Wednesday, February 16, 2011

Today's links

1---Household deleveraging continues, sort of, FT. Alphaville

Excerpt: We recently commented at length about the declining savings rate and the consumer-spending-led rebound that was taking place, even as households continued to delever.

The key takeaway from this report is that all of the deleveraging in the fourth quarter took place in mortgage debt and Heloc balances. Outside of housing-related items, it was the first quarter in two years that total consumer debt did not fall.

The report also notes that the pace of new foreclosures slowed in the quarter, and the number of new bankruptcies on credit reports also fell.

Here’s a quick summary from a speech this morning by NY Fed president William Dudley:

The Household Debt and Credit Report released today indicates that there has been a pick-up in credit flows. Households increased their non-mortgage debt last quarter, a development not seen since the fourth quarter of 2008. The number of credit card applications increased—an indication of a pick-up in consumer demand for credit. And, the number of open credit card accounts also increased slightly—as more accounts were opened than were closed. Of course, signs of distress continued: households are still reducing their housing-related debt and delinquencies continue to be a problem. So, the adjustments remain far from complete.

It is encouraging that credit flows are no longer contracting because households’ renewed demand for credit has no doubt supported some of the recent rise in consumer spending.

2--With Consumer Credit Up Sharply, Is America Releveraging?, Daily Finance

Excerpt: A series of data releases about consumer borrowing this week paints a picture of an economy that's rebounding smartly from its earlier doldrums. But have consumers learned any lessons about loading up on the red ink?

According to the Federal Reserve, outstanding consumer revolving debt, which is mainly credit cards, increased from $807.2 billion in November to $826.6 billion in December, a 2.5% increase in a single month. Outstanding nonrevolving debt, such as auto loans, rose from $1.608 trillion in November to $1.611 trillion in December. Automakers have reported a sharp increase in sales in the fourth quarter, with Detroit taking the lion's share of the jump.

The New York Stock Exchange released data showing that margin credit -- money investors borrow to buy shares -- increased to $276 billion in December, up from $233 billion at the start of the year. That reflects a sharply higher stock market but also an increased appetite for borrowing.

Combined, the two reports raise a key question: Is America releverging?

3--Banks Push Home Buyers to Put Down More Cash, Wall Street Journal

Excerpt: The down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers.

Last week, the Obama administration called for gradually raising down payments to a minimum of 10% on conventional loans, meaning those that can be bought or guaranteed by mortgage giants Fannie Mae and Freddie Mac. And mortgage data show that private lenders are already pushing sharply higher the required down payments, mainly to mitigate their risk as home prices continue to fall.

The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis for The Wall Street Journal by real-estate portal Zillow.com. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997....

Higher borrowing costs and heftier down payments could send housing prices falling further. Last week, 30-year fixed mortgage rates rose to 5.05%, their highest level since April. "If there is a scenario where the government talks about raising down payments to 20% on conventional loans, you would absolutely crush the housing market," said Peter Norden, chief executive of Real Estate Mortgage Network Inc., an Edison, N.J., brokerage.

4--January Retail Sales Grow, But U.S. Consumers 'Downshift', Huffington Post

Excerpt: Despite the impact of growing food and gas prices, retail sales showed solid signs of growth In January, according to Commerce Department figures released today.

Consumer spending, which represents about 70 percent of the U.S. economy picked up steam last year, increasing by 4.4 percent in the last quarter of 2010, which according to the Wall Street Journal, was the fastest pace since 2006.

January's retail sales were up 7.8 percent over the same period last year, with sales hitting $381.6 billion. But sales were up just 0.3 percent over December, which fell short of many economists' expectations.

"The consumer downshifted a little, but we're still seeing fairly decent growth in spending," said Sal Guatieri, senior economist at BMO Capital Markets.....

5--MBA: Mortgage Purchase Application activity decreases, Calculated risk

Excerpt: The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 11.4 percent from the previous week and is the lowest Refinance Index recorded in the survey since the week ending July 3, 2009. The seasonally adjusted Purchase Index decreased 5.9 percent from one week earlier.
...
"Mortgage rates remained above 5 percent last week, up almost a full percentage point from their October lows, and refinance volume continued to drop," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Applications for home purchases also declined on a seasonally adjusted basis. Buyers have not returned to the market as rising rates have reduced affordability, to some extent."
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.12 percent from 5.13 percent, with points increasing to 0.85 from 0.84 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans....

The four-week moving average of the purchase index has fallen to the levels of last September - suggesting weak home sales through the first few months of 2011.

6--CoreLogic: NAR’s 2010 existing home sales are overstated by 15% to 20%, Calculated Risk

Excerpt: CoreLogic released their U.S. Housing and Mortgage Trends Report: 2010 Year End Summary today.

