Nominal House Pricesits been a busy week, in a lot of ways…lets start with the reports on the two major home price indexes, since both of them hit new record post bubble lows this week…the first one we got was the case-shiller index for november (pdf), which covers home prices in the metro areas of 20 major cities monthly…(the 10 city index has been in existence since the 80s & is useful for longer term comparisons); as this is a 3 month index, it covers prices in september & october as well as november, without weighting; moreover, the prices are for completed sales, which may mean the price was contracted for over 2 months earlier…that said, this months report showed actual price declines of 1.3% from prices registered in the october report for both the 10 & 20 city indexes, and declines of 3.6% & 3.7% respectively in prices since november of 2010…of the 20 cities (see table), only home prices in phoenix showed an increase of 0.6% this month, after being down 56.4% from the peak, and prices in chicago were down the most, off 3.2% for the month…the index values are arrived at by comparing repeat sales of the same house over time, so new houses & those which havent exchanged hands since the reference city was first covered arent included… both indexes are off 33.5% from the high prices recorded early in 2006 & down 0.7% on a seasonally adjusted basis from last months report, and both indexes are also at new post bubble lows on that same seasonally adjusted basis, although they’re both still slightly above the unadjusted low prices… typically, home prices will continue to decline until spring, so the unadjusted records will fall before then as well…this month the NY Times featured an interactive graphic for each of the 20 metro areas covered by the case shiller index that goes back to january 2000; 6 of the cities really never had a “bubble”, it appears likley cleveland & detroit prices never went up, & apparently dallas & denver prices were higher to begin the century & didnt rise much…the CoreLogic price index for december was also released this week; not only is corelogic’s index more recent than case-shiller, it also covers more cities (6,645 ZIP codes accounting for 58% of the US population) and it’s weighted to give most recent prices more influence in the index; thus it’s the index the Fed has chosen to follow…this release reflects the last month of year as it reports that homes prices fell by 4.7% nationally in 2011; but it also reports that without distressed sales prices only fell 0.9% for they year; the report also shows that home prices including distressed sales decreased 1.4% in december from november, but there was a 0.2% uptick in prices for non-distressed sales month over month…with mortgage interest rates across the board continuing to hit new lows, its likely this uptick is because with lower monthly payments, homebuyers are able to afford a larger principal; expect this trend to reverse & house prices to resume their decline if interest rates should rise…the graph from bill mcbride that ive included above shows the trends for both the case-shiller 20 (yellow) and the corelogic (blue) prices, as well as the case shiller national index (red) as it was last reported, for the 3rd quarter 2011…of course, the prices measured by both of these indexes are in nominal dollars and not adjusted for inflation; each month, after both reports are out, bill mcbride at calculated risk computes real prices for both indexes & the case shiller national adjusted for CPI inflation less shelter; by his figures, the CoreLogic index is back to february 2000 prices, the case-shiller 20 is back to april 2000 prices, and the case shiller national prices the same as they were 13 years ago, in the 1st quarter of 1999…

   in addition to the home price reports, we also had a few housing policy moves and also seem to be moving towards a national settlement between the banks & the states for foreclosure fraud abuses….on wednesday, obama went public with a home loan refinancing plan which has been rumored & talked about for several weeks & pitched in the SOTU; for borrowers with private bank loans on a single family home with a loan-to-value ratio of 140 or less & who havent missed a house payment in 6 months, this plan would enable them to refinance into a federally insured loan at current interest rates; the only trouble is that because it could cost up to $10 billion which the administration intends to raise by a bank tax, it will require congressional approval, which seems unlikely…this plan comes on the heels of another administration plan introduced last week on the treasury blog which would expand the failed HAMP program by tripling incentives to investors in home loans for principal reductions, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value ratio; that plan was rejected by the FHFA, the regulator & conservator for Fannie & Freddie, because it would cost the GSEs $100 billion, a cost which would be borne by taxpayers…and while we’re talking about the GSEs, earlier this week we had a major flap around the blogosphere, which was initiated by an article at ProPublica, which alleged that Freddie was betting against homeowners because they retained the risky tranches of their mortgage bond offerings & hence were incentivized to disapprove of refinancing…this went back & forth as the propublica authors defended their allegations, although what Freddie was doing seems to be no more than a logical complex hedging strategy that any agency charged with making a profit for the taxpayers would engage in…nonetheless, with the FHFA blocking the administration’s HAMP expansion, the Treasury announced an investigation into Freddie’s practices, likely with the intention of applying a bit of pressure…the FHFA, for their part, announced a plan to sell their foreclosure inventory to investors, not unlike the recommendations we described in the Fed’s white paper from early last month…

