength expressed in the S&P/Case-Shiller indices and the weakness apparent in other housing market indicators likely arises from the fact that the S&P/Case-Shiller indices are calculated using data from transactions that occur over a three-month period. As a result, the indices smooth over recent price movements and can take a number of months to reflect price fluctuations.

... Our concern is that, as we saw in spring 2009, the only effective stimulus of new housing demand will prove to be a precipitous decline in home prices. Our current analysis shows early signs that such a dynamic is approaching.

The CoreLogic repeat sales index showed prices were flat from May to June (CoreLogic uses a weighted 3 month average and picks up the trend change a little quicker than Case-Shiller).

The FDIC released the Q2 Quarterly Banking Profile today.

The FDIC listed 829 banks with $403 billion in assets as “problem” banks in Q2, up from 775 banks in Q1 2010, but the total assets declined from $431 billion in assets in Q1 2010.

There were 702 banks with $403 billion in assets on the list at the end of 2009.

Note: Not all problem banks will fail - and not all failures will be from the problem bank list - but this shows the problem is significant and still growing.

The Unofficial Problem Bank List shows 840 problem banks with $410 billion in assets - the difference is timing of releases of formal actions (or hints of pending actions).

Click on graph for larger image in new window.

This graph shows the number of FDIC insured "problem" banks since 1990.

All data is year end except Q1 2010.

The 829 problem banks reported at the end of Q2 is the highest since 1992.

The FDIC is just behind the pace for 1,000 problem banks by the end of the year, although it also depends on how many banks are removed from the list.

On the Deposit Insurance Fund: The fund had an ending balance of -$15.2 billion at the end of Q2, an improvement from -$20.7 billion at the end of Q1. However the fund has plenty of cash because of the prepaid assessments last year - but those assessments will not be accounted for until they were originally due.

IMPORTANT: These graphs are Seasonally Adjusted (SA). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These distortions could include distressed sales and the various government programs.

S&P/Case-Shiller released the monthly Home Price Indices for June (actually a 3 month average of April, May and June).

This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities) and the quarterly national index.

From S&P: For the Past Year Home Prices Have Generally Moved Sideways

Data through June 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter. Nationally, home prices are 3.6% above their year-earlier levels. In June, 17 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up; and the two composites and 15 MSAs showed year-over-year gains. Housing prices have rebounded from crisis lows, but other recent housing indicators point to more ominous signals as tax incentives have ended and foreclosures continue.

Click on graph for larger image in new window.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 29.0% from the peak, and up 0.3% in June (SA).

The Composite 20 index is off 28.4% from the peak, and up 0.3% in June (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 is up 5.0% compared to June 2009.

The Composite 20 is up 4.2% compared to June 2009.

This is the fifth month with YoY price increases in a row.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 9 of the 20 Case-Shiller cities in June seasonally adjusted.

Prices in Las Vegas are off 56.5% from the peak, and prices in Dallas only off 4.8% from the peak.

Prices are probably falling right now (starting in July), but this will not show up in the Case-Shiller index for a few months since this an average of three months.

Usually I just post the bond spreads in Europe, but I think this excellent tool from Bloomberg shows visually what is happening with bond yields in Europe.

Click on graph for larger image in new window.

You can click here for the graph for the Greece 10 year bond yields. Then you can add other bonds for comparison.

This is a 3 year graph from Bloomberg.

Where it says "Add a comparison" you can enter the symbols for Germany (GDBR10:IND) and then Ireland (GIGB10YR:IND) to create this graph.

Here are the symbols for Portugal (GSPT10YR:IND) and Spain (GSPG10YR:IND) too (not graphed). Nemo has links for more countries on the sidebar of his site.

Starting in 2008 the bond yields started to separate - with Greece and Ireland paying more. Then in May of this year, the situation reached crisis levels. And now the spreads are steadily widening again - as the German bond yields have fallen recently (like the U.S. yields) and the Irish and Greek bond yields have been increasing.

From the Press Briefing by Press Secretary Robert Gibbs

Q: A lot of folks have been talking about the first-time homebuyers tax credit sort of propping up the housing market. Is that one of these new measures that he might be considering?

MR. GIBBS: Look, obviously, there was -- that was something that was done originally. I don't -- while I have not see, obviously, a final list, that is -- I think bringing that back is not on -- is not as high on the list as many other things are.

And a "hoocoodanode" moment too:

Q: In retrospect, was the stimulus too small?

