by Tanta on 3/25/2008 07:52:00 AM

This may make more sense if you've read this.

by Calculated Risk on 3/25/2008 01:08:00 AM

From the WSJ: Foreclosure Rate Outpaces Sales by Lenders

Foreclosures are occurring at the highest rate in decades -- and as a result, lenders are acquiring homes faster than they can sell them off.

Last year, sales of foreclosed homes rose just 4.4%, while the supply more than doubled, according to First American CoreLogic.
...
This year, sales of homes owned by lenders will likely total 480,000 properties, or 10% of all sales of previously occupied homes this year, [Mark Zandi, chief economist of Moody's Economy.com] estimates.

With foreclosed properties accounting for 10% or more of the housing market, house prices will be under significant pressure all year.

As far as the supply of foreclosed homes increasing, I checked the Countrywide site, and I was a little surprised to see Countrywide's REO inventory declining.

Click on graph for larger image.

This is a graph from the Countrywide Foreclosures Blog showing that Countrywide's REO inventory appears to be declining. Puzzling. Perhaps Countrywide is being more aggressive than other lenders because of the pending acquisition by BofA.

Also from the WSJ: Wave of Foreclosures Drives Prices Lower, Lures Buyers

A glut of foreclosed homes of historic proportions is starting to drive down U.S. home prices faster as lenders put more properties on the market and buyers show signs of interest.

The ability of America's lenders to manage this fire sale will be crucial to determining how long the housing market stays in the dumps -- and how quickly blighted neighborhoods can heal. The oversupply is severe: In some major markets, including Las Vegas and San Diego, foreclosure-related sales have accounted for more than 40% of all sales in recent months.

by Calculated Risk on 3/24/2008 10:44:00 PM

From San Francisco Business Times: Wells Fargo CEO says he's open to conducting a Fed-assisted acquisition

Wells Fargo CEO John Stumpf said the financial crisis is presenting the bank with more acquisition opportunities.

"I would not be averse to a Fed-assisted transaction," Stumpf said in a recent interview with the San Francisco Business Times. "Fixer-uppers don't bother us."

The article mentions National City Bank as a possible acquisition.

Note: for some reason I picture Tanta's Mortgage Pig feeding at the public trough.

by Calculated Risk on 3/24/2008 04:59:00 PM

The Chicago Fed's national activity index isn't followed very closely. However it is interesting that the Chicago Fed argued that there is "an increasing likelihood that a recession has begun" and that their national activity index has been at recessionary levels for three months (December, January and February).

Click on graph for larger image.

From the Chicago Fed: National Activity Index

The three-month moving average index was below the –0.70 threshold in February. Such an occurrence following a period of economic expansion indicates an increasing likelihood that a recession has begun. In addition, downward revisions to previously published data, particularly employment-related indicators, lowered the index for the previous two months below the –0.70 threshold. Thus, February marked the third consecutive month the three-month moving average remained below this threshold.
emphasis added

December is my guess as the beginning of the current recession (of course I'm assuming that NBER calls a recession).

by Calculated Risk on 3/24/2008 03:20:00 PM

The TED Spread from Bloomberg:

The TED spread has declined to 1.52% (from over 2% last week).

Note: the TED spread is the difference between the three month T-bill and the LIBOR interest rate. Usually the TED spread is less than 0.5%. The higher the spread, the greater the perceived credit risks (compared to "risk free" treasuries).

The third wave of the liquidity crisis appears to have peaked.

If you want a cliff diving chart, see the Shanghai market. (hat tip James)

by Calculated Risk on 3/24/2008 12:43:00 PM

For more, see my earlier post: February Existing Home Sales

Click on graph for larger image.

The first graph shows the inventory by month since 2002.

There are two key points: During the boom years (2002 through mid-way 2005), inventory levels stayed fairly steady. During the bust years, the inventory level has increased to a new record level for each month.

February 2008 was no exception. Even though inventories decreased slightly from January, inventory is at an all time record high for February.

With the coming Spring selling season, the question is: Will inventory levels keep setting new records, or will inventories hold steady (or even decline)?

The second graph shows the normalized seasonal inventory pattern for the last few years. The data is normalized to the ending level of the previous year = 100.

Note: the NAR doesn't seasonally adjust inventory.

This shows that the inventory level usually increases through July, with some noise. The next few months will tell us if inventory is stabilizing, or if the decline in February was just noise.

And finally, here is a repeat from earlier this morning. This is a graph of Not Seasonally Adjusted existing home sales for 2005 through 2008.