   in the manner of the foreclosure fraud settlement, a new post-SOTU working group pressed ahead with a minimal agreement, which would absolve the banks from civil liabilities resulting from fraudulent mortgage origination & servicing practices in exchange for the $25 billion (or less, depending on what states signed on) which would be used in part to defray expenses of those homeowners who had been wronged, although no one wrongly foreclosed on would be made whole; the banks would still be subject to criminal investigations, and individual homeowners would not lose their right to reject the settlement & pursue claims against the bank…as of the latest, only california’s kamela harris & delaware’s beau biden have opted out, although the term sheet was obscure enough for nevada’s attorney general, Catherine Cortez Masto, to submit a list of 38 specific questions…the deadline for the states to sign on & for this to have been wrapped up was friday, but it has again been delayed three more days to give the state attorney generals more time to come up with excuses for buying into it at the last minute…

 you’ve all probably heard or read something about the january unemployment report that came out friday….on the face of it, the reported numbers were good; the establishment survey showed that nonfarm payroll employment rose by 243,000 in January, and the unemployment rate from the household survey decreased from 8.5% to 8.3%…but there were so many adjustments and revisions applied to both numbers its hard to see how anyone can read much into this report…first, we had the normal seasonal adjustment, which is initially skewed because it includes the lousier than normal months from the end of 2008 & early 2009, which causes an upward bias in subsequent adjustments for those months; additionally, we have the always awkward seasonal adjustment from december, when real employment is at its highest because of the holidays, to january, when seasonal workers are cut…for this report, the actual number for january non-farm payrolls was a loss of 2,689,000 jobs; knowing that the BLS confidence interval is on the order of plus or minus 100,000; seasonally adjusting that job loss to show 243,000 jobs gained leaves plenty of room for an error in the methodolgy…being the first report for the year, this report was also affected by the annual benchmark revisions; as we noted in october when the preliminary data was released, the revisions are taken from the full collection of the state unemployment insurance data, and therefore they determine the final unemployment levels for the year just past…although not specifically revising january, all the reports going back to last march were revised, with march showing 165,000 additional jobs & the preliminary revision for december showing 266,000 more; this was the first positve benchmark revision since 2006; reversals in previous years were as high as 900K…last but not least, all the numbers reported by the household survey were adjusted this month for december by population estimates developed for the BLS by the census bureau based on the 2010 census; as a result, the civilian noninstitutional population increased by 1,510,000, the civilian labor force increased by 258,000, persons not in the labor force was up 1,252,000, those employed increased by 216,000, and unemployment was up 42,000…so even though “those not in the labor force” decreased in january, the apparent reported increase was 1,177,000, and thus the labor force participation rate for january fell 0.3% to 63.7%, taking out a low set back before reagan busted the unions & forced mothers out of their homes & into corporate slave labor (see above graph)…Gallup's U.S. Underemployment Rate, Monthly Averages…at any rate, with all those adjustments and revisions as a caveat, we can look at the BLS data that was reported by the media & most of the economic blogs as if they were exact numbers; the 243,000 non farm jobs added was arrived at by subtracting the 14,000 government jobs lost from the 257,000 private jobs added; strong sectors included business services, with 70,000 jobs added, manufacturing with 50,000 more, & construction with 21,000 new jobsreflecting a warmer than normal january, which also contributed to (an adjusted) 0.6% gain in hours worked to 33.7 hours; average hourly earnings also rose 4 cents to $23.24; however, real hourly compensation, taking into account changed in consumer prices, fell 1.2% in 2011…the household survey showed a gain of 843,000 jobs but over 200,000 of that was due to the population adjustments so the net reported was an increase of 631,000 jobs; there was also a record increase of 699,000 part time jobs noted in that survey, but since U-6, the measure of those involuntarily working part time, declined to 15.1%, its hard to say whether thats an artifact of the adjustments or indicative of an employer trend to hire more part time workers to avoid giving full time employee benefits…we might look at the gallup survey, which is a weekly polling similar to the BLS survey but not seasonally adjusted, for a better indication of trends in unemployment; gallup reported the unemployment rate increased in january to 8.6% from 8.5% in december, but still down from the 9.9% they reported last year; they also noted that their unemployment rate for the reference week of the BLS household survey (the 15th) was also 8.3%, which almost seems to indicate that the BLS survey was conducted in an abnormally good week; gallup also reports a measure of underemployment similar to BLS’s U-6; for that gallup measure, they show an increase of those underemployed to 18.7% from their 18.3% in december, confirming the BLS surge in reported part time jobs…the gallup chart showing that is included to the right