MR. GIBBS: Look, we always -- I think it makes sense to step back just for a second. If you look at -- and I don't think anybody had -- and I think we’d be the first to admit that nobody had, in January of 2009, a sufficient grasp at the sheer depth of what we were facing. I think that's, quite frankly, true for virtually every economist that made predictions.

How about Christina Romer (
the chair of the Council of Economic Advisers)? From Ryan Lizza at the New Yorker:

At the December [2008] meeting, it was Romer’s job to explain just how bad the economy was likely to get. “David Axelrod said we have to have a ‘holy-shit moment,’ ” she began. “Well, Mr. President, this is your ‘holy-shit moment.’ It’s worse than we thought.” She gave a short tutorial about what happens to an economy during a depression, what happened during previous severe recessions, and what could happen if the Administration didn’t act. She showed PowerPoint slides emphasizing that the situation would require a bold government response.
...
The most important question facing Obama that day was how large the stimulus should be. Since the election, as the economy continued to worsen, the consensus among economists kept rising. ... Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion.

So Romer thought the right size was probably about double what was actually enacted (excluding the Alternative Minimum Tax relief).

CR Note: Here are economist Tom Lawler's thoughts on HUD Secretary Shaun Donovan comments this weekend ...

In an interview with CNN over the weekend, HUD Secretary Donovan noted that the July plunge in home sales following the end of the federal home buyer tax credit was much sharper than the administration expected; that the administration was “very concerned,” and would “do everything we can” to stabilize the shaky housing market. While he said that “it's too early to say after one month of numbers whether the tax credit will be revived or not,” he also said that "we're going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers."

Many folks appear to have interpreted Donovan’s remarks as meaning that the administration has not “ruled out” reviving the home buyer tax credit if home sale continue to be weaker than expected, thus confirming some potential home buyers’ views that it’s better to wait to buy a home until the government “does it again.” While follow-ups by CNBC got a comment from a HUD spokesperson that there was “(n)o news here … there are no discussions underway to revive the credit,” in fact to some potential home buyers there was in fact news: the administration’s housing spokesperson said that if housing remains weak, the administration may revive the federal home buyer tax credit!!! CNBC even speculated that the next one might include a credit not just for “first time/move-up (sic) buyers, but a credit for buyers purchasing foreclosed properties or short sales” as well (though CNBC gave no supporting evidence for such a move, and I’m guessing they “made this up.”).

As best as I can tell Secretary Donovan was in New Orleans giving interviews on the “Katrina” anniversary, but CNN’s reporter focused first on housing and the possibility of a “double dip.” and Donovan appeared to be “winging it.”

Nevertheless, Donovan’s comments, and the press reports that followed, could well lead many a prospective home buyer to hold off on buying a home because another tax credit might be coming – which, of course, would lead to weaker than otherwise home sales, which Donovan implied might lead the administration to consider reviving the home buyer tax credit!!!!!! A few realtors and home builders have noted that a few potential buyers have already been citing the possibility of a “revival” of the tax credit as a reason for them “holding off” buying now.

The home buyer tax credit, of course, was an enormously costly and inefficient program where many home buyers who would have purchased a home anyway got a tax credit for doing so. Estimates vary, but the 2009-2010 tax credits probably will “cost” the government in terms of lost revenue somewhere in the neighbor of $26-28 billion. While to some that might not seem like “a lot,” it’s about equal to the combined SF REO carrying value of Fannie, Freddie, and FHA (the latter of which I am estimating)!!! Imagine if the government, rather than enacting yet another costly and ineffective tax credit, instead spent a fraction of the probable cost on more effective REO management, including perhaps a program to rehab and rent out such properties instead of “dumping ‘em” on the market!

Already there are news headlines along the lines of “Homebuyer Tax Credit Back in Play?,” “Another Home Buyer Tax Credit?, and “A Revival of the Homebuyer Tax Credit?,” and right after Donovan’s interview two (whacky) Florida Senate candidates both said they would heartily support a home buyer tax credit “revival.”

If in fact there is “no news here” – and good God I hope administration officials realize that giving potential home buyers the notion that a home buyer tax credit MIGHT be revived will absolutely and unequivocally depress home sales over the next several months – the administration should have Donovan or another HUD spokesperson explicitly state that there is no plan to revive the home buyer tax credit in the foreseeable future – and they should do this SOON!!!!

CR Note: This was from economist Tom Lawler.

