by Calculated Risk on 4/25/2007 09:59:00 AM

According to the Census Bureau report, New Home Sales in March were at a seasonally adjusted annual rate of 858 thousand. Sales for February were revised down to 836 thousand, from 848 thousand. Numbers for December and January were also revised down.


Click on Graph for larger image.
Sales of new one-family houses in March 2007 were at a seasonally adjusted annual rate of 858,000... This is 2.6 percent above the revised February rate of 836,000, but is 23.5 percent below the March 2006 estimate of 1,121,000.


The Not Seasonally Adjusted monthly rate was 84,000 New Homes sold. There were 108,000 New Homes sold in March 2006.

On a year over year NSA basis, March 2007 sales were 22.2% lower than March 2006. March '07 sales were the lowest since March 1999 (84,000).


The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised.

The median sales price of new houses sold in March 2007 was $254,000; the average sales price was $330,900.


The seasonally adjusted estimate of new houses for sale at the end of March was 545,000.

The 545,000 units of inventory is slightly below the levels of the last six months. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are at record levels. Actual New Home inventories are much higher - some estimate about 20% higher.


This represents a supply of 7.8 months at the current sales rate.


More later today on New Home Sales.

by Anonymous on 4/25/2007 09:17:00 AM

FED reports:

At March 31, 2007, negative amortization, included in the balance of loans receivable, totaled $248.5 million compared to $215.8 million at December 31, 2006 and $98.5 million at March 31, 2006. Negative amortization represents unpaid interest earned by the Bank that is added to the principal balance of the loan.

Negative amortization increased by $32.7 million during the first quarter of 2007 and $150.0 million from one year ago. Negative amortization has increased over the last two years primarily due to increases in short-term interest rates. Negative amortization as a percentage of all single family loans in the Bank's portfolio totaled 4.36% at the end of the first quarter of 2007 compared to 3.44% at December 31, 2006 and 1.32% at March 31, 2006.

The portfolio of single family loans with a one-year fixed monthly payment totaled $4.4 billion at March 31, 2007 compared to $4.6 billion at December 31, 2006 and $4.7 billion at March 31, 2006. The portfolio of single family loans with three-to-five year fixed monthly payments totaled $1.5 billion at March 31, 2007 compared to $1.8 billion at December 31, 2006 and $2.5 billion at March 31, 2006.

A $3.8 million loan loss provision was recorded during the first quarter of 2007, compared to a $3.0 million provision recorded in the fourth quarter of 2006 and a $3.9 million provision recorded in the first quarter of 2006. Net loan charge-offs totaled $628 thousand for the first quarter of 2007 compared to $90 thousand in the fourth quarter of 2006 and $25 thousand in the first quarter of 2006. The ratio of non-performing assets to total assets was 0.46% at March 31, 2007 compared to 0.21% at the end of 2006 and 0.07% at March 31, 2006.

Non-performing assets have been very low over the past few years due to increases in single family home prices. The recent increase in non-performing assets results primarily from the flattening of single family real estate prices overall in California. Areas such as Sacramento or San Diego that have experienced rapid growth in housing development in the past few years have seen recent declines in single family home prices. To date, the Bank's non-performing assets are due to defaults on single-family loans and are located principally in those geographic areas where rapid development of housing has caused supply to outpace demand. It is expected that non-performing assets will continue to increase until the real estate prices in these areas reach an equilibrium between buyers and sellers.

by Anonymous on 4/25/2007 07:30:00 AM

Good morning, Calculated Riskers. It's Wednesday, and you know what that means: Wall Street has discovered that there's fraud in them loans! Alert the media!

Well, actually the media is alerting us. Bloomberg is on the case already, in "Subprime `Liar Loans' Fuel Housing Bust With $1 Billion Fraud." Sure, you thought the liar loans fueled the housing boom, and that the "liar loan" problem was hardly confined to subprime, but that's because you're a permabear.

Read the thing if you must; I'm sure you'll enjoy the reference to the MARI report on exaggerations of stated income that has been reported on approximately one gajillion times since its original publication one year ago, and is apparently the last research on the question anyone is ever going to do until the archaeologists take over.

