NEW$ & VIEW$ (27 FEBRUARY 2013)

New home sales. House prices. Italy.

Builders Fuel Home Sale Rise

Sales of new homes are surging in the U.S., far outpacing results for less expensive existing homes and creating an unusual disparity in the housing recovery.

New-home sales jumped 28.9% in January from a year earlier to the highest annual sales pace in four years, according to data released Tuesday by the Commerce Department. Sales of previously owned homes rose 9.1%. The disparate selling pace exists even though a typical new home costs 37% more than one already built, the widest price gap since the figures started being tracked in 1968, according to an analysis of home prices by Barclays Capital.

In the past two years, more home builders have offered to pay closing costs and arrange home loans through in-house mortgage operations. They have hosted free credit-counseling sessions for buyers with bad credit scores, and made heavy use of government-backed mortgage programs that allow buyers to get a home with little or no down payment.

The result is that for many buyers, it has become far easier to buy a new home than an existing one. “It’s as if people were going to the car dealership and realizing that there aren’t any used junkers left, so they’re buying these shiny new SUVs,” said Ivy Zelman, an independent housing analyst. (…)

Builders have stepped up construction in response. Many of the top U.S. builders have reported double-digit growth in orders for new homes, leading to construction starts at an annual pace of 613,000 single-family homes in January, a gain of 20% over a year earlier, according to the latest Census figures.

Bill McBride at CalculatedRisk explains the ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales.

U.S. Case-Shiller Home Price Index Improves

The seasonally adjusted Case-Shiller 20 City Home Price Index rose 6.9% during the twelve months ended in December, the strongest rise since mid-2006. The narrower 10 City Composite Home Price Index rose 6.0% y/y, also the quickest since 2006. (Haver Analytics)

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U.S. House Prices Rose 1.4 Percent in Fourth Quarter 2012

But not (yet) in NYC (BMO Capital):

The loss of high-paying financial sector jobs continues to take a bite out of the Big Apple’s housing market.

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Bernanke Backs Bond Buying

Bernanke came down firmly in favor of continuing the Fed’s bond-buying programs, even as he noted concerns that the efforts might encourage risk-taking that could destabilize markets or the economy.

“Although a long period of low rates could encourage excessive risk-taking, and continued close attention to such developments is certainly warranted, to this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation,” he said. (…)

The Fed chairman said the central bank is trying to wipe out the advantages of big banks.

Pointing up Thinking smile “The benefits of being large are going to decline over time, which means that some banks are going to voluntarily begin to reduce their size because they’re not getting the benefit they used to get,” he said.

What does that mean exactly?

J.P. Morgan to Cut 17,000 Jobs

J.P. Morgan Chase & Co. stepped up the pace of bank cost cutting, setting plans to eliminate 17,000 jobs by the end of next year and reduce expenses by at least $1 billion annually.

The move announced Tuesday by the New York company, the nation’s most profitable bank in 2012 and the biggest U.S. lender by assets, will reduce its staff by 6.5% in one of the most aggressive reductions to date amid widespread financial-industry cutbacks. (…)

The four largest U.S. banks cut 29,793 jobs last year, according to company filings.

Dimon Says Banks to Have More Capital Than They Can Use

“I think all banks will have too much capital in two and a half years. And they’re not going to know what to do with it.”

Dimon, 56, has said excessive regulation could impede growth as international authorities and the Federal Reserve push banks to guard capital to better withstand another financial crisis.

JPMorgan said that by the end of this year its capital will account for 9.5 percent of risk-weighted assets under rules planned by the Basel Committee on Banking Supervision.

Punch  Italy shatters some comfortable eurozone assumptions (FT’s Gavyn Davies)

(…) The comfortable assumption, which until now has been held by the policy elite in the eurozone, and mostly in the financial markets, that in the end “sensible” democracies will always support conventional economic policies has been shattered. (…)

In the short term, it seems likely an immediate second election might be avoidable. This is just as well for the future of the euro, since it cannot be taken at all for granted that the 2012 “Greek solution” will work in Italy in 2013. Last summer, the Germans and others decided that they could afford to keep Greece inside the euro, as long as the Greek electorate was willing to bite the bullet, and support “austerity” in exchange for monetary assistance from the rest of the eurozone. The Greek electorate accepted this ultimatum – if only just – in the election last June, and they were rewarded by a new package of official debt forgiveness later in the year. Ultimately, when faced with the prospect of being forced out of the euro, Greece blinked. (…)

If Italy’s fiscal arithmetic begins to miss the agreed targets, which seems almost certain in the coming months, the traditional eurozone playbook demands that financial support for Italy should be withdrawn until there is a clear signal from the electorate that they will support a medium-term programme designed to stabilise, and then reduce, Italy’s public debt ratio, which currently stands at more than 125 per cent of GDP.

In Sunday’s election, at least a quarter of the electorate abstained, and another quarter voted for a party which is anti-austerity, anti-euro and anti-corruption, not necessarily in that order. Almost a third of the electorate still supports Silvio Berlusconi, who also ran on an anti-euro, anti-austerity ticket, with tax cuts thrown in. It is a stretch to imagine that this combustible mixture would end in a clear vote for the euro, and for “austerity”, in the event of an “ultimatum election” of the Greek variety.

(…) Jens Weidmann was complaining only yesterday that France should stick to its fiscal targets more rigidly, despite the worrying economic data that have been emerging from the eurozone this year.(…)

That leaves the question of how the markets, and the ECB, will react to the new situation. Until now, there has been another comfortable assumption, which is that the ECB balance sheet will be available, in extreme conditions, to prevent a “run” on the Italian bond market. (…)

imageMario Draghi has agreed to do “whatever it takes” to keep the euro intact, but does that include buying unlimited quantities of Italian bonds, backed by a government unable to accept a eurozone-style economic agenda in the country? If the Bundesbank is jumpy about France, just imagine what they will make of that situation in Italy. And, in that respect, they may have more support on the governing council than in the past.

An immediate financial crisis of the sort endured in 2011 and 2012 is not the most likely development, because an Italian government of some variety can probably emerge from the rubble in the next few weeks. But the markets may now have to adjust to two new truths: the electorate in mature European democracies will not necessarily always support conventional eurozone medicine, and the calming influence of the ECB balance sheet can no longer be taken entirely for granted. These are major new headaches that will not disappear overnight.

Investors fret that Italy may undermine ECB backstop (Reuters)

“The most annoying thing about this outcome is that the ECB might be constrained in launching an OMT program. Without a strong government in Italy, it will have difficulty reaching any memorandum of understanding with European authorities.”

Italy’s anti-austerity ‘rebellion’ promises to spread (G&M)

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