Last night I posted some comments from HUD Secretary Shaun Donovan. From CNN's "State of the Union" transcript:

[CNN's Ed] HENRY: Is that housing credit now dead? Or does the administration think you should try to revive it to try to prop this industry up?

DONOVAN: Look, Ed, I think it's too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully.

Diana Olick at CNBC contacted HUD today: Another Home Buyer Tax Credit?

[A] HUD spokesperson ... responded: "No news here...there are no discussions underway to revive the credit."

Hopefully the tax credit is done.

Now that all the regional Fed manufacturing surveys for August have been released, here is an update to the graph I posted last week:

Click on graph for larger image in new window.

For this graph I averaged the New York and Philly Fed surveys (dashed green), and averaged five surveys including New York, Philly, Richmond, Dallas and Kansas City (blue).

The Institute for Supply Management (ISM) PMI (red) is through July (right axis).

ISM PMI for August will be released on Wednesday at 10 AM ET. The consensus is for a decline to 53.0 from 55.5 in July.

Based on the regional surveys, it appears that the PMI will decline in August - but will probably still be above 50 (indicating expansion in August).

From the Dallas Fed: Texas Manufacturing Activity Still Weak

Texas factory activity was unchanged in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, came in at zero, posting a third consecutive month of little to no growth.

Most other indexes for current activity remained negative in August. The new orders index stayed at –9, implying incoming orders continue to fall. The capacity utilization and shipments indexes pushed deeper into negative territory, suggesting further contraction of business.
...
The employment index turned negative for the first time in six months, largely due to the share of firms reporting layoffs rising from 15 percent in July to 23 percent in August, and hours worked contracted again.

This is the last of the regional Fed surveys for August, and they all showed manufacturing slowing or even contracting.

The national ISM manufacturing survey will be released on Wednesday.

From the BEA: Personal Income and Outlays, April 2010

Personal income increased $30.0 billion, or 0.2 percent ... Personal consumption expenditures (PCE) increased $44.1 billion, or 0.4 percent
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in July, compared with an increase of 0.1 percent in June.
...
Personal saving as a percentage of disposable personal income was 5.9 percent in July, compared with 6.2 percent in June.

Click on graph for large image.

This graph shows real personal income less transfer payments since 1969.

This measure of economic activity is moving sideways - similar to what happened following the 2001 recession.

This month the saving rate decreased slightly ...

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the July Personal Income report. The saving rate decreased to 5.9% in July from 6.2% in June (flat at 6.1% using a three month average).

I expect the saving rate to rise further - perhaps to 8% or more.

The increase in income was good news, but personal income less transfer payments are still only 1.2% above the low of last year - and still 5.5% below the pre-recession peak.

From Reuters: No Decision on Reviving Homebuyer Credit: Donovan

"It's too early to say whether the tax credit will be revived," Donovan said in an interview on CNN's "State of the Union" program. He said the administration would "do everything we can" to stabilize the shaky U.S. housing market.

The problem in housing is there is too much supply (at the current price). Incentivizing people to buy existing homes just shuffles households around - it does NOT reduce the overall supply unless the buyer is moving out of their parent's basement. I doubt that happened very often. Note: It is important to remember that rental units are part of the overall supply, so moving people from a rental unit to homeownership doesn't help.

And if the tax credit leads to more new home sales - that ADDS to the excess supply. And that makes the situation WORSE.

It would be far better for housing and the economy to announce "There will be no further housing tax credits."

Earlier today:

Summary for Week ending August 28th (a busy week!)

Schedule for Week of August 29th

This is a something we've been watching for some time ...

From Lauren Beale at the Los Angeles Times: Foreclosures of million-dollar-plus homes on the rise

Although the pace of foreclosures has slowed in the general housing market in Southern California and much of the nation, it's still rising for upper-tier homes.

The number of homes in the $1-million-and-up slice of the market that have become bank owned has tripled in the second quarter compared with the same period three years earlier in Los Angeles County, which has the majority of Southern California's high-priced REO houses. And the trend has shown little sign of slowing, according to data from ForeclosureRadar.
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"We believe the high end is ready to fall apart," [Bryan Ochse of Media West Realty in Burbank, which works with 11 lending institutions and specializes in REO sales] said.

Earlier today:

Summary for Week ending August 28th (a busy week!)

Schedule for Week of August 29th

This will be another busy week - the August employment report on Friday is the key economic release this week.

