Economic and Housing Related News

[tony bagadonuts]

Big Ben Chimes Again

Don't fight the Fed. That popular saying last week was especially evident, as Fed Chairman Ben Bernanke's testimony on Capitol Hill had quite an impact on the markets.

Last week, Fed Chairman Ben Bernanke gave his semi-annual testimony in front of the House Financial Services Committee and his assessment of the economy, labor market and housing market was unchanged - highlighting that conditions remain sluggish, uneven and fragile. But the biggest takeaway was that he made no mention of another round of Bond buying or Quantitative Easing (QE3).

This clearly disappointed virtually all the markets as both Bonds and Stocks closed lower the day he spoke. So here's an important question to ask: Is the economy strong enough to keep the Fed from pumping any more money (QE3) into the economy? While the economy has improved on many fronts, it is still fragile and it would not take much for growth to slow...meaning more Fed intervention would be needed. For instance, high oil prices, a worsening situation in Europe or China, and escalating concerns in Iran could all cause our economy to slow.

One thing is for sure - the incoming economic data over the next couple weeks and months will be very important to follow for signs of continued economic improvement or potential slowing. One important factor to note from last week: inflation, as measured by the Core Personal Consumption Expenditure (PCE), rose by 0.2% in January, while the year-over-year Core PCE climbed to 1.9% and just beneath the Fed's upper target of 2%. Seeing inflation rise, even though the Fed continues to say it is moderating, is a concern. With Core PCE just beneath the Fed's desired target, upcoming readings will play an important role in how long the Fed continues its accommodative policy and any chance of more easing, QE3.

The most important thing to take away is that home loan rates still remain near historic lows, and now continues to be a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Several important economic reports will be released this week, especially Friday's Jobs Report for February.

The ISM Services Index will be released on Monday. This report comes after the weaker-than-expected ISM Manufacturing Index last week, so the markets will be watching it closely. After all, the service sector makes up about 70% of the U.S. job market!

The private ADP Employment Report will be delivered on Wednesday.

Another important report this week will be the Productivity Report on Wednesday. This report measures the number of hours it takes to produce a good in a factory. In the service sector, it is measured based on the revenue generated by an employee divided by one's salary.

As usual, Initial Jobless Claims will be released on Thursday. The number of Americans claiming first-time benefits has dropped in the past few months. Will the trend continue? We'll find out Thursday.

Last but not least is Friday's closely watched monthly official Jobs Report. January's report showed that 243,000 new jobs were created. This is a blockbuster report that always has the potential to move the markets!

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

When you see these Bond prices moving higher, it means home loan rates are improving - and when they are moving lower, home loan rates are getting worse.

[tony bagadonuts]

227K Jobs Created in February

According to the U.S. Department of Labor, nonfarm payroll employment increased 227,000 in the month of February. This marks the third straight month nonfarm payrolls have been above 200,000. Another positive sign in the report were the upward revisions for January and December. January gains were revised up 41,000, while December was revised up 20,000.

Nonfarm payrolls measure the number of people on the payrolls of all non-agricultural businesses and is released on the first Friday of every month.

[NaturalBornHustler]

NEW YORK (CNNMoney) -- The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv's chief economist.

Should home values meet Fiserv's expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33%before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

Now that the scandal is mostly resolved, lenders are speeding more cases through the foreclosure pipeline and back onto the market, weighing on home prices even further.

Earlier this month, RealtyTrac reported the first quarterly increase in foreclosure filings in three quarters. Even more discouraging: new default notices were up 14%.

There's also a "shadow inventory" of homes in foreclosure that have yet to go back onto the market.

The specter that those foreclosed homes could flood the market at any time and drive prices significantly lower is a huge concern, said Mark Dotzour, an economist for Texas A&M University. "That's the elephant in the room," he said, noting that there are 6 million home currently in shadow inventory.

[lewfather]

http://forecasts.org/fha.htm

[tony bagadonuts]

Retail Sales Increase


February retail sales increased by 1.1% from January according to the U.S. Census Bureau. This is the largest monthly increase in retail sales since the 1.3% increase from August to September 2011. Year-over-year, retail sales were up 6.5% from February 2011. For the period December 2011 through February 2012, retail sales were up 6.4% for the same period a year ago.

The retail sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. It is the most timely indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences. Retail sales include durable and nondurable merchandise sold, and services and excise taxes incidental to the sale of merchandise. Excluded are sales taxes collected directly from the customer. It also excludes spending for services, a large component of consumer expenditures. Retail sales is a the first picture of consumer spending for a given month.

