From the NY Times: a href=”http://www.nytimes.com/aponline/2009/07/28/business/AP-US-Mortgage-Aid-Pressure.html”Feds Push Mortgage Companies to Modify More Loans /a blockquoteThe Obama administration, scrambling to get its main housing initiative on track, extracted a pledge from 25 mortgage company executives to improve their efforts to assist borrowers in danger of foreclosure.br /br /In an all-day series of meetings Tuesday at the Treasury Department, government officials reached a verbal agreement with the executives for a new goal of about 500,000 loan modifications by Nov. 1 and stressed the program’s urgency.br /br /The sessions came amid concerns that the Obama administration will fall far short of its original goal of helping up to 3 million to 4 million troubled borrowers with modified loans.br /br /As of this week, only about 200,000 borrowers were enrolled in three-month trial loan modifications …/blockquoteA “verbal agreement”?br /br /Counting the number of mods might make for useful PR, but some mods are more effective than others. A capitalization of missed payments and fees, along with a rate reduction and/or extended term, are the most common modifications. But for homeowners with significant negative equity that is just “extend and pretend” and leads to a high redefault rate and just postpones foreclosure.div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-701740366479995371?l=www.calculatedriskblog.com’//div

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strongImportant Note:/strong Case-Shiller hasn’t released the Seasonally Adjusted data yet for May. There is a strong seasonal pattern for prices and this is the NSA data.br /br /SP/Case-Shiller a href=”http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html”released/a their monthly Home Price Indices for May this morning. br /br /This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national index.br /br /a onclick=”window.open(this.href, ‘_blank’, ‘width=1080,height=760,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://1.bp.blogspot.com/_pMscxxELHEg/Sm75GBqEEFI/AAAAAAAAF7M/ivagEUm2UvE/s1600-h/CaseShillerMayNSA.jpg”img style=”BORDER-RIGHT: #000000 1px solid; BORDER-TOP: #000000 1px solid; FLOAT: right; MARGIN: 10px; BORDER-LEFT: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid” alt=”Case-Shiller House Prices Indices” src=”http://1.bp.blogspot.com/_pMscxxELHEg/Sm75GBqEEFI/AAAAAAAAF7M/ivagEUm2UvE/s320/CaseShillerMayNSA.jpg” border=”0″ //a ibspan style=”font-size:85%;”Click on graph for larger image in new window./span/b/i br /br /The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).br /br /The Composite 10 index is off 33.3% from the peak, and up slightly in May.br /br /The Composite 20 index is off 32.3% from the peak, and up slightly in May.br /br /strongNOTE:/strong This is the NSA data, prices probably fell using the SA data.br /br /a onclick=”window.open(this.href, ‘_blank’, ‘width=1080,height=760,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://3.bp.blogspot.com/_pMscxxELHEg/Sm75GWY9rLI/AAAAAAAAF7U/IlCwc8bfrGU/s1600-h/CaseShillerMayYoYNSA.jpg”img style=”BORDER-RIGHT: #000000 1px solid; BORDER-TOP: #000000 1px solid; FLOAT: left; MARGIN: 10px; BORDER-LEFT: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid” alt=”Case-Shiller House Prices Indices” src=”http://3.bp.blogspot.com/_pMscxxELHEg/Sm75GWY9rLI/AAAAAAAAF7U/IlCwc8bfrGU/s320/CaseShillerMayYoYNSA.jpg” border=”0″ //a The second graph shows the Year over year change in both indices.br /br /The Composite 10 is off 16.8% over the last year.br /br /The Composite 20 is off 17.1% over the last year.br /br /This is still a very strong YoY decline.br /br /The third graph shows the price declines from the peak for each city included in SP/Case-Shiller a href=”http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_093042.xls”indices/a.br /br /a onclick=”window.open(this.href, ‘_blank’, ‘width=1190,height=780,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://4.bp.blogspot.com/_pMscxxELHEg/Sm75GtA539I/AAAAAAAAF7c/s8l2XK6_Byk/s1600-h/CaseShillerMayCities.jpg”img style=”BORDER-RIGHT: #000000 1px solid; BORDER-TOP: #000000 1px solid; FLOAT: right; MARGIN: 10px; BORDER-LEFT: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid” alt=”Case-Shiller Price Declines” src=”http://4.bp.blogspot.com/_pMscxxELHEg/Sm75GtA539I/AAAAAAAAF7c/s8l2XK6_Byk/s320/CaseShillerMayCities.jpg” border=”0″ //a Prices increased (NSA) in 14 of the 20 Case-Shiller cities in May. In Phoenix, house prices have declined 54.5% from the peak. At the other end of the spectrum, prices in Dallas are only off about 8% from the peak. Prices have declined by double digits almost everywhere.br /br /I’ll compare house prices to the stress test scenarios soon.div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-315694643098990612?l=www.calculatedriskblog.com’//div