The previous post is the summary of last week.

----- Monday Aug 30th -----
8:30 AM ET: Personal Income and Outlays for July 2010. The consensus is for a 0.3% increase in both income and spending (compared to June). The core PCE Price Index is expected to increase 0.1%.

10:30 AM Dallas Fed Manufacturing Survey for August. The consensus is for a decrease in the index to flat (neither expanding or contracting) from 5 last month. These regional surveys are important now since it appears manufacturing is slowing (or contracting like the Philly Fed survey showed).

----- Tuesday Aug 31st -----
9:00 AM: S&P/Case Shiller Home Price Index for June (3 month average). The consensus is for prices to be mostly flat in the June report.

9:45 AM Chicago Purchasing Managers Index (PMI) for August. The consensus is for a decline to 56.0 from 62.3 in July.

10:00 AM Consumer confidence index from the Conference Board for August. The consensus is for a slight increase to 51.0 from 50.4.

2:00 PM: FOMC Minutes, Meeting of August 10, 2010

----- Wednesday Sept 1st -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been fairly flat over the last couple of months - suggesting reported existing home sales in August will not be much stronger than in July.

8:15 AM: ADP Employment Report for August. This report is for private payrolls only (no government). The consensus is for +20,000 payroll jobs in August, down from +42,000 in July.

10:00 AM: ISM Manufacturing Index for August. The regional Fed reports suggest a decline in the ISM manufacturing index. The consensus is for a decline to 53.0 from 55.5 in July.

10:00 AM: Construction Spending for July. The consensus is for a 0.6% decline in spending.

4:00 PM (approx): Light Vehicle Sales for August. The various manufacturers will report August sales in the morning. Usually around 4 PM I post an estimate of SAAR for the month. The consensus is for sales of 11.6 million, about the same as in July.

NOTE: There is a conference on Wednesday and Thursday in Washington, D.C. at the Federal Reserve: Federal Reserve REO and Vacant Properties Summit

----- Thursday Sept 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. Consensus is for a slight decrease to 470K from 473K last week. The increase in weekly claims is very concerning and the 4-week average is at the highest level since last November.

8:30 AM: Nonfarm Productivity for Q2 (Final)

10:00 AM: Manufacturers' Shipments, Inventories and Orders for July.

10:00 AM: Pending Home Sales Index for July. The consensus is for a slight increase (about 1.5%) in contracts signed. This index declined 2.6% in June (after collapsing in May). It usually takes 45 to 60 days to close, so this will provide an early indication of closings in September.

----- Friday Sept 3rd -----
8:30 AM: Employment Report for August. The consensus is for about a loss of 90,000 payroll jobs, with 116,000 fewer Census jobs, or about +26,000 ex-Census increase in payrolls. The consensus is for the unemployment rate to increase slightly to 9.6% from 9.5% in July. For a preview, see: Will the unemployment rate spike higher?

10:00 AM: ISM Non-manufacturing Index for August. The consensus is for a decrease in the service index to 53.0 from 54.3 in July.

After 4:00 PM: The FDIC will probably have another busy Friday afternoon ...

----- Likely, but not scheduled -----
Expected early in the week: Q2 Quarterly Banking Profile from the FDIC.

Expected on Thursday: August Personal Bankruptcy Filings

It was a busy week ...

Existing Home Sales lowest since 1996, 12.5 months of supply

The NAR reported:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.
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Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June.

Click on graph for larger image in new window.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July 2010 (3.83 million SAAR) were 27.2% lower than last month, and were 25.5% lower than July 2009 (5.14 million SAAR).

The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Although inventory increased from June 2010 to July 2010, inventory decreased 1.9% YoY in July. The slight year-over-year decline is probably because some sellers put their homes on the market in the Spring hoping to take advantage of the home buyer tax credit.

Note: Usually July is the peak month for inventory.

A normal housing market usually has under 6 months of supply. The following graph shows the relationship between supply and house prices (using Case-Shiller).

This graph show months of supply (through July 2010) and the annualized change in the Case-Shiller Composite 20 house price index (through May 2010).

Below 6 months of supply (blue line) house prices are typically rising (black line).

Above 6 or 7 months of supply, house prices are usually falling. This isn't perfect - it is just a guideline. This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes.

New Home Sales decline to Record Low in July

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 276 thousand. This is an decrease from the record low of 315 thousand in June (revised down from 330 thousand).