[tony bagadonuts]

The song remains the same.

The title of that Led Zeppelin song is a great description for some of the things we're seeing lately in the Bond market. Read on for details, and what they mean for home loan rates.

First, several housing-related reports were released last week - and they show that the housing market continues to remain weak. Both Housing Starts and Building Permits came in meeting expectations. Existing Home Sales fell 0.9% in February to 4.59 million units (though that was nearly inline with expectations), while New Home Sales fell 1.6% in February, which was below expectations.

Perhaps the biggest takeaway from these reports is that they could cause the Fed to do another round of Bond buying (Quantitative Easing or QE3) under the guise of helping housing. The housing market remains fragile, and it can't absorb an uptick in rates just yet. It will be important to see if there are any rumors of QE3 in the coming days and weeks. Rest assured that the Fed has noticed the uptick in home loan rates and subsequent fall off in loan origination activity. This could certainly lead to another round of Bond buying, and as home loan rates are tied to Mortgage Bonds, as Bonds improve so will home loan rates.

Another thing that could help Bonds and home loan rates is renewed emphasis on safe haven trading. While global economic news has taken on a bit of a brighter tone lately, causing investors to move some of their money out of the safety of our Bonds, it's important to keep in mind that the debt crisis in Europe is far from over. Just last week, it was reported that Portugal's economy is set to contract by 3.3%, and it seems that it will be nearly impossible for Portugal to meet the tighter fiscal union rules and annual budget deficit targets. Also, Europe's Services and Manufacturing numbers contracted more than forecast...confirming that the region is moving into a recession.

It is important to note that while Stocks saw some declines last week, Bonds were unable to build any positive momentum. This is eye-opening and doesn't bode well for further price appreciation in Bonds. Whether the potential for QE3 or future safe haven trading helps Bonds and home loan rates in the future remains to be seen.

The bottom line is that home loan rates still remain near historic lows and now continues to be a great time to purchase or refinance a home.

Forecast for the Week

After last week's quiet economic release calendar, this week's calendar heats up.
•Pending Home Sales will be delivered on Monday and comes after last week's so-so reports on the housing sector.
•Consumer Confidence and Consumer Sentiment will be released on Tuesday and Friday, respectively. The data will be closely watched to gauge how the consumer is holding up as economic news has been on the positive side.
• Wednesday brings the Durable Goods Report, which measures big ticket items that last for an extended time.
•Initial Weekly Jobless Claims will be released on Thursday. Jobless claims fell to the lowest level since February of 2008 last week as the sector continues to breathe life into the economy.
• Also on Thursday, the final read for Gross Domestic Product for the 4th quarter of 2011 will be released. In order for the U.S. economy to strengthen, we will have to see sustained growth in the form of the GDP.
• Friday brings a bunch of reports, including Personal Income and Spending, as well as the Chicago Manufacturing Report.
• We'll also see the Core Personal Consumption Expenditures on Friday. This report provides insight into where inflation is at, so the data will be key to the Bond markets. As we know, higher inflation pushes Bond prices lower due to purchasing power loss that is associated with rising consumer prices. And, lower Bond prices can be bad news for home loan rates.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving - and when they are moving lower, home loan rates are getting worse.

IRS Warns of New Tax Scam

Senior citizens are the target of a phony refund scheme.
By Cameron Huddleston, Kiplinger.com.

The IRS is warning taxpayers to watch out for people promoting a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit. This credit is available to taxpayers who have qualified college expenses, but promoters of the new scheme claim they can get a refund based on the credit even for people who aren't enrolled in or paying for college.

Scam artists are targeting senior citizens, members of church congregations and people who have little or no income and normally aren't required to file a return, according to the IRS. Promoters of the scam often charge exorbitant upfront fees to file claims for nonexistent refunds.

The IRS already has stopped thousands of these fraudulent claims and is investigating the source of them. However, the IRS warns taxpayers to be aware of the following to avoid becoming a victim:

-Homemade flyers and brochures implying tax credits are available without proof of eligibility.
-Offers of free money with no documentation required.
-Promises of refunds for "Low Income - No Documents Tax Returns."
-Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
-Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
-Unsolicited offers to prepare a return and split the refund.
-Internet solicitations that direct individuals to toll-free numbers and then solicit Social Security numbers.

For more advice on how to avoid becoming a victim, see 5 Ways to Guard Against Tax Fraud.