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centerobject width=”560″ height=”340″param name=”movie” value=”http://www.youtube.com/v/-xD-XOVUaNQhl=enfs=1″/paramparam name=”allowFullScreen” value=”true”/paramparam name=”allowscriptaccess” value=”always”/paramembed src=”http://www.youtube.com/v/-xD-XOVUaNQhl=enfs=1″ type=”application/x-shockwave-flash” allowscriptaccess=”always” allowfullscreen=”true” width=”560″ height=”340″/embed/object/centerbr /br /Some of Merle’s other videos:br /a href=”http://www.youtube.com/watch?v=B8PwqQ5guYk”Merle Hazard Meets Arthur Laffer/a br /a href=”http://www.youtube.com/watch?v=LtcnXLDnXvs”H-E-D-G-E/abr /a href=”http://www.youtube.com/watch?v=VFPCztVle7k”Mark to Market/a.br /Merle chats with a href=”http://www.youtube.com/watch?v=0yu-6P0kFPQ”Stanford economist John Taylor/abr /And that inspires Merle: a href=”http://www.youtube.com/watch?v=2fq2ga4HkGY”Inflation or Deflation/adiv class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-4914138771510940046?l=www.calculatedriskblog.com’//div

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From David Altig at Macroblog: a href=”http://macroblog.typepad.com/macroblog/2009/07/a-look-at-the-recovery.html”A look at the recovery/a blockquoteEarlier this week my boss, Atlanta Fed President Dennis Lockhart, weighed in with his views about the shape of the economic recovery to come while speaking at a meeting of the Nashville, Tenn., Rotary Club: blockquote”The economy is stabilizing and recovery will begin in the second half. The recovery will be weak compared with historic recoveries from recession. The recovery will be weak because the economy must make structural adjustments before the healthiest possible rate of growth can be achieved.”/blockquote/blockquoteDr. Altig then compares current forecasts for the recovery with previous recoveries.br /br /a onclick=”window.open(this.href, ‘_blank’, ‘width=790,height=550,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://2.bp.blogspot.com/_pMscxxELHEg/Sms3utpubAI/AAAAAAAAF5g/OWAOe4tRNXQ/s1600-h/Altig.jpg”img style=”BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; MARGIN: 10px; FLOAT: left; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid” border=”0″ alt=”Post Recession Growth” src=”http://2.bp.blogspot.com/_pMscxxELHEg/Sms3utpubAI/AAAAAAAAF5g/OWAOe4tRNXQ/s320/Altig.jpg” //a ibspan style=”font-size:78%;”Click on graph for larger image in new window./span/b/ibr /br /The red dots are actual recessions, the blue dots are forecast following the current recession.br /br /The Y-axis on this graph is the four quarter percent change in GDP following the end of a recession. The X-axis is the depth of the recession (measure in change in GDP from peak to trough).br /br /Note that the blue dots don’t line up because the forecasters have different views as to the eventual depth of the recession.br /br /From Altig: blockquoteThe chart plots the four-quarter growth rate of gross domestic product (GDP) from the trough of a recession against the depth of the corresponding contraction, as measured by the cumulative loss of GDP over the course of the downturn. The points within the red circle represent all previous postwar recessions, and they form a nice, neat, easily discernible pattern. That is, strongthe pace of growth in the first year after a recession has, in our history, been reliably related to how bad the recession was. The deeper the recession, the faster the recovery./strongbr /br /The points within the blue circle are based on forecasts of GDP growth from the third quarter of this year through the third quarter of 2010, obtained from the latest issue of Blue Chip Economic Indicators (which reports survey results from “America’s leading business economists”). From top left of the circle to bottom right, the points represent the 10 lowest forecasts of the most optimistic members of the 50 Blue Chip forecasting panel, the panel’s consensus (or average) forecast, and the 10 highest forecasts of the most pessimistic panel participants.br /br /I chose the third quarter as the reference