I'm repeating this graph so emphasize that February is typically one of the least important months of the year for existing home sales. Small changes in actual Not Seasonally Adjusted sales (due to weather, leap year, or other factors) can have a significant impact on the headline Seasonally Adjusted numbers.

The data for March will be much more important since that is the beginning of the Spring selling season.

by Calculated Risk on 3/24/2008 11:05:00 AM

From AP: JPMorgan raises Bear purchase price

by Calculated Risk on 3/24/2008 10:00:00 AM

The NAR reports that Existing Home sales were at 5.03 million (SAAR) unit rate in February.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.9 percent to a seasonally adjusted annual rate of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007.

Click on graph for larger image.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in February 2008 (5.03 million SAAR) were the weakest February since 1998 (4.77 million SAAR).

Here is a graph of Not Seasonally Adjusted existing home sales for 2005 through 2008.

This graph shows that sales have plunged in February 2008 compared to the previous three years. This also shows that February is typically one of the least important months of the year for existing home sales. The data for March will be much more important since that is the beginning of the Spring selling season.

The third graph shows nationwide inventory for existing homes. According to NAR, inventory decreased to 4.03 million homes for sale in February.

Total Total housing inventory fell 3.0 percent at the end of February to 4.03 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.2-month supply in January.

The typical pattern is for inventory to decline in December, and then to slowly rebound in January and February, and really start to increase in March.

I'd expect record levels of existing home inventory later this spring and summer.


The third graph shows the 'months of supply' metric for the last six years.

Months of supply decreased to 9.6 months.

NOTE: NAR reported months correctly (my mistake)

This follows the highest year end months of supply since 1982 (the all time record of 11.5 months of supply). Even if inventory levels stabilize, the months of supply could continue to rise - and possibly rise significantly - if sales continue to decline. I'll have more on inventory later.

by Calculated Risk on 3/24/2008 12:41:00 AM

From the NY Times: JPMorgan in Negotiations to Raise Bear Stearns Bid

JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.
...
Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share ... The renegotiation, which would set a sale price of more than $1 billion ...

The actual price to JPMorgan is the cost of integration and any write-downs of Bear Stearns assets plus the share cost.

JPMorgan estimated the transaction-related costs of approximately $6 billion pretax. This included litigation, cost of de-leveraging, conforming accounting and consolidation. The $2 per share price was almost irrelevant compared to the other costs - the $2 per share was approximately $236 million.

Changing the deal to $10 per share increases the purchase cost from about $6.25 billion to about $7.25 billion, and will probably help obtain shareholder approval (a serious problem at $2 per share). This isn't a huge difference for JPMorgan, but it makes a significant difference to Bear shareholders.

by Calculated Risk on 3/23/2008 07:38:00 PM

From the Financial Times: US can learn from Japan’s crisis

The US should inject public funds into its financial system, which is undergoing a worse crisis than that experienced by Japan during its non-performing loan crisis, according to Japan’s financial services minister.

“It is essential [for the US] to understand that given Japan’s lesson, public fund injection [into the financial sector] is unavoidable,” Yoshimi Watanabe told the Financial Times.
...
The remarks are the first public expression of concern by a Japanese cabinet minister that the impact of the current financial market turmoil could be much more serious than Japan’s experience during its “lost decade” of abnormally slow economic growth in the 1990s.

All through the '90s U.S. policy makers offered unsolicited advice to Japan, so turnaround is probably fair play. Still, given Japan's "lost decade", it isn't very comforting receiving advice from Japan.

Note: I'm not an expert on Japan, but I believe that the Japanese real estate bubble was much larger (relative to their economy) than the U.S. bubble. Here are some numbers I found (If anyone has better data, please let me know):

At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion ...

Japan's GDP (in dollars) was about $3.5 trillion in '91, so the value of all real estate was about 5 times GDP.

Using the Fed's Flow of Funds report, the value of U.S. real estate at the end of 2007 was:
Households and Nonprofit Organizations, $22.5 trillion
Nonfinancial Corporate Business, $8.8 trillion
Noncorporate Business, $7.3 trillion

For a total of $38.6 trillion. GDP in 2007 was $13.8 trillion, so value of U.S. real estate was about 2.8 times GDP (maybe slightly higher at the peak).

There are many other differences between Japan's asset bubble of the early '90s, and the current U.S. asset bubble - but it does appear that Japan's bubble was significantly larger (relative to their economy).