What I noticed is what isn't here: any recognition that Wall Street has known about the explosion in "stated income" lending since the git-go. You will note the reference to volume numbers provided by Credit Suisse. CS would be getting these numbers from LoanPerformance or some similar database of securitized loans. The reason the database has that information is that "doc type code" is a required field at the loan level. It is--sit down, this will shock you--used to price the loans that Wall Street is buying. That is where that additional quarter of a point cost to the borrower mentioned in the article comes from. These decisions about how to price risk do not come from random confluences of impersonal forces of nature that are invisible without a pair of Spectrespecs.

But Wall Street is paying attention:

Low documentation loans were established in the 1980s mainly for the self-employed and non-U.S. citizens whose pay was difficult to verify. They can be processed quicker than standard loans and typically cost the borrower an extra quarter point on his mortgage. They were made possible by relaxed lending guidelines, or what Bear Stearns Cos. analyst Gyan Sinha calls ``Hail Mary underwriting.'

OK. Stated income loans "were made possible by relaxed underwriting guidelines." Who made up those relaxed underwriting guidelines? At what point, exactly, did Bear Stearns notice this? Is Bear saying that its own underwriting guidelines were mere exercises in counting rosary beads, or that someone else's were? Does that mean Bear manages risk by delegating the formulation of credit policy for billions and billions of securitized loans to some pissant mortgage broker? Does it tell the SEC that? And what's with this "were" business, anyway? Nobody's doing stated income any longer? That is news.

Ladies and gentlemen of the press: we have, actually, established the culpability of borrowers and brokers on the bottom and foreign central banks and other nefarious sources of liquidity on the top. Could we, maybe, spend a minute looking at the middle of the chain? Unless I am sorely mistaken, the Street has been accepting a lot of fees lately for "underwriting" mortgage-backed securities. Perhaps we could ask them about their own "Hail Mary" problem for a change?

by Calculated Risk on 4/24/2007 01:22:00 PM

In a research note titled "US Views: On Track?", Jan Hatzius, Chief US Economist at Goldman, Sachs & Co. commented today on residential construction employment.

"We expect ... evidence of labor market slowing over the next few months. ... our expectation [is for] a large decline in construction employment ..."
Jan Hatzius, April 24, 2007

Note: Excerpts used with permission.

Click on graph for larger image.

This graph shows starts, completions and residential construction employment. (starts are shifted 6 months into the future). Completions follow starts, and employment usually tracks completions.

Based on historical correlations, it is reasonable to expect BLS reported residential construction employment to follow Starts and Completions "off the cliff" soon. One of the current mysteries is why residential construction employment (the blue line) is holding up so well.

Hatzius doesn't believe the problem has to do with the mis-classification of employees (some have suggested that the strength in non-residential construction might be masking weakness in residential construction employment):

"... the mis-classification hypothesis can't explain why overall construction employment is flat while overall construction activity ... has been falling [significantly]."

And what about undocumented illegal immigrants?

... does the layoff of undocumented immigrants who don't show up in the statistics "insulate" the payroll data, i.e. do the illegals lose their jobs so the regular employees can stay on the payroll? ... I don't think the story ultimately holds up. First, it can't explain why residential payroll employment did track activity very closely on the way up, but (so far) not on the way down. Second, while remittances to Mexico -- one of the few proxies for undocumented immigrant employment -- have fallen slightly over the past year, the pattern broadly tracks residential construction employment (which after all is also down, just not as much as we had expected). Third, the household survey of employment, which may pick up a larger share of immigrant employment because it includes independent contractors, shows an even stronger performance of construction employment than the establishment survey over the past year (though there is no res/nonres breakdown).

Update: On the following remittance data from the WSJ, Hatzius has sent me a graph of the growth rate (using a 3 month moving average), and the slow down in remittance does appear gradual. From the WSJ today: Latin America Feels Pain Of U.S. Housing Slump

Monthly remittances from the U.S. to Mexico have dropped every month since their peak of $2.6 billion in May 2006 -- shortly before new-home construction in the U.S. plunged. In February 2007, the latest month for which data are available, remittances to Mexico had slowed to $1.7 billion.