point because nearly two-thirds of the Blue Chip respondents indicate that, in their view, the recession will indeed end in the third quarter of this year. strongAssuming this occurs, this recovery would appear to be a big outlier. Either we are about to continue making history—and not in a good way—or current guesses about the medium-term economy are way too pessimistic/strong.br /span style=”font-size:78%;”emphasis added/span/blockquoteI think this recession (and sluggish recovery) will continue to make history, and that most of these forecasts are actually too optimistic (the bottom 10 blue chip is about my view).div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-6820515707165834805?l=www.calculatedriskblog.com’//div

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a onclick=”window.open(this.href, ‘_blank’, ‘width=1075,height=770,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://3.bp.blogspot.com/_pMscxxELHEg/Smh4PYTbZiI/AAAAAAAAF4Y/MN749shlxAg/s1600-h/EHSJuneInventoryNSA.jpg”img style=”BORDER-RIGHT: #000000 1px solid; BORDER-TOP: #000000 1px solid; FLOAT: right; MARGIN: 10px; BORDER-LEFT: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid” alt=”Existing Home Inventory” src=”http://3.bp.blogspot.com/_pMscxxELHEg/Smh4PYTbZiI/AAAAAAAAF4Y/MN749shlxAg/s320/EHSJuneInventoryNSA.jpg” border=”0″ //a Here is another graph of inventory. This shows inventory by month starting in 2004.br /br /Inventory in June 2009 was below the levels in June 2007 and June 2008 (this is the 5th consecutive month with inventory levels below 2 years ago) and almost down to the levels of June 2006. br /br /strongIt is important to watch inventory levels very carefully./strong If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market!br /br /Note: span style=”font-size:85%;”there is probably a substantial shadow inventory – homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. There are also reports of REOs being held off the market, so inventory is probably under reported./spanbr /br /The second graph shows the year-over-year change in existing home inventory.br /br /a onclick=”window.open(this.href, ‘_blank’, ‘width=1130,height=750,scrollbars=yes,resizable=yes,toolbar=no,directories=no,location=no,menubar=no,status=no,left=0,top=0′); return false” href=”http://4.bp.blogspot.com/_pMscxxELHEg/Smh4PlwLlhI/AAAAAAAAF4g/6nF8iX9Gt8Y/s1600-h/EHSJuneInventoryYoY.jpg”img style=”BORDER-RIGHT: #000000 1px solid; BORDER-TOP: #000000 1px solid; FLOAT: left; MARGIN: 10px; BORDER-LEFT: #000000 1px solid; BORDER-BOTTOM: #000000 1px solid” alt=”YoY Change Existing Home Inventory” src=”http://4.bp.blogspot.com/_pMscxxELHEg/Smh4PlwLlhI/AAAAAAAAF4g/6nF8iX9Gt8Y/s320/EHSJuneInventoryYoY.jpg” border=”0″ //a Prices will probably continue to fall until the months of supply reaches more normal levels (closer to 6 months compared to the current 9.4 months), and that will take some time.br /br /However this trend of declining year-over-year inventory levels is a positive for the housing market (while remembering the shadow inventory)div class=”blogger-post-footer”a href=”http://www.cr4re.com/tipjar.html”img src=”http://beacheconomist.com/CalculatedRisk-TipJar2.gif”//a The Feed is full. The Feed is Ad Free. However, by popular request (for a short period), if you’d like … please a href=”http://www.cr4re.com/tipjar.html”click here/a to leave a tip. Thanks! CRimg width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-8997852137834545392?l=www.calculatedriskblog.com’//div

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Note: Thomas Lawler is a former Fannie Mae and Wall Street economist who now writes a newsletter. He did an excellent job calling the housing bubble and bust, and I’ve quoted him a few times over the years.br /br /From James Hagerty at the WSJ: a href=”http://blogs.wsj.com/developments/2009/07/22/as-housing-loses-its-stickiness-prices-reach-bottom-quicker/”As Housing Loses its Stickiness, Prices Reach Bottom Quicker/a blockquoteTom Lawler has a new concept. He calls it the “de-stickification” of house prices.br /br /Though Mr. Lawler was among the more bearish of housing economists when the market was still bubbling, he recently has been arguing that prices for low- and mid-range homes are stabilizing in many parts of the country …br /br /Part of the bear case involves the historical observation that it takes many years for house prices to bottom out because they are “sticky,” or slow to adjust downward even