to note the other major economic reports of the past week; the ISM (Institute for Supply Management) purchasing managers manufacturing index increased to 54.1 in janaury, up from 53.1 in december; anything over 50 indicates increasing expansion; similarly, the january ISM Non-manufacturing index was at 56.8%, up sharply from 53.0% in december; that employment index increased 7.6 to 57.4%, indicating more hiring planssales of cars and light trucks rose 11 percent to 913,287 in january, a seasonally adjusted annual rate of 14.18 million, which would be the best for car sales since 2007; on the other hand, the confidence board’s index of consumer confidence fell to 61.1 this month from a revised 64.8 in december, with the present situation index reading dropping to  38.4…and the BEA reported that personal income had increased 0.5% in december, but personal consumption expenditures increased less than 0.1%, (negative 0.1% adjusted for inflation), resulting in an increase of 4% in personal savings

i also want to make mention of the annual report & 10 year economic outlook (pdf) from the non-partisan CBO (Congregational Budget Office) because it’s a real game-changer; as dismal as the Fed forecasts were, the CBO projects even slower growth and higher unemployment, and made major changes to their forecasts regarding deficits & the solvency of government managed benefit programs; (see a summary on the CBO director’s blog)…although they expect growth of 2% this year, they expect real GDP to slow to 1.3% in 2013 because of tax increases, already legislated spending cuts, and other factors; furthermore, they expect this year’s unemployment rate to rise to 8.9% by year end, and average 9.2% for 2013, and remain above 7% through 2015; the 2012 deficit is expected to run $1.1 trillion and decline thereafter, to $585 billion in 2013 and $345 billion in 2014, as revenues increase due to expiration of temporary tax cuts; they also project spending under TARP to increase by $61 billion this yearthe social security disability trust fund will be exhausted in 2016, & the medicare hospital insurance trust fund will be exhausted in 2022; furthermore, they project a trillion dollar deterioration in the social security trust fund, starting in 2019, & declining to $2.7 trillion by 2022, calling into question the social security actuary’s projection of solvency till 2037…at 165 pages full of data, bloggers & reporters have barely scratched the surface, so we havent heard the last of it, stay tuned…

unemployed youth europe

the situation in europe remains difficult; 25 of the 27 EU nations signed the treaty this week that will impose fiscal discipline on all of thembritain & the czech republic refused to take part in this enforced austerity…results of negotiations between greece & its creditors are reported differently every day, with dozens of articles on that situation alone over the past few weeks; latest seems to be a 70% haircut for creditors, with new greek bonds issued at 3.7%; there’s also a lot of talk of portugal following greece into default & a doubling of the crisis fund…and unemployment for the 17 countries that use the euro rose to 10.4 per cent at year end, up from 10.2% & at the highest level since the euro was introduced…but what is most notable about eurozone unemployment is the joblessness among the youth, which is summarized in this graph from zero hedgein spain, 51.4% of those aged 16-24 are jobless; in greece, unemployed youth are 43% of the total….it’s going to be an interesting spring…


this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me