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How Is Unemployment Calculated?
Here in the US, the unemployment rate is estimated by a household survey called the Current Population Survey, conducted monthly by the Federal Bureau of Labor Statistics. The unemployment rate is calculated by dividing the number of unemployed persons by the size of the workforce. An unemployed person is defined as a person not employed but actively seeking work. The size of the workforce is defined as those employed plus those unemployed.

Largest Employer In U.S.
Who is the largest private employer in the United States? Wal-Mart! 2.1 million of us work there. In the public sector, the US Government employs about 2% of the nation’s workforce. The US Postal Service is the largest civilian employer, with about 600,000 folks. Private sector job growth continues to be the key to a sustainable economic recovery, especially if we expect to see much of an improvement in housing prices. Economists continue to believe the probability of a double-dip recession remains low, but are cautious. Heading into this employment data, most believe that if private sector job creation does not improve (or at least hold-up) in the near term, there will be significant ramifications on the economic horizon ranging from the outcome of the November mid-term elections to the likelihood that the Fed proceeds with an additional dose of quantitative easing. more…

The S&P Case Shiller June 2010 report of existing home sales showed year-over-year 4.2% price gains averaged across 20 major metropolitan areas. In June, 17 of the 20 metro areas covered by the index were up. However S&P noted that this reporting period was during the peak of activity corresponding to federal homebuyer tax credit deadlines, so data after this might look more like the record low new and existing home sales for July that we saw last week. Full text of press release below.

Case Shiller June 2010 Home Price Index

Homes are most people’s largest investment so it’s not surprising NYT’s most read story the past 2 days is Housing Fades As A Means To Build Wealth. It cites 5 housing experts who all have similar bearish outlooks on housing. There will always be chatter about the demise of a certain asset class, so remember these two points: (1) Understand your own time horizon and objectives, and do your math accordingly before making investments, and (2) property is the least efficient asset class, so security selection is everything—in non-investor terms, this means that property prices are extremely localized, so there will always be higher-than-average returns on property investments for those who do their research.

As for the NYT piece, the only practicing investment professional among the sources cited was Barry Rithotlz, head of investment research firm Fusion IQ, who later expanded on his blog to say that it is safe to buy 2 kinds of properties right now—see below. more…

Saw this story on San Francisco Realtor Katy Dinner’s blog today, a WSJ piece I missed which highlights a Fed study about underwater homeowners. According to the Fed, “the median borrower who ‘strategically’ defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.” Below are some other good excerpts from WSJ, the whole piece is worth reading.

Nearly 80% of all defaults in the sample resulted from the traditional combination of income shocks and negative equity. But for borrowers that had a loan-to-value ratio of 150%, half of all defaults were strategic defaults, driven purely by negative equity. more…

The S&P Case Shiller April 2010 report of existing home sales showed year-over-year 3.8% price gains averaged across 20 major metropolitan areas, which brings prices back to the same level they were in late-summer 2003. S&P cited the homebuyer tax credit (which homebuyers had to be in contract by April 30 to be eligible for) as a reason for recent strength, but cautioned that sharp declines in Existing and New Home Sales—the May reports for each were last week and showed big post-tax-credit drops—could mean that “consistent and sustained boosts to economic growth from housing may have to wait to next year.” Notable and consistent gains are as follows: Dallas, Denver, San Diego and San Francisco have all posted six consecutive months of positive annual rates of return, recording +3.3%, +4.4%, +11.7% and +18.0% in April, respectively.
Case Shiller April 2010 Home Price Index

The index tracks existing single family homes, and is a credible pricing barometer for broad market analysis because it excludes condos and new construction. Condos can have more volatile pricing, and new construction pricing can be artificially set by builders, especially in times of distress when discounts an incentives can skew pricing. S&P refers to 10 and 20 “City” Composites, but these are actually metropolitan regional areas, not just cities. For example, where the city says San Francisco, this isn’t just San Francisco, but rather the entire 9 county Bay Area region. more…

Short Sales Take 6-13 Months
A study put out by Deutsche Bank ranked GMAC ranked as the top servicer among all prime mortgage servicers based on short sale timelines – six months! The investment bank’s survey showed that a short sale generated a higher recovery than an REO sale. For “prime” short sales, GMAC was the fastest, followed by CitiMortgage (7.5 months) and Wells (8 months). DB’s study showed that BofA was the slowest with a 13 month short sale timeline. For “subprime” Wells came in first (15 months), followed by HomEq and then Saxon. Option ARM short sale speedsters were EMC, Aurora, and GMAC.

