This week is stumbling to an end, with markets largely unchanged and I think exhausted at the sight of nonfunctioning government here and over there.
Ten-year Treasury notes did rise to 2.1 percent, from an all-time bottom of 1.9 percent, but either value is an emergency trade, and the rise did little to mortgage interest rates, still in the 4.125 to 4.25 percent range, and which three weeks ago stopped following the 10-year Treasurys down.
The economy is conjugating the verb: "stall." Stalling, stalled, will stall … the National Federal of Independent Business small business index fell for the sixth straight month, and is now back to recession levels.
Industrial production rose a not-so-mighty 0.2 percent in August, and regional surveys found a slower rate of slowing.
August retail sales were flat, with a precisely zero change. In modest good news, layoffs have stalled, too, so there is no real change in the number of newly unemployed.
The Federal Reserve next Wednesday will announce a new effort to help the economy — the stronger the measure, perversely the more likely to push up mortgage rates in optimism.
However, the Fed’s internal politics are a mess, and not helped by a 0.4 percent Consumer Price Index reading in August; inflation isn’t going anywhere, but it’s impossible to argue the point with the Fed’s rock-headed minority.
We depart Europe, boiling in its own reduction sauce, lectured today by U.S. Treasury Secretary Timothy Geithner to watch what you say or people might be scared by reality.
And we depart a failing presidency, never a pleasant sight, no matter who you don’t like.
We move to "The Word That Cannot Be Spoken": housing.
Three sources: the Federal Housing Finance Agency home-price series, CoreLogic’s new report on underwater homeowners, and today’s Z-1 "Flow of Funds" report by the Federal Reserve.
The Fed, markets and the standard run of economists seem confounded by economic stall. From the glowing forecasts of last winter; then slow on uptake in spring; in-denial insistence on a better second half; and now jaw-dropped at no second half at all.
And, in response to "Why?" … nothing but mumbling.
1. The FHFA national home-price index, reasonably stable at a value of 191 through last August, began a sharp new decline of 10 points that bottomed in April — the one, single indicator leading the general economic decline.
As of June, FHFA shows an artificial rebound to 183.7, achieved by masses of foreclosures blocked by procedural obstruction.
Everyone in the marketplace knows the defaulted homes are there, and fears what will happen to prices when they hit the market.
2. CoreLogic reports that 27.5 percent of all mortgaged homes as of June 30 had negative or near-negative equity. That’s 13.3 million households. It’s not getting any worse, or better, but it’s terribly vulnerable to renewed resales of foreclosures.
The only forgiving aspect: Trouble is concentrated in California, Florida, Nevada, Arizona and Michigan. The inhabitants of these states are, however, fellow citizens and participants in the national economy.
3. Z-1 confirms: As of the end of June, the aggregate value of U.S. homes in the prior year had lost $1 trillion dollars. And smarty-pants economists cannot explain why things are a little soggy.
Last year’s loss is in addition to the $5 trillion lost in the prior four years (the total value decline: from $22.7 trillion to $16.2 trillion).
Connect some dots: Mortgage balances outstanding since the bubble blew in 2006 have declined by only $775 billion, to $10.4 trillion. Of all homes, about 30 percent are owned free and clear.
Thus, of the $16.2 trillion in remaining home value, homes worth about $11.3 trillion carry the entire national mortgage balance of $10.4 trillion. In the aggregate, the equity in the 70 percent of U.S. homes that are mortgaged is less than 10 percent. On trend … evaporating.
If you run into one of the guys who thinks "deleveraging" is the way to heal the nation, before you punch him in the nose, ask if he is bright enough to grasp that home values have fallen eight times as fast as mortgage balances.
The guy standing next to him, who thinks the only problem is that prices have not fallen far enough, and when they do everything will be OK, is probably not worth the bruised knuckles.
Consider how this chart looks if you pull out the equity contribution of the 30 percent of American homes with no mortgage …