Back in 2006 some analysts that strong local economies (because of construction) would keep certain areas from being impacted by the housing bust. I disagreed and wrote: As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be. So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies. Here is an update to one of the graphs I posted in 2006 (data is not seasonally adjusted): Click on graph for larger image in new window. This graph shows the percentage of construction payroll jobs in three areas of California: San Diego, Riverside (Inland Empire), and Sacramento. The California percentages exclude the three metropolitan areas. Sure enough, generally the areas with the largest price declines and total lost jobs, were the areas with the highest percentage of construction employment during the boom. As an example, total employment in the Inland Empire is off 14.3% compared to 10.4% for all of California. I also took a look at some of the Case-Shiller cities. The next graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices (NSA). Unfortunately the BLS doesn't break out construction employment for Denver, Dallas or Charlotte (the cities with the smallest Case-Shiller house price declines). So I compared Boston (4th smallest price decline) with Las Vegas and Phoenix with the largest price declines. I added Texas because of the minimal housing bust in that state. Sure enough - the cities with the highest level of construction employment were hit the hardest. Boston has a fairly low percentage of construction jobs and a fairly mild bust. In Texas there are a fair number of construction jobs, but there wasn't a huge surge...

European Central Bank President Jean-Claude Trichet says some countries in the euro zone might have to accept a period of deflation to restore long-term economic growth prospects. “Some countries, to regain competitiveness, will have to keep inflation below the EU average,” Mr. Trichet told the Italian paper Il Sole 24 in . Asked by the paper whether this means “even accepting a period of deflation, with all the possible social consequences this might have?” Mr. Trichet replied: “Yes.” “It is normal that some regions, after growing above the EMU average for some time, and after having accumulated high national inflation, experience a correction and therefore a period of negative inflation, as it is currently happening in Ireland,” Mr. Trichet said. The ECB contends that it has avoided deflation for the euro zone as a whole, which is supported by recent data showing annual inflation in the region at about 1.5% in March, though that was probably pushed higher by energy and food prices. Yet consumer prices are still falling on an annual basis in Ireland, and economists say other struggling peripheral countries like Portugal, Spain and, to a lesser extent, Greece either face the risk of deflation or at least a lengthy period of very low inflation. Mr. Trichet was largely confirming what economists have been saying for months about deflation in some parts of Europe, though as ING Bank economist Carsten Brzeski notes: “he has never been so outspoken in the past.” Whatever benefits in the long run in terms of restoring lost competitiveness, deflation (or negative inflation) can be poison for government finances in the short term: . Without nominal GDP, Greece and others will have trouble bringing debt ratios down without still more painful spending cuts and tax hikes. As Paul Krugman put it in today: “Deflation is a painful process, which invariably takes a toll on growth and employment. So Greece won’t grow its way out of debt. On the contrary, it will have to deal with its...

The latest federal report on loan modifications shows that loan modifications carried out from January to April 2009 had a re-default rate of 51.5%. Re-default is defined by the report as any modified mortgage that has pending payment that is 30 days or more late. The same report highlights that re-default rates of modified loans in the last 12 months is 57.9%. This means that loan modifications are a) not doing what they are meant to; help people keep up with their monthly mortgage payments. And b) are getting worse at it. Homeowners that have qualified for loan modifications are still struggling to make payments for a variety of reasons. Some have since lost their jobs, or their income has been reduced. Others simply do not see the sense in continuing to pay for a mortgage that is completely underwater. There are a lot people in that last category; around 24% of all homes with a mortgage on them were underwater in the last quarter of the 2009. The median price of a house in the United States has dropped by 28% since July 2006. It does not take a degree in Economics to see that loan modifications are just not working. The question is why bother spending money on loan modifications that do not help homeowners keep their homes? A growing number of analysts are saying there is simply no rational reason to rewrite all these underwater loans. The number of homes facing a foreclosure is huge. The last quarter of 2009 had 2.39 million borrowers that were 60 days late on their mortgage payments, which is nearly a 50% rise from the previous year. The pressure is on for the Obama administration to provide real solutions to the oncoming wave of foreclosures. Projections expect over 4.5 million foreclosure filings just this year. Some critics say the government’s current loan modification program is a disservice to the public, because it has extended the problem over years by helping homeowners, but not enough to make a real difference. Of the 594,000 loan modifications that have...