Mexico, Latin America's remittance leader, may be a leading indicator of a trend unfolding across the continent. In a recent study of 15 Latin American economies tracked by BCP Securities of Greenwich, Conn., all but three showed better than a 90% correlation between the ebb and flow of U.S. housing starts and the swelling and shrinkage of remittances as recorded by the nations' central banks.

So what is the answer to the residential construction riddle? In an earlier note, Hatzius suggested there might be some "hoarding" of employees, as many employers anticipate a turnaround in housing. From Roubini: Explaining the Mystery of Why Housing Jobs Have Not Fallen Much...and the Worsening Housing Recession...

The [hoarding] argument, presented by Jan Hatzius, the excellent U.S. economist for Goldman Sachs, is that home builders decided not to fire workers when housing starts started to fall last year because they were expecting a housing recovery this year. So they hoarded labor. Then the observed fall in housing construction productivity that we see in the data since 2006 is directly related to this labor hoarding. However, he argues that, if as likely, the recovery of housing does not occur this spring the home builders will have to start laying off such workers. So we will soon see the effects of this on the labor market.

Another possibility is that the BLS is missing a turning point in the residential construction employment area. From the BLS:

The most significant potential drawback ... is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Whatever the reason, Jan Hatzius expects BLS reported residential construction employment to decline significantly over the next few months. So do I.

by Calculated Risk on 4/24/2007 12:46:00 PM

Here are the actual cumulative existing home sales vs. three annual forecasts for 2007 (NAR's Lereah, Fannie Mae's Berson, and me).

Click on graph for larger image.

To reach the NAR forecast (revised downward on April 11 to 6.34 million units), sales will have to be at 2006 levels for the remainder of the year. Based on the coming impact from tighter lending standards, we can probably say the recent NAR forecast is "no longer operative".

My forecast was for sales to be between 5.6 and 5.8 million units (shown as 5.7 million). Right now I think the risks are to the downside for my forecast. The next few months should tell us if Berson and I were too optimistic.

by Calculated Risk on 4/24/2007 10:11:00 AM

The National Association of Realtors (NAR) reports: Weather Hits March Existing-Home Sales After Three Monthly Gains (update: add NAR press release)

Click on graph for larger image.

... total existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 8.4 percent to a seasonally adjusted annual rate1 of 6.12 million units in March from a pace of 6.68 million in February, and are 11.3 percent below the 6.90 million-unit level in March 2006.

This graph shows NSA monthly sales for 2005, 2006 and 2007. This shows that March is the first key month of the year.

The national median existing-home price for all housing types was $217,000 in March, which is 0.3 percent below March 2006 when the median was $217,600.

The second graph shows the months of supply.

Total housing inventory levels fell 1.6 percent at the end of March to 3.75 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace, up from a 6.8-month supply in February.

Update2: add inventory graph. The third graph shows nationwide inventory for existing homes. According to NAR, inventory declined in March by 1.6% to 3.745 million units. Other reports show inventory surged in March, so we will have to wait and see the numbers for April.

A few key points:

1) March is the beginning of the spring selling season.

2) Inventory is at a record levels for March.

3) Existing home sales are reported at the close of escrow. This means these contracts were mostly signed in January and February. So these numbers are mostly prior to the subprime implosion of mid-February.

by Anonymous on 4/24/2007 08:40:00 AM

Maybe this strikes me as profoundly surreal just because it's early in the day. You be the judge.

From Marketwatch's "Protecting your value as foreclosures rise: Tips to buffer your home's worth if you're near an empty property":

Although Moody's Economy.com sees home prices overall declining through 2008 due to excessive inventory, individual owners can take steps to make their property more attractive, Chen said. She recommended home improvements such as fresh paint and landscaping to ward off the impacts of falling prices due to a great number of foreclosures in a neighborhood.