Reprinted with permission. All Contents ©2012 The Kiplinger Washington Editors. Kiplinger.com.

[Avon Barksdale]

Always enjoy your posts and links in this thread and the one over at DD1.0.

What do you think about the student loan bubble?

http://www.zerohedge.com/news/first-...ays-delinquent

Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse.

Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current.

That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.
From Fitch:
Quote:
Fitch believes most student loan asset-backed securities (ABS) transactions remain well protected due to the government guarantee on Family Federal Education Program (FFELP) loans. The Federal Reserve Bank of New York recently reported that as many as 27% of all student loan borrowers are more than 30 days past due. Recent estimates mark outstanding student loans at $900 billion- $1 trillion. Fitch believes that the recent increase in past-due and defaulted student loans presents a risk to investors in private student loan ABS, but not those in ABS trusts backed by FFELP loans.
Why is the bubble starting to pop now?
Quote:
Several macroeconomic factors are putting pressure on student loan borrowers. The main ones are unemployment and underemployment. The Bureau of Labor Statistics estimates the current unemployment rate for people 20 to 24 years old at nearly 14% and for those 25 to 34 years old, 8.7%. Underemployment is difficult to measure for these demographics, but it is likely having a negative impact.
Actually, no: the unemployment for 18-24 year olds is 46%. Yup: 46%.

A month ago, Zero Hedge readers were stunned to learn that unemployment among Europe's young adults has exploded as a result of the European financial crisis, and peaking anywhere between 46% in the case of Greece all they way to 51% for Spain. Which makes us wonder what the reaction will be to the discovery that when it comes to young adults 18-24) in the US, the employment rate is just barely above half, or 54%, which just happens to be the lowest in 64 years.

[tony bagadonuts]

Legit concerns Avon, and when Bill Fitch speaks I listen.

Ultimately student loans are in a little bit of a different class in that they are not tied to any assets nor can they typically be discharged in bankruptcy (there are some exclusions to this general policy).

It will be much, much easier to modify student loans for repayment, and ultimately while I believe the concerns are justified, I also agree that much of the problem can be relieved by improved economic conditions.

Good post.

[Dan Druff]

I have no studies or tangible information to use to back this up, but my gut feeling says that the housing market isn't going to recover for a really long time.

It will probably stabilize in that it will stop falling, but don't expect your home to increase much in value for many years. Homeowners should be happy if their house is worth the same in 2017 as it is today. In many markets (such as Las Vegas), I doubt that will end up being true.

Perhaps in 10 years things will be different, but I think the best-case scenario at this point is a very slow, long-term recovery.

Definitely don't rush into buying a house right now unless you have a logistical reason to have to do so.

[Steve-O]

I have no studies or tangible information to use to back this up, but my gut feeling says that the housing market isn't going to recover for a really long time.

It will probably stabilize in that it will stop falling, but don't expect your home to increase much in value for many years. Homeowners should be happy if their house is worth the same in 2017 as it is today. In many markets (such as Las Vegas), I doubt that will end up being true.

Perhaps in 10 years things will be different, but I think the best-case scenario at this point is a very slow, long-term recovery.

Definitely don't rush into buying a house right now unless you have a logistical reason to have to do so.

Totally agree. In my area (in Massachusetts) the typical home prices have gone from $500k to $200-$250k; larger houses have taken even more of a hit, there are houses that were sold for $1 million not too long ago that you can't get $350k for now. Nobody who has lived through this is suddenly going to start spending $1 million on a house anytime soon knowing full well the bottom could fall out again. Housing is all about timing.

[Fergie72]

What is your take on this article?

http://www.forbes.com/sites/afonteve...t-around-2013/

How the hell do you just post the whole thing?

[Sitting Out]

Definitely don't rush into buying a house right now unless you have a logistical reason to have to do so.

And selling is equally as bad--I have 2 on the market now.

[Vwls]

I have no studies or tangible information to use to back this up, but my gut feeling says that the housing market isn't going to recover for a really long time.

This is absolutely correct, sir. More, it will never "recover" to the arbitrarily inflated state it was when I bought my house in 2005... perhaps that is a good thing.