Daniel Mudd attributed Fannie Mae's demise to an "impossible" balancing act to satisfy private shareholders and a public mission.

This is not a good sign. (Click on the chart to make it larger.) There's long been a worry that after last year's various foreclosure moratoria lifted, we'd see a fresh surge of trouble in the housing market. The latest figures on distressed sales, from First American CoreLogic, lend some weight to that argument. As you can see [...]

*A decent size rally seems to be under way in the non-agency space with dealers tightening offerings after having been lifted out of bonds in both prime and alt-a space. We are hearing of buyers of pay-option super seniors right now, as well as subprime fixed rate bonds. The rally as it usually does is lagging in some of the 2nd lien paper, both heloc and fixed rate 2nds, however with that being said a technical (read it corp. CDS) bid is definitely in play on Ambac wrapped paper, with a fixed rate option one bond trading on Thursday into a cross-over account involved in the corporate CDS sector.

submits: The chart above ( click to enlarge ) sums up nicely the effects of rising unemployment on the housing market. But, despite what the analysis suggests, is relief really on the way?

The aim is to discourage loan officers from focusing on quantity over quality.

“Did you see David Wessel’s WSJ column today? The Journal is already revising the Bush Recession down from Great to merely Bad . . . “ I’m not sure I would call that column, titled “revisionism.” It is a look at the is the best way to describe the 2007-09 economic contraction.Wessel asks “Does it deserve the heavy mantle of “The Great Recession” that it seems to be acquiring? “Great” is a big word, a mark of enormous historical significance. World War I was the Great War until the second world war came along…” Based on the interactive charts that accompany the article, the answer seems to be yes, “Great” is the right word: > Change in Nonfarm Payroll > Change in GDP Change in Industrial Output > Source : DAVID WESSEL WSJ, APRIL 8, 2010 http://online.wsj.com/article/SB10001424052702303591204575169693166352882.html

The reference is to borrowers who "walk away" from their homes after the decline in housing prices pushed the value of the house far below the mortgage owed, creating what are more formally known as "strategic defaults." While that member was likely a "walkaway" from another lender, the issue for CUs is how to appropriately measure the credit risk that member actually presents.

The National Association of Realtors® said today that it will continue to press Congress for speedy action to renew authority for the Federal Emergency Management Agency to issue flood insurance under the National Flood Insurance Program that expired March 28. Congress is on its spring recess and will return April 12.

Macroeconomic Advisers ‘ of Federal Reserve officials who most moved markets in 2009 has unsurprisingly pegged Chairman Ben Bernanke ’s comments as most influential. But in what could be a bit of surprise, Philadelphia Fed President Charles Plosser came in a “distant second” to the chairman — even as the report said markets reacted “especially aggressively” to his comments. Dallas Fed President Richard Fisher came in third as market mover, followed by San Francisco Fed President Janet Yellen , who may soon be elevated to Fed vice chairman with the coming retirement of Donald Kohn . The report was issued by the well-known economic forecasting firm Thursday and was written by Laurence Meyer , a former Fed governor, and Antulio Bomfim . It acknowledged some Fed officials are uncomfortable with being ranked on their ability to move the bond market. Rankings were based on the influence a given Fed official’s remarks had on the two year Treasury yield — it’s particularly responsive to monetary policy-related issues — over a 2 1/4 hour window. Speeches that occurred at the same time as major economic releases or coincided with speeches by other central bankers weren’t counted. The twice-annual congressional monetary policy testimonies presented by the Fed chairman were also exempt from the rankings. () “We find it interesting that Presidents Plosser and Yellen have become so influential,” the report said. “One possible reason for their increased sway on financial markets is the information they provide with respect to the distribution of views on the [Federal Open Market Committee],” as they “occupy hawkish and dovish sides of the spectrum, respectively.” The report also evaluated the direction of yield moves as signals of the individual official’s monetary policy disposition. Yellen, who is widely believed to be very supportive of keeping policy low, or a dove in other terms, actually served to push yields higher on balance rather than lower, as one might expect. She did so...