From the report:

During 2010 CoreLogic estimates home sales totaled 3.6 million, down 12%from 4.1 million in 2009. Sales remain extremely low relative to the last decade as sales last year were more than 50% below the level in 2005 and about 33% below the level in 2000. Although it’s been widely reported that the National Association of Realtors’s (NAR) existing home sales data fell only 5% to 4.9 million in 2010, down from 5.2 million in 2009 and flat relative to 2008, the CoreLogic data indicates otherwise....

7--Household Debt Falls for 9th Quarter, New York Times

This week the Federal Reserve Bank of New York released its quarterly report on household debt and credit, which showed that total consumer debt declined again in the fourth quarter, continuing what is now a nine-quarter-long slide in household debt.

What was more peculiar, though, was that for the first time since the end of 2008, nonhousing-related debt — that is, debt excluding mortgages and home equity lines of credit — did not fall...

Rather, these other debts actually rose slightly in the fourth quarter, by 0.3 percent or $7.3 billion. And remember that these figures include charge-offs — that is, debts that haven’t been repaid and have just been written off by the creditor. In other words, nonmortgage-related credit rose even after accounting for people who defaulted on their loans last quarter.

It’s hard to know exactly how to interpret this change, and whether it means that consumers may soon consider resuming their free-spending (and free-borrowing) ways, to the extent that the market allows them to. At the very least it seems that nonmortgage consumer borrowing has temporarily stabilized after a long downward trend.

8--Irish Anger Threatens Exodus From Dominant Party After Record Boom to Bust, Bloomberg

Excerpt: While few political parties have been as successful at winning elections in the past as Fianna Fail, few have presided over an economic boom and bust of such magnitude.

Since the party came to power again in 1997 -- it’s governed for three of every four years since winning its first election in 1932 -- Ireland went from being western Europe’s fastest-growing economy to one needing an 85 billion-euro ($115 billion) rescue from the European Union and International Monetary Fund in November as bank debt mounted.

“People are asking why aren’t the Irish storming the barricades, why aren’t they angry?” Diarmaid Ferriter, an historian and author of “The Transformation of Ireland: 1900- 2000,” said in an interview. “The answer is they are, and they are getting ready to give Fianna Fail a good kicking.” ...

The country will have to pour about 30 billion euros, close to the state’s entire tax take last year, into Anglo Irish Bank Corp. In all, 46 billion euros has been committed to rescuing the financial system, with another 35 billion euros available as part of the bailout.

9--Strikes, workers’ protests spread throughout Egypt, World Socialist Web Site

Excerpt: Large numbers of workers in Egypt’s main cities staged strikes and street demonstrations yesterday for higher wages, better working conditions, and the removal of corrupt managers of state-owned enterprise promoted under former President Hosni Mubarak. The movement of the working class is developing in defiance of the ruling military command, which has stridently demanded an end to all industrial action.

The junta, headed by Mubarak’s henchmen Field Marshal Mohammed Hussein Tantawi and Prime Minister Ahmed Shafiq, declared an unscheduled public holiday yesterday, apparently in an attempt to defuse the strike wave. The military also declared today a public holiday.

Workers across many industries nevertheless mobilised yesterday, in both the public and private sectors. One BBC journalist commented, “There appears to be a whole series of mini-revolutions going on in the wake of the removal of Mr. Mubarak”....

The military has been the central pillar of the Egyptian capitalist state ever since the 1952 Free Officers Coup. Under Mubarak’s IMF-approved “free market” measures, the senior command amassed enormous personal fortunes as the military appropriated vast swathes of privatised state industry and landed property. The workers’ movement for higher wages, jobs, improved living conditions, and democratic rights represents a direct threat to the army hierarchy’s lucrative interests, as well as an implicit challenge to the rule of the entire Egyptian bourgeoisie....

Notably, none of the official middle class “opposition” parties—including the Muslim Brotherhood and Mohamed ElBaradei’s National Association for Change—has condemned the military’s threats against the working class. Striving to maintain illusions in the role of the army, these forces have urged an end to the demonstrations and strikes. ElBaradei and his colleagues are now preparing to enter the military regime....

Prominent anti-Mubarak activists, Google executive Wael Ghonim and blogger Amr Salamahey, met with representatives of the military council. They were reportedly told that the army plans to rewrite the constitution within ten days—entirely behind the backs of the Egyptian people—and put it to a referendum for ratification within two months.

The military has yet to announce when it will deliver on its pledge to rescind Mubarak’s draconian emergency legislation. It has also remained silent on whether it will release the many political prisoners who remain in detention.

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