This graph shows New Home Sales vs. recessions for the last 47 years.

And another long term graph - this one for New Home Months of Supply.

Months of supply increased to 9.1 in July from 8.0 in June. The all time record was 12.4 months of supply in January 2009. This is still very high (less than 6 months supply is normal).

The 276 thousand annual sales rate for July is the all time record low (May was revised up a little). This was another very weak report. New home sales are important for the economy and jobs - and this indicates that residential investment will be a sharp drag on GDP in Q3.

MBA Q2 2010: 14.42% of Mortgage Loans Delinquent or in Foreclosure

Here is my post on the MBA Q2 delinquency report: 14.42% of Mortgage Loans Delinquent or in Foreclosure . This graph (from the earlier post) shows the delinquency rate by "bucket" (30 days, 60 days, 90+ days, and in foreclosure process):

The total percent of loans delinquent or in the foreclosure process declined only slightly in Q2 from Q1 - and the rate is the second highest on record.

Loans 30 days delinquent increased to 3.51%, and this is about the same levels as in Q4 2008 (slightly below the peak of 3.77% in Q1 2009).

Delinquent loans decreased in all other buckets - especially in the 90+ day bucket. MBA Chief Economist Jay Brinkmann suggested the decline in the 90+ day bucket was because of some successful modifications - since the lenders reported the loans as delinquent until the modification was made permanent.

The second graph shows the delinquency rate by state (red is seriously delinquent: 90+ days or in foreclosure, blue is delinquent less than 90 days).

Clearly Florida and Nevada have a large percentage of loans delinquent or in foreclosure. But the delinquency problem is widespread with 36 states and D.C. all having total delinquency rates above 10%.

With house prices falling - and growth slowing - the delinquency rate will probably increase later this year.

CoreLogic: 11 Million U.S. Properties with Negative Equity in Q2

Here is my post CoreLogic: 11 Million U.S. Properties with Negative Equity in Q2

This graph shows the negative equity and near negative equity by state.

Although Nevada, Arizona, Florida, Michigan and California, have the largest percentage of homeowners underwater, there is a negative equity problem in most states. In 33 states and the D.C., 10 percent or more of homeowners with mortgages have negative equity.

Other Economic Stories ...

From Fed Chairman Ben Bernanke: The Economic Outlook and Monetary Policy

BEA: Q2 real GDP revised down to 1.6% annualized growth rate

Estimate of Decennial Census impact on August payroll employment: minus 116,000

From Jon Hilsenrath at the WSJ on the debate at the August FOMC meeting: Fed Split on Move to Bolster Sluggish Economy

From the Richmond Fed: Manufacturing Growth Continued to Ease in August; Expectations Drifted Lower

Kansas City Fed: Manufacturing activity slowed in August

From MarketWatch: S&P downgrades Ireland on financial sector cost

The Department of Transportation (DOT) reported that vehicle miles driven in June were up 1.3% compared to June 2009.

ATA: "Truck freight tonnage has essentially gone sideways since April 2010"

Unofficial Problem Bank List increases to 840 institutions

Best wishes to all.

A couple of earlier post that might be of interest:

Employment Report Preview: Will the unemployment rate spike higher?

Unofficial Problem Bank List increases to 840 institutions

From Peter Goodman at the NY Times: What Can Be Done to Cure the Ailing Economy?

THE American economy is once again tilting toward danger. ...

Yet even as vital signs weaken ... a sense has taken hold that government policy makers cannot deliver meaningful intervention. That is because nearly any proposed curative could risk adding to the national debt — a political nonstarter. The situation has left American fortunes pinned to an uncertain remedy: hoping that things somehow get better.
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The growing impression of a weakening economy combined with a dearth of policy options has reinvigorated concerns that the United States risks sinking into the sort of economic stagnation that captured Japan during its so-called Lost Decade in the 1990s.
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Six months ago, Alan Blinder, a former vice chairman of the Federal Reserve, and now an economist at Princeton, dismissed the idea that America’s political system would ever allow the country to sink into a Japan-style quagmire. “Now I’m looking at the political system turning itself into a paralyzed beast,” he says, adding that a lost decade now looms as “a much bigger risk.”
...
By default, muddling through has emerged as the prescription of the moment.

"Muddling through" and "hoping that things somehow get better" seems very defeatist - but I think it is an apt characterization of the current situation. There is always more that can be done ... and I think some people are confusing cyclical deficits with structural deficits. Oh well ...