I'd also like to mention that Obama failed miserably when it came to addressing the "legal crimes" committed in the housing market crash. Not only was no one held accountable, but millions more were doled out to the very same thieves who created the situation, and no independent body was created to oversee the use of the bailout funds or the federal programs created to "help homeowners." The banks have NOT used the moneys to assist "upside down" homeowners, but instead, continued to line their pockets, pay off their investors, and do everything possible to deny assistance to those who need it. They have consistently and stubbornly refuse to refinance under reasonable parameters, disqualifying more than 85% of those stricken by the crash for completely arbitrary reasons. This is truly a travesty and what makes it so unsettling is that the government is doing NOTHING to rectify it.

Luckily for me, there is no loss of faith. I have always known our government is corrupt.

[tony bagadonuts]

I have no studies or tangible information to use to back this up, but my gut feeling says that the housing market isn't going to recover for a really long time.

This is absolutely correct, sir. More, it will never "recover" to the arbitrarily inflated state it was when I bought my house in 2005... perhaps that is a good thing.

I'd also like to mention that Obama failed miserably when it came to addressing the "legal crimes" committed in the housing market crash. Not only was no one held accountable, but millions more were doled out to the very same thieves who created the situation, and no independent body was created to oversee the use of the bailout funds or the federal programs created to "help homeowners." The banks have NOT used the moneys to assist "upside down" homeowners, but instead, continued to line their pockets, pay off their investors, and do everything possible to deny assistance to those who need it. They have consistently and stubbornly refuse to refinance under reasonable parameters, disqualifying more than 85% of those stricken by the crash for completely arbitrary reasons. This is truly a travesty and what makes it so unsettling is that the government is doing NOTHING to rectify it.

Luckily for me, there is no loss of faith. I have always known our government is corrupt.

Vwls, this is not entirely correct. I can't speak for all banks, but the one I work for absolutely is trying to do the right thing and help as many homeowners as they can, while protecting their shareholders as well. It is a very imperfect system right now, but there are people out there every day trying to do the right thing.

For instance, just because the president comes out and says that the government has a new program to help underwater homeowners, the banks can't just flip a switch and start automatically refinancing everyone. I can tell you that HARP 2.0 is working, and just today I originated a loan for someone with a 645 credit score, owes 245k on a house worth 190k. I locked him in at 4% with no mortgage insurance and his payment is going down a couple of hundo per month.

It is going to take a long time still to come out of this, but progress is being made. And ftr, I am a good 300k humpty in my own house and do not qualify for HARP so I can absolutely empathize.

[tony bagadonuts]

March Housing Starts

The Commerce Department reported yesterday that Housing Starts fell 5.8% in March to 654,000 on an annualized basis as the troubled housing markets continue to hover near the bottom. Some analysts speculated that due to the mild winter, homebuilders broke ground on new construction earlier than usual this year, which led to the decline in March.

On a positive note, Housing Starts are up 10.3% above the March 2011 rate of 593,000 as evidenced by the chart below. Housing Starts are the number of residential building construction projects in a monthly period released by the Commerce Department in conjunction with the U.S. Census Bureau.

[NaturalBornHustler]

I am seeing a ton of auctions pop up in my area, and these idiot fucking builders are finding every square inch of space to build on despite all this inventory still sitting.

Every time I turn around a large swath of trees are being cut down, to make room for more 400k houses on .2 acre lots.

As long as these morons are around prices will never recover, which is why I am just sitting back stacking up money waiting for the right time to buy again. And it is looking like it won't be anytime soon.

I wouldn't go as far as Druff with his 10 year prediction, but I am betting values will stay almost flat or close to it for the next few years. Tiny increases but nothing to make me jump into the market and make some money.

[tony bagadonuts]

March State-by-State Unemployment

Regional and state unemployment rates were little changed in March. Thirty states recorded unemployment rate decreases, 8 states posted rate increases, and 12 states and the District of Columbia had no change.

[gauchojake]

Tony, are you seeing any action on principal reductions or anything related to the states settlement with the banks? I just called my bank today to get the ball rolling but am skeptical that I will get any relief. The house I'm in is worth less than the first loan which doesn't qualify, and this is on a second. I doubt the are going to write down the entire balance but I'm curious to know what you're seeing.

[tony bagadonuts]

Very little movement in the way of reductions Jake, but time will tell. I have seen significant improvement in the number of refinances coming through with HARP 2.0 and many more short sales are getting approved in a much timelier fashion.

Right now the only real way that most people can get true relief and release from their excess mortgage debt is to sell.

[Fergie72]

Truth speaking from Peter Schiff.

As someone who has no secondary education in economics, finance and investing but who has always been interested in and followed these things closely, I find myself agreeing with much of what he says on these topics.

What do you guys think of this video?