when supply surges and demand evaporates. In the past, home prices adjusted slowly in such circumstances because homeowners are stubborn and often don’t need to sell immediately. When Los Angeles had a housing slump in the early 1990s, caused in part by a plunge in aerospace-related employment, the Case-Shiller price index for the city started falling gradually in early 1990 and didn’t hit bottom until 1996.br /br /This time around, Mr. Lawler argues, things are happening a lot faster. That’s partly because banks are dealing with a foreclosure rate not seen at least since the Great Depression. …br /br /That has forced prices down much more quickly than would have been expected in some of the milder down cycles of the past, Mr. Lawler says. …br /br /Not that Mr. Lawler sees another housing boom around the corner./blockquoteOnce again house prices were sticky. Even in the low priced areas with significant foreclosure activity, prices have fallen for several years. The question is how sticky?br /br /What Lawler is apparently suggesting is that significant foreclosure activity makes prices less sticky in for “low- and mid-range” priced homes - I agree - and I’ve argued before that some low priced areas could be near the price bottom.br /br /The dynamics will probably be different in the mid-to-high priced areas. With few move-up buyers, I expect prices to fall for some time in the mid-to-high priced range bubble areas (especially in real terms). Of course foreclosure activity is picking up in the high priced areas - see DataQuick’s a href=”http://www.dqnews.com/Articles/2009/News/California/CA-Foreclosures/RRFor090722.aspx”report today/a - but I think it will still take some time for prices to fall to the market clearing price.div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-6456983562710836485?l=www.calculatedriskblog.com’//div

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From Bloomberg: a href=”http://www.bloomberg.com/apps/news?pid=20601068sid=a2mAhkgbWDXc”Bernanke Says Commercial Property May Pose Risk for Economy/a blockquoteFederal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market. br /…br /It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today …br /br /“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices — and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”/blockquote A few key CRE stories this month:br /br /From Dow Jones: a href=”http://online.wsj.com/article/BT-CO-20090720-708337.html”Moody’s: Commercial Real-Estate Prices Fall 7.6% In May/a blockquoteCommercial real-estate prices fell 7.6% in May … The indexes are down 29% from a year ago and 35% from their October 2007 peak./blockquote From Reuters: a href=”http://www.reuters.com/article/marketsNews/idUSN2225310920090722″U.S. architecture billings index down in June - AIA/a blockquote”It appears as though we may have not yet reached the bottom of this construction downturn,” AIA Chief Economist Kermit Baker said. “strongArchitecture firms are struggling and concerned that construction market conditions will not even improve … next year/strong.”/blockquote From Bloomberg: a href=”http://www.bloomberg.com/apps/news?pid=20601103sid=awqNjDBCOIbg”U.S. Commercial Construction to Drop 16% This Year, Report Says/a blockquoteConstruction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said. br /…br /Hotel construction is likely to decline 26 percent this year and 17 percent in 2010, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent in 2010, according to the report./blockquotea href=”http://www.calculatedriskblog.com/2009/07/reis-strip-mall-vacancy-rate-hits-10.html”Strip Mall Vacancy Rate Hits 10%, Highest Since 1992/a blockquoteem”[W]e do not foresee a recovery in the retail sector until late 2012 at the earliest.”/embr /Victor Calanog, director of research for Reis on Retail CRE/blockquotea href=”http://www.calculatedriskblog.com/2009/07/apartment-vacancy-rate-at-22-year-high.html”Apartment Vacancy Rate at 22 Year High/abr /br /a href=”http://www.calculatedriskblog.com/2009/07/hotel-recession-reaches-20-months.html”Hotel Recession Reaches 20 Months/a br /br /a href=”http://www.calculatedriskblog.com/2009/07/reis-us-office-vacancy-rate-hits-159-in.html”U.S. Office Vacancy Rate Hits 15.9% in Q2/a blockquoteem”It’s bad. It’s decaying and getting worse. Given the depth and magnitude of the recession, you can argue that we are facing a storm of epic proportions and we’re only at the beginning.”/embr /Victor Calanog, Reis director of research on the Office Market./blockquote And a comment from the USG (building materials supplier) conference call this morning: blockquote”Nonresidential construction does appear to be headed further south, perhaps significantly so.”/blockquote No kidding.div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-2382382452492862319?l=www.calculatedriskblog.com’//div

