Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

The single-largest drag on our economy is housing. The biggest kitchen-table concern is underemployment and unemployment. The two are connected as homeowners’ ability to buy homes is out of reach with the worst-in-our-lifetime employment picture. So the news from the Bureau of Labor Statistics (BLS) on Friday was more than welcome. A quarter million net private sector jobs created in the month was fantastic.

Improvement of unemployment to 8.3% is also good. Or is it? The out-of-work number is 12.7 million people. That is as large as the population of Pennsylvania, every man, woman and child in Pittsburgh and Philadelphia and everywhere in between. There was much celebrating going on Friday as the unemployment figure was announced. I saw claims of a 40-48 state sweep by President Obama in 2012 based on the improved number.

What? Yes, 8.3% is good compared to 9.1% where we were. Yes, 8.3% is good compared to the 8.5% economists predicted. But how does it feel to you? Do you see marked improvement in your neighborhood? Does it feel like we are moving out of the Great Recession? Let’s look at some numbers and what you will be hearing about for the next month until the BLS provides more numbers.

Let’s detail some percentages: 8.3%, 15.1%, 11.0%, 8.0%. Some numbers 1,177,000; 1,685,000; and another percentage 63.7%. These are numbers you will need to know to make heads or tails of the spins you will hear for the next number of weeks.

8.3%: January Unemployment published by the BLS after their monthly phone survey. One of the questions they ask is “Did you apply for a job during the time period between x and y?” If the answer is “No.” and you aren’t currently employed, you are considered not looking and not part of the employment work force. Remember that 8.3% is 12.7M people out of the153M who are either working or still looking/applying for work.

15.1%: This is the “Underemployed” or “U-6” number and takes into account those who are working part-time (PT) but want to be working full-time (FT). It also estimates those who are “marginally attached to the Labor Force”, i.e. would start looking again as soon as they can.

This 15.1% has improved from 17.3% a year ago and is still very high. The implication is that as the economy improves there are that many million more jobs needed to absorb the people looking. Remember that the net working population growth each month is approx 140,000. If only 127,000 jobs are created in a month, the Unemployment stays flat. The 8.8M jobs lost between January 2008 and February 2010 has been devastating.

To get back to healthy, we not only need to get a significant number of the Unemployed back to work, but also many of the ~3M PT employed who are wanting FT employment, plus many of the millions who have given up looking and are not part of the 8.3% and for some not even part of the 15.1%. Watch for OFA to use the chart up on the left with the down bars in red, blamed on Bush and the up bars in green attributed to the policies of this administration.

11.0%: today’s number of January Unemployed if the number of 2008 employees were all still in the game, at least looking for employment. Don't confuse this. Today's 8.3% is lower because so many are no longer looking. If you add those dropouts back in, as if they were still looking, the number would be 11% today.

8.0%: You will hear republican candidates calling out Pres. Obama for the 8.0% bright line he drew in the sand, an unemployment number he claimed when he touted the stimulus projects. You will hear Pres. Obama and Whitehouse Press Sec’y Jay Carney rebutting that his policies have led to the recovery from the worst part of the downturn (a downturn caused by the failed policies of his predecessor, btw.) You decide. Is it feeling like a recovery? Some will say yes and others will say no.

1,177,000 is the adjustment in January to the Labor Force. An adjustment was made to accommodate the 2010 census numbers and in the process it was determined that this many additional people are not in the workforce and not looking for work.

1,685,000 is the number added to the entire population of working age based on the 2010 census. Of this number 508,000 have found work or are looking and 1.2M are not in the Labor Force. Note that this number of people did not drop out in the month of January as some have reported, but are part to a catch up adjustment. There is some debate around the 1.2M number, but the truth still is that these need to be included in the millions who will need work if we are to bring the unemployment rate back to a healthy figure (closer to 5%).

63.7% is the participation percentage, meaning what percentage of the working-age* population is participating in the work force, either FT or PT employed. This number at 63.7% is down from a year ago at 64.2% and dropped 0.3 pts in January because of the adjustments just mentioned. The number has not been this low since 1984 and to some, this is the most concerning statistic. Will those long-term out of work be able to reengage in the workforce? BTW, *the working population is considered all 16 and up who are not on active duty or in an elderly, mental, or penal institution. That civilian worker number in January is 242M.

Another bright point from the BLS Jobs Report is that the unemployment rate amongst Iraq and Afghanistan Vets fell from 13.1 to 9.3%, still not low enough, but a nice movement in the right direction.

The impact on mortgage rates Friday was about an 1/8th of a percent. The market during the day today has already recovered more than half of that decrease. The very small net reaction in the market is an indicator that the bond buyers are not seeing this Unemployment “improvement” in the same light as the Whitehouse. The Fed is sticking by thei predictions last week that Unemployment will be between 8.2 and 8.5% on the year.

