Thursday, September 20, 2012

Balance sheet improvement continues

Today the Fed released its Q2/12 estimate of households' balance sheets. Although net worth slipped by $322 billion for the quarter, this was entirely due to the decline in the stock market. The rebound in equities since June has more than made up for the second quarter losses, so net worth today is almost certainly at a new post-recession high and closing in rapidly on pre-recession levels. Here's one surprising development: according to the Fed's estimates, the value of households' real estate holdings is no longer declining and in fact rose almost $800 billion in the first half of this year, while debt burdens are going nowhere. Altogether, this is a sustainable recovery, even though it is still painfully slow.


McKibbinUSA said...

An economic recovery that takes 100 years to achieve is unacceptable to the American people...

McKibbinUSA said...

PS: Maintaining US troops on foreign soil for 100 years is also unacceptable to the American people -- for the record, US troops have been stationed continuously in Korea since 1950 or 62 years to far -- our nation could make a giant step toward prosperity by cutting our military spending down to what China spends...

Anonymous said...

Since the Great Depression, America has never had a deeper recession then the last 4 years.

No one can reasonable expect our economy to just snap back and undo all the damages as if nothing happened. No president, democrats or republicans can engineer such a feat.

The recovery in household networth is amazing.

Scott Grannis said...

Actually, the available data suggests that the deep the recession the stronger the recovery. The current recovery has been very atypical.

Scott Grannis said...

Meant to say "the deeper the recession the stronger the recovery"

Anonymous said...

For many data points the last 4 years have been an unqualified V shape recovery. The exceptions are employment and housing.

There are couple of reasons for the slow employment recovery.

However, first let me point out slow employment recovery isn't new to this recession. During the Bush years, the recession was just small blip in the scheme of thing. However, it took a very long time for employment to come back down. The issue is structure.

Here are the reasons for slow employment recovery:

1. Global macro conditions played a huge role (Europe).

2. Well studied affect of housing recovery's impact on employment during a recession. Slow housing recovery is to be expected.

3. Technology. Today, Americans produced more and provided more services then ever. Yet this is accomplished with many fewer people.

Machines are replacing people at the low end and the machines are moving up the ladder. People are unable to adopt fast enough(i.e. learn new skills). Remember, human capability can be plotted as a bell curve. Most of us will never compete in the Olympic regardless of how hard we try.

View from an individual's perspective, try harder is a good approach. However, from the whole population perspective, this isn't a simple training problem!

I know the last point will bring out those with strong view! said...

We surpassed the old net worth high one to two years ago.

That great Obama economy sure enabled me to build some fantastic equity positions at once in a generation prices.

Thank you.

McKibbinUSA said...

Manufacturing certainly has access to capital from the many "too big to fail" banks that are hoarding cash -- eventually, manufacturing in the US could show real signs of health -- of course, the pace of that improvement means that a true recovery in manufacturing will take 20-30 years -- until now, Main Street USA has been held in economic depression due to the dearth of capital for Main Street growth and expansion -- that is being fixed by QE3, which promises to place a steady stream of capital into the hands of Main Street entrepreneurs, and particularly, Main Street real estate -- that means that Main Street now has a level playing field for the first time since the economic crisis began -- my deepest concerns have always rested with Main Street issues, including the persistent long-term declines in real working wages, home values, and the employment to population ratio -- I am now bullish on real estate development in the US, which means construction jobs will expand, real working wages have a shot at increasing, and home values will increase -- again, I am delighted to see that Main Street USA has finally found its way onto the monetary policy agenda -- Main Street USA now has a chance of improving its fortunes in a way that does not await "trickle-down" from the manufacturing economy.

Paul said...

"Thank you."

Thanky Bernanke.

zumbador said...

This looked a bit weird to me AND it has nothing to do with a comment or response to your post....but I thought you (and other readers) might find it of interest.

Published on HousingWire (
Home > GSEs ease mortgage buyback rules on HARP
GSEs ease mortgage buyback rules on HARP

Fannie Mae and Freddie Mac eased some guidelines for lenders refinancing mortgages, including new relief from buying back the loan, according to an alert sent to lenders.

Beginning immediately, Fannie will waive future repurchase claims on the new loan if an appraisal on the property is done. Previously, if a lender obtained an appraisal, it was still responsible for representations and warranties for the property's value on the new loan.

Freddie relieved lenders of buyback risk tied to "creditworthiness, any other underwriting requirements, value, condition and marketability of the (the property) and certain fraud requirements" for refinance applications received beginning Nov. 19, according to its notice.

Repurchase risk still remains for new servicers refinancing a mortgage financed by either Fannie or Freddie.

Before the changes announced Friday, the GSEs required retail lenders to verify that at least one of the borrowers on the loan had a source of income if the monthly mortgage payment changed by 20% or less after the refinance. It waived this requirement Friday and will allow retail lenders to verify the borrower has enough reserves to cover 12 months of the new mortgage payment before approving the new loan.

The reserves can include checking and savings accounts, stocks, bonds, mutual funds and even amounts vested in retirement accounts, according to the changes.

The GSEs also reduced how much documentation lenders will need to get the refinance approved. Lenders won't be required to verify a borrower's past or current income. Fannie and Freddie also waived requirements to look into large deposits on borrower statements.

The changes were made to expand even further the reach of refinancing and to assist borrowers who owe more on their mortgage than their home is worth. The Federal Housing Finance Agency altered the Home Affordable Refinance Program to remove some repurchase liability on the old loan for the original servicer.

Other barriers to HARP including some appraisal requirements and upfront fees and a loan-to-value ceiling were also removed.

More than 519,000 underwater borrowers refinanced under HARP through July, more than the roughly 400,000 in all of 2011.

Democrats in the Senate reintroduced legislation last week to expand HARP to waive repurchase risk for all lenders, not just the original one. But the bill will not likely pass before the election in November, if at all.

Still, the GSEs expect the new rules will allow "lenders more efficiently reach an even broader base of eligible borrowers," according to the alert put out by Fannie.

William said...


The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 125.4 in the week ended Sept 14 from 124.7 the previous week. That was originally reported as 124.9.

The index's annualized growth rate jumped to its highest level since late July 2011 at 2.7 percent from 1.9 percent.

William said...

Lipper US Funds Flow

Weekly 09/19/2012
Equity Fund Inflows $11.4 Bil; Taxable Bond Fund Inflows $4.9 Bil

xETFs - Equity Fund Outflows -$1.9 Bil;
Taxable Bond Fund Inflows $4 Bil

Weekly 09/12/2012
Equity Fund Inflows $10.7 Bil; Taxable Bond Fund Inflows $4.9 Bil

xETFs - Equity Fund Outflows -$1.3 Bil;
Taxable Bond Fund Inflows $4 Bil

William said...
This comment has been removed by the author.
William said...

Shaeffer's Investors Intelligence

Percent Bullish Percent Bearish
09/19___ 54.2___ 24.5
09/12___ 51.1___ 25.5
09/05___ 51_____ 24.5
08/29___ 48.9___ 24.5
08/22___ 47.3___ 24.7
08/15___ 43.6___ 26.6
08/08___ 43.6___ 25.5

Jim said...

Inflated assets that will revert to the mean. From 2000 on that chart is a joke, and it is going to be a cruel reminder where the real value of assets will be without the global central banks propping the inevitable.

Unknown said...

The GSEs also reduced how much documentation lenders will need to get the refinance approved. Lenders won't be required to verify a borrower's past or current income. Fannie and Freddie also waived requirements to look into large deposits on borrower statements like balance sheets.