Many large retailers reported their March sales numbers this week, with most of them coming out the morning of Thursday, April 8. Following , Wal-Mart and its units no longer publish monthly sales figures. Updates to come as more retailers report sales. (Last updated April 8, 2010) Sort the chart below by company name, category, change in total or same-store sales, and total sales. Also, see Company name Category Same-store sales change Overall sales change Overall sales (millions) Comments Abercrombie & Fitch Apparel 5% 19% $275.4 The namesake Abercrombie & Fitch stores posted an 10% jump in sales, while abercrombie kids rose 12%. The Hollister brand continued to struggle, with sales falling 1% from a year earlier. Aeropostale Apparel 19% 25% $200.1 The company said merchandise margins for the month increased significantly over last year, and inventories remain well controlled. BJ’s Discount 7.3% 16% $1,000 BJ’s noted that the average transaction size was the same as last year, but a 7% boost in traffic tied to an earlier Easter boosted overall sales. Departments with the strongest sales increases compared to last year included apparel, food, furniture, health & beauty aids, housewares, lawn & garden, summer seasonal and small appliances. Weaker departments included household chemicals, televisions, tires and videogames. (Same-store sales change excludes gasoline.) Costco Discount 2% 12% $7,140 Costco’s results are being bolstered by higher gas sales. The company said year-to-year comparisons were negatively affected by having to close stores over the Easter holiday. Last year, the closure occurred in April. (Same-store sales change is for U.S. and excludes gasoline.) Gap Apparel 11% 12% $1,450 The discount Old Navy stores posted a 13% increase in sales, while the high-end Banana Republic chain experienced a 10% jump. Flagship Gap stores posted an 11% same-store sales gain from a year earlier. Hot Topic Apparel -7.5% -6.6% $65.9 Despite the decline in...

There is a new from researchers at the CDC, released yesterday, showing that U.S. births declined about 2% in 2008 from 2007. The preliminary number of 2008 US births was 4,251,095, down nearly 2 percent from the 2007 peak; the 2008 general fertility rate (68.7 per 1,000) also declined. Apparently some people are blaming the decline in births on the recession. From Professor Krugman: There have been many stories about the decline of the birth rate in 2008, with almost all attributing it to the recession. But James Trussell [2] raises an interesting point: doesn’t it take nine months from conception to birth? That calls for a graph ... Click on graph for larger image in new window. First, I think the decline in 2008 was relatively small from the record year in 2007. Second, I wouldn't be surprised if certain segments of the population were under stress before the recession started (like construction workers). Third, notice that the number of births started declining sharply a number of years before the Great Depression started. Many families in the 1920s were under severe stress long before the economy collapsed. So my guess is the decline in births is related to the recession (the segment of the population that was hit first), and I'd expect further declines in 2009 and probably in 2010. But I don't think the declines in births will be anything like what happened during the 1920s. 1 Hamilton BE, Martin JA, Ventura SJ. Births: Preliminary data for 2008. National vital statistics reports web release; vol 58 no 16. Hyattsville, Maryland: National Center for Health Statistics. Released April, 2010. 2 , Professor of Economics and Public Affairs and Director of the Office of Population Research at Princeton University

Interesting paper out of the Bank for International Settlements on : Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. These charts caught my eye (more after the jump): > Projected interest payments as a fraction of GDP (%) Sources: OECD; authors’ projections. > Source : Stephen G Cecchetti, M S Mohanty and Fabrizio Zampolli Bank for International Settlements, March 2010 BIS Working Papers, No 300 http://www.bis.org/publ/othp09.pdf Public debt/GDP projections Sources: OECD; authors’ projections.