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Baseline Scenario has a guest piece by Elizabeth Warren, chair of the Congressional Oversight Panel and the Leo Gottlieb Professor of Law at Harvard University: a href=”http://baselinescenario.com/2009/07/21/three-myths-about-the-consumer-financial-product-agency/”Three Myths about the Consumer Financial Product Agency/a. Professor Warren outlines three myths, and the concludes: blockquote”At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy.”/blockquotediv class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-3084180243011017959?l=www.calculatedriskblog.com’//div
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From CNBC: a href=”http://www.cnbc.com/id/32012679″Roubini: Economic Recovery to Be ‘Very Ugly’/a blockquote”The recovery is going to be subpar,” [Nouriel] Roubini said. “I see a one percent growth in the economy in the next few years. There will also be 11 percent unemployment next year and the recovery is going to be slow. It’s going to feel like a recession even when it ends.”br /…br /When asked about the economy Monday, Roubini said, “We may be out of a freefall for the financial system,” said Roubini. “We have seen the worst in that sense. But in my view there is a sluggish U shaped recovery that might go into a W double dip if we don’t fix the problems in the economy.”br /…br /On a second stimulus: “I think there will be another one toward the end of the year. We need to have more shovel ready labor intensive infrastructure projects. We’ll need it.”/blockquote centerobject id=”cnbcplayer” height=”380″ width=”400″ classid=”clsid:D27CDB6E-AE6D-11cf-96B8-444553540000″ codebase=”http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0″ param name=”type” value=”application/x-shockwave-flash”/param name=”allowfullscreen” value=”true”/param name=”allowscriptaccess” value=”always”/param name=”quality” value=”best”/param name=”scale” value=”noscale” /param name=”wmode” value=”transparent”/param name=”bgcolor” value=”#000000″/param name=”salign” value=”lt”/param name=”movie” value=”http://plus.cnbc.com/rssvideosearch/action/player/id/1188999175/code/cnbcplayershare”/embed name=”cnbcplayer” PLUGINSPAGE=”http://www.macromedia.com/go/getflashplayer” allowfullscreen=”true” allowscriptaccess=”always” bgcolor=”#000000″ height=”380″ width=”400″ quality=”best” wmode=”transparent” scale=”noscale” salign=”lt” src=”http://plus.cnbc.com/rssvideosearch/action/player/id/1188999175/code/cnbcplayershare” type=”application/x-shockwave-flash” //embed/object/centerdiv class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-855901687591456686?l=www.calculatedriskblog.com’//div
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a href=”http://wsj.com/”From the WSJ/a: CIT cuts deal with key bondholders for $3 billion in financing. CIT will avoid bankruptcy, restructure outside court. (ht Noah at a href=”http://www.urbandigs.com/”UrbanDigs/a in NY)br /br /UPDATE: From WSJ: a href=”http://online.wsj.com/article/SB124804619825363655.html”Bondholders Plan CIT Rescue/a blockquoteThe deal, which was being considered by CIT’s board Sunday night, charges CIT very high interest rates, and it doesn’t permanently fix the company’s long-term financing needs … Under the proposal, CIT would likely pay interest rates 10 percentage points above the London interbank offered rate, said these people. … CIT has also agreed to pledge some of its highest-quality loans as collateral on the $3 billion package.br /br /The new loan could act like a “bridge” to a series of debt-exchange offers that CIT would launch in order to get bondholders to swap some of their bonds for equity in the company or for new debt that matures later./blockquote So it is a bridge loan while CIT tries for a debt-for-equity exchange or new debt. This is a short term fix, but probably gets CIT through the year.div class=”blogger-post-footer”img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/10004977-1761009807881499414?l=www.calculatedriskblog.com’//div
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