Can Foreclosed Borrowers Get New Loans?
Fannie Mae issued a bulletin on Underwriting Borrowers with a Prior Foreclosure, to modify the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. Originally a seven-year waiting period after a prior foreclosure will apply for all borrowers, unless the foreclosure was the result of documented extenuating circumstances, which requires a three-year waiting period with additional eligibility requirements. Fannie also includes a maximum LTV ratio of the lesser of 90% or the LTV ratio per the Eligibility Matrix for all transactions – best to check their grid. more…

Mortgage Bond Market Update
Yesterday we saw yet another improvement, with lower coupon (current production) prices doing the best. At the close of business yesterday, the spread between a Fannie 4.5% security and a Fannie 5.0% security was 2.5 points. (So .5 in rate equates to 2.5 points, or about .625 points for every .125% move.) As it turns out, apparently some dealers are quoting Fannie 30-yr 3.5% security prices. Although when a new security starts trading, it is very illiquid, but the price drop is about 3 points from a Fannie 4.0% security, or .75 in price for every .125%.

FOMC and Economic Preview
Today the FOMC wraps up its two-day meeting. Looking at the big picture, the economy is projected to expand 3.2% this year and slightly less in 2011, with the jobless rate staying above 9% for the foreseeable future. With no inflation, housing and employment scraping by, and European problems, there is no need for overnight rate hikes by the Fed. Many feel that although many areas are stable or improving housing-wise, but in many there are signs of some renewed weakening in home prices. Foreclosures continue (although 70% of them are concentrated in 11 states), bank repossessions hit a record monthly high for the second month in a row in May, and existing home inventories are increasing – none of which help home prices. On the flip side, housing starts are down. Of course, why build more when there are plenty of “used” houses around? more…

Fannie Mae Relief For Homeowners Near Oil Spill
CitiMortgage will suspend all foreclosure sales and filings for 90 days on its 1st mortgages within 25 miles of the Gulf coast. Fannie Mae said that servicers of Fannie-backed loans may immediately suspend or lower payments on mortgages for borrowers whose income or property were affected by the spill. Under the Fannie Mae program, servicers can offer to postpone or lower payments for up to 90 days, during which the servicer is expected to verify the borrower’s income loss or the damage the oil spill may have done to their property. Freddie Mac will grant up to six months forbearance to victims of the oil spill.

Re-Defaults of Modified Loans
Fitch Ratings forecasts that most borrowers who get lower mortgage payments under a federal government program will default within 12 months. This is not much of a surprise to anyone involved in modifying mortgages, but in a story by WSJ’s James Hagerty: more…

Zero-point rates on 30yr fixed Conforming loans (up to $729k) held last week near record lows for a second straight week, and one-point rates on Jumbo loans (above $729k) are steady in the low- to mid-5% range.

Rate Lock Advisory Week of June 14
WeeklyBasis continues its rate lock bias going into next week because European debt problems that caused U.S. rates to drop during May and early-June are easing, and rates could reverse as a result.

This coming market week of June 14-18 is likely neutral for rates. We’ve got business and consumer inflation reports Wednesday and Thursday, and housing starts and building permits Wednesday. The X-factors for rate markets are ongoing global debt fears, and continued Senate and House debate to reconcile their two versions of financial reform bills. Mortgage bonds remain in a slightly overbought state, and if these bonds sell off, rates would rise. more…

Are Your Sure Home Prices Don’t Always Rise?
According to a study released by the MBA (or the MBAA, depending on if you use “Mortgage Bankers Association of America”), multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets.

“As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home. The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates.” more…