Subprime Delinquencies Fall for First Time in 4 Years

Peter L. Mosca, host of Income Property Investment Talk dot com, shares part of his interview with Dr. Sam Chandan, Global Chief Economist and Executive Vice President of Real Capital Analytics (RCA) and adjunct professor of real estate at the Wharton School of the University of Pennsylvania.

The Federal Reserve : Consumer credit decreased at an annual rate of 5-1/2 percent in February 2010. Revolving credit decreased at an annual rate of 13 percent, and nonrevolving credit decreased at an annual rate of 1-1/2 percent. Click on graph for larger image in new window. This graph shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 4.0% over the last 12 months. Consumer credit has declined for 12 of the last 13 months - and declined for 13 of the last 14 months and is now 5.2% below the peak in July 2008. Note: The Fed reports a simple annual rate (multiplies change in month by 12) as opposed to a compounded annual rate. Consumer credit does not include real estate debt.

The housing market won’t fully heal until two classes of renters—those who have delayed forming new households during the recession and those who lost their homes to foreclosure and need to repair their credit scores and rebuild their savings—make the transition to homeownership. And that may take a while. The U.S. lost 1.2 million households from 2005 to 2008 even as the country’s population increased by 3.4 million, according to a study from the Mortgage Bankers Association, underscoring the huge inventory glut that looms over any housing and rental market recovery. Rising foreclosures have led the national homeownership rate to slide to around 67%, down from its 2004 peak of 69%. But the study finds that the current recession also led to an even steeper decline in household formation for rental apartment markets. That bodes ill for the housing market, says Gary Painter, a professor at the University of Southern California who authored the study, because when household formation restarts, it will disproportionately benefit the rental market at first. As more rental households are added, that could cause the homeownership rate to register a larger decline. The study also suggests that households that have moved during the recession have been more likely to become renters than owners after moving. “When they’re moving, they’re renting. They’re not looking to buy. That’s an important dynamic,” says Michael Fratantoni, the MBA’s vice president of research and economics. Household formation typically stalls during a recession as would-be renters double up or move in with family. The study tries to quantify that effect, and finds that, young adults are 4 percentage points less likely to form an independent household during a recession, and individuals are 10 percentage points less likely to leave their parental home if they are unemployed. Normal rates of household formation, or around 1-1.5 million new households per year, should return by 2012 assuming that the job market...

This morning Jon Hilsenrath the Fed Chairman Ben Bernanke was likely to highlight the importance of deficit reduction in a series of speeches. The following is an excerpt on the issue from the chairman’s in Dallas today: Associated Press Federal Reserve Chairman Ben Bernanke The economist John Maynard Keynes said that in the long run, we are all dead. If he were around today he might say that, in the long run, we are all on Social Security and Medicare. That brings me to two interrelated economic challenges our nation faces: meeting the economic needs of an aging population and regaining fiscal sustainability. The U.S. population will change significantly in coming decades with the combined effect of the decline in fertility rates following the baby boom and increasing longevity. As our population ages, the ratio of working-age Americans to older Americans will fall, which could hold back the longrun prospects for living standards in our country. The aging of the population also will have a major impact on the federal budget, most dramatically on the Social Security and Medicare programs, particularly if the cost of health care continues to rise at its historical rate. Thus, we must begin now to prepare for this coming demographic transition. The economist Herb Stein once famously said, “If something cannot go on forever, it will stop.” That adage certainly applies to our nation’s fiscal situation. Inevitably, addressing the fiscal challenges posed by an aging population will require a willingness to make difficult choices. The arithmetic is, unfortunately, quite clear. To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. These choices are difficult, and it always seems easier to put them off–until the day they cannot be put off any more. But...