If you've already got vinyl siding and all the rhododendrons you can stand, I suggest lawn ornaments. The Virgin in a bathtub comes to mind, along with that buried statue of St. Joseph. Never underestimate the power of the intercession of saints, especially when the "control group" is a bucket of paint and a couple of shrubs.

For those homeowners fearing that the "low-ballers" and banks trying to unload foreclosed homes will sap the value of their own properties, Kent suggested that residents could band together to watch out for a property.

"They could try forming a little neighborhood watch where people watch over that house to make sure there's no vandalism, no squatters trying to move in, and to avoid people from stealing the fixtures of the home," he said.

Personally, I think the better strategy is just to get every irritated blue-hair in the neighborhood to call the mortgage servicer two or three times a day to report excess dandelions. If the saints don't come through for you, there's always the power of getting on someone else's nerves.

Homeowners who have to sell in an area where foreclosures are numerous might want to follow the lead of home builders, which are throwing in extras in to attract buyers while keeping up the selling price.

"One thing that the builders do is to offer to put all kinds of things into the house at no extra charge, like granite countertops," said David Seiders, chief economist for the National Association of Home Builders. "That gives the buyer more house for the money."

Also, paying your buyer's closing costs is an option that some home builders take, Seiders said. Those strategies "help hold the price up, but they do come out of the builder's margins," he said, as they would cut into home sellers profits.

Well, now, there's an idea. Do as the builders do: protect your value by cutting your price while pretending that you aren't cutting your price. Let every potential buyer know that you are not including your countertops in the sales price--they are free to a good home. Heck, anyone who falls for this might also take that litter of kittens under the porch.

It's important to think of homeownership as a long-term investment, said David Berenbaum, executive vice president with the National Community Reinvestment Coalition. "People have been in an environment where they're flipping homes. We need to look at homeownership as promoting intergenerational wealth."

Berenbaum added that owners should remain calm rather than panicking and trying to sell now. Owners don't actually lose money on a home until they sell at a discount to the purchase price, he pointed out.

That's the final of four tips: don't sell, bequeath. There's nothing like that "intergenerational wealth" to protect home values.

In tomorrow's episode, maybe we'll get tips for how to buy properties in a foreclosed neighborhood, wherein we will learn the true value of paint, shubs, roving gangs of homeowners, free countertops, and sellers who would rather die than cut the price.

by Calculated Risk on 4/23/2007 07:19:00 PM

From Reuters: US new home market may take til 2009 to rebound-S&P (hat tip Roy)

"We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances," the [Standard & Poor's] rating agency said in a research note. "In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products."

by Calculated Risk on 4/23/2007 02:11:00 PM

From Realty Times: NAHB's Chief Economist Releases Housing Forecast. See the link for excerpts from Seiders' forecast.

The overall economic forecast is still pretty positive on GDP growth with "major uncertainties" and significant downside risk. Seiders says the probability of recession later this year has risen, and he puts the odds around 25%.

The NAHB housing forecast is grim. Rising inventories, especially a record number of vacant housing units, combined with falling demand, because of the subprime and Alt-A debacle, "has downside implications for house prices and has prompted downward revisions to NAHB's forecasts of home sales and housing production for the balance of 2007-2008."

Nothing new here except that this is the forecast from the National Association of Home Builders!

by Calculated Risk on 4/23/2007 12:53:00 PM

From the WSJ: Home Equity Is Rising Source Of Funds, Greenspan Paper Says

Housing equity served as a growing source of funds for U.S. consumer spending between 2001 and 2005, financing close to 3% of total personal consumption expenditures, according to a paper co-authored by former Federal Reserve Chairman Alan Greenspan.

In the paper, posted on the Fed's Web site Monday, Greenspan and Fed Economist James Kennedy estimate that between 1991 and 2005, equity extracted through home sales, home-equity loans and cash-out refinancings freed up about $530 billion per year in cash available for other uses, such as consumption and debt repayment.

The paper provides new estimates on how MEW is used. However, the paper does not provide data after Q3 2006.