These days, more than ever, experience counts. We at Signet have spent our careers providing the best programs and the best customer service. You, your friends and clients deserve the best. We enjoy making exceptional real estate deals happen. Please let us call your friends and clients who could use expert advice. We are grateful to work with you.

The FOMC released its announcement this morning at 9:30 eastern. Two very important indications of what the FOMC will do are found in the statement released to the press.

1. They anticipate keeping the “exceptionally low fed funds rate at least through late 2014″. (Had previously been “into late 2013″, so this is favorable to interest rates.)

2. They have announced extending their program to bolster long-term security holdings.

The impact to the rates was precipitous. Check out this chart to see how the bellwether 10-yr Treasury dropped 14 bps immediately after the announcement.

Mortgage rates continue to improve.

Big news in the Interest Rates market! The mortgage backed securities that enable banks to package loans into the secondary market are at an all-time high which means rates are great and getting better.

Only once ever has the 3.50% coupon MBS from Fannie Mae closed this high and it was in the excitement of the “Operation Twist” announcement and introduction about 100 days ago. At that time interest rates plummeted.

Today we are experiencing the same thing with interest rates in a place that allow for cost-free, 30-year fixed loans on purchases and refis with a 3 in front. That’s right APRs sub 4.0%.

See your friendly neighborhood mortgage broker on Monday for the best available rates!

...Jobs and it Begins with Housing! But wait...

Unemployment dropped sharply last week to 8.6%! Watch this number. The biggest component of the drop is the 100s of thousands who gave up their search, either for the holidays or until the economy makes job search a bit better. I haven't heard any Administration officials touting this number yet and I hope I don't. People have been scared away and discouraged.

The jobs created at 120,000 reported last week is still not enough to even break even with the number of workers coming of age outpacing those turning standard retirement age. And that doesn't take into account that so many are now working much later in life than they used to.

So Unemployment improved but jobs are still not keeping up. We need
1- More-reasonable credit standards in home lending;
2- Significantly lower Federal deficits (currently >$120 B per month!); and
3- Less fear of tax hikes and regulatory crush on the businesses that create jobs.

Today's topic: Exploring some nationwide statistics on Foreclosures and Delinquent Loans. Delinquencies are the "pipeline" to future foreclosures. I read a report this morning that is very informative and I think you will like it too. You can find a PowerPoint graphically presenting all of the data by clicking here. The presentation is provided by LPS Applied Analytics.

Foreclosure stats of interest nationwide:

* Seriously delinquent loans (>90 days delinquent) are down ~40% from high of ~3.0M in January 2010 now 1.7M loans. This is represented by the first chart on the right, above

* 3.9M loans are either seriously delinquent (>90 days delinquent) or in Foreclosure

* 2.2M of those are in Foreclosure, the highest number ever and 4.3% of all active loans

* Another 7.9% are delinquent by at least 30 days for a total of 12.2% of 51.5M active loans are Non-Current which includes everything Delinquent more than 30 days and in Foreclosure

* Oregon is 8.3% Non-Current vs. National average of 12.2%. CA is 10.5% Average days delinquent of those in Foreclosure are now 631 days since delinquent. The average Foreclosure is now approaching 2 years to clear.

* Interesting that in the 12 months since Oct ’10 to now, the Delinquencies have improved, down 14.6%, while Foreclosures are up 9.4%. This probably relates to the vote-seeking Attorneys General battering the lenders and delaying the process. This was more prevalent in 2010, but just last week was reopened by the Mass. AG.

* Non-Judicial states (like OR and CA) have 4 times as many sales of Foreclosure inventory as Judicial Foreclosure states (like NY and FL) (I.E., 6.3% of inventory vs. 1.6% in the month of Oct)

* Some positive news to be gleaned: Total “Starts”, while still at ~250k for the month, 40% were “repeats” and “new” were less than 150k on the month. (See the chart above to the right.) Also, these Foreclosure Starts were 11.5% less than a year ago.

* But even the positive news is tempered by reality: Foreclosure starts noted above are still 3x the number of Foreclosure sales monthly.

* Overall, the report appears to be showing a reduction of the pipeline leading to foreclosures, a log-jam in the number of homes in foreclosure, more arriving in foreclosure than selling each month, and a lengthy, 2-year window of getting foreclosures sold. It feels like with the ratio of New Foreclosures to Sold at 3x, and delays in the process, that 2-year timeframe to get from Delinquent to Sold through the Foreclosure channel is going to have to get longer for a time. Once that reaches a peak, we'll probably have an idea of how many more years it will take to get back to even 2007 levels. This could easily be 2014 and more likely 2015. Argh.