by Calculated Risk on 1/29/2008 10:42:00 AM

The Census Bureau reports that the homeownership rate declined to 67.8% in Q4, from 68.2% in Q3 2007.

Click on graph for larger image.

The homeownership rate has plunged back to the levels of the summer of 2001. Note: graph starts at 60% to better show the change.

This is a huge drag on the U.S. housing market. I'll have more on this later today.

The homeownership vacancy rate increased slight to a record 2.8% (from 2.7% in Q3).


The second graph shows the homeowner vacancy rate since 1956. A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, but it does appear the vacancy rate has stabilized.

This leaves the homeowner vacancy rate about 1% above normal, or about 825 thousand excess homes.

The rental vacancy rate declined to 9.6% in Q4, from 9.8% in Q3. The rental vacancy rate has been trending down slightly for almost 3 years (with some noise). This was due to a decline in the total number of rental units in 2004, and more recently due to more households choosing renting over owning.



It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. This would suggest there are about 560 thousand excess rental units in the U.S. that need to be absorbed.

There are also approximately 250K excess new homes above the normal inventory level (for home builders).

This suggests there are about 1.65 million excess housing units in the U.S. that need to be worked off over the next few years. These excess units will keep pressure on housing starts and prices for some time.

by Calculated Risk on 1/29/2008 09:17:00 AM

Correction (hat tip Whiskey): the composite 10 is down 8.4% (ten cities), the composite 20 is down only 7.7%.

Here is the S&P/Case-Shiller data.

Here is the year over year change in both October and November for 20 large U.S. metropolitan areas (not the entire U.S.). Prices are falling in every city in the index (even the three cities with rising year-over-year prices are seeing falling prices on a monthly basis).

City	YoY Price Change, October	YoY Price Change November
Charlotte - NC	4.3%	2.9%
Seattle - WA	3.3%	1.8%
Portland - OR	1.9%	1.3%
Dallas - TX	-0.1%	-1.2%
Atlanta - GA	-0.7%	-2.0%
Denver	-1.8%	-3.1%
Chicago	-3.2%	-3.9%
Boston	-3.6%	-3.0%
New York	-4.1%	-4.8%
Cleveland - OH	-4.5%	-5.8%
Minneapolis- MN	-5.5%	-6.6%
San Francisco	-6.2%	-8.6%
Washington	-7.0%	-7.8%
Los Angeles	-8.8%	-11.9%
Phoenix - AZ	-10.6%	-12.9%
Las Vegas	-10.7%	-13.2%
San Diego	-11.1%	-13.4%
Detroit - MI	-11.2%	-13.0%
Tampa - FL	-11.8%	-12.6%
Miami	-12.4%	-15.1%
Composite-20	-6.1%	-7.7%

by Calculated Risk on 1/29/2008 08:34:00 AM

From Reuters: Countrywide--1 in 3 subprime mortgages delinquent

Countrywide said borrowers were delinquent on 33.64 percent of subprime loans it serviced as of Dec. 31, up from 29.08 percent in September.

From the WSJ: Countrywide Swings to Loss

Countrywide ... lost $422 million...

Countrywide set aside $924 million for credit losses during the fourth quarter, compared with reserves of $73 million during the final quarter in 2006.

More to come, Countrywide is still in the Confessional.

by Calculated Risk on 1/28/2008 08:50:00 PM

Countrywide sent out a letter on Jan 18th with their new Soft Market policies (hat tip ck).

... 2008 is forecasted to be a challenging year for the mortgage industry, characterized by a declining Housing Price Index in a wide variety of metropolitan markets. In the context of the prominent threat to our industry of collateral values falling below outstanding loan balances, mortgage professionals must strive to ensure that borrowers do not take on loans that they do not have the ability or economic interest to repay.

Note that last phrase: "borrowers do not take on loans that they do not have the economic interest to repay". Countrywide is clearly concerned about the new trend of buyers "walking away" from their mortgages.

The policy basically reduced the maximum LTV for various loans based on the county risk level. Countrywide's ranking of risk, by county, is available online Countrywide Soft Market County Index.

by Calculated Risk on 1/28/2008 04:38:00 PM

From American Express:

"... we saw clear signs of a weakening economy and business environment in December,”
Kenneth I. Chenault, chairman and CEO.

And from CNBC:

The company also set aside $440 million in the quarter to cover loans that it expects won't be repaid.

Consumers are cutting back on their spending because of many factors that include higher energy and food prices, in addition to weakness in the credit and housing markets.

by Calculated Risk on 1/28/2008 03:22:00 PM

From the WSJ: New York Hires Perella To Advise on Bond Insurers

The New York State Insurance Department has hired the Wall Street firm Perella Weinberg Partners for advice on the financial health of bond insurers.
...
The Perella Weinberg assignment focuses on protecting policy holders who are customers of so-called monoline insurers, which include Ambac Financial Group Inc. and MBIA Inc., according to people familiar with the assignment.

A line of credit or capital infusion from the insured to the insurer is not an answer. I'm not sure how you can protect the policy holders if the insurer can't pay.

by Calculated Risk on 1/28/2008 11:22:00 AM

Click on graph for larger image.

This graph shows New Home Sales vs. recessions for the last 45 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001.

Note that the escalation of the Vietnam War in the '60s kept the economy out of recession, even though New Home sales were falling.

This is what we call Cliff Diving!

And this shows why so many economists are concerned about a possible consumer led recession - possibly starting in December (as shown on graph).

by Calculated Risk on 1/28/2008 10:00:00 AM

According to the Census Bureau report, New Home Sales in December were at a seasonally adjusted annual rate of 604 thousand. Sales for November were revised down to 634 thousand, from 647 thousand, and numbers for October were revised up slightly.

	Click on Graph for larger image. Sales of new one-family houses in December 2007 were at a seasonally adjusted annual rate of 604,000 ... This is 4.7 percent below the revised November rate of 634,000 and is 40.7 percent below the December 2006 estimate of 1,019,000.
	The Not Seasonally Adjusted monthly rate was 42,000 New Homes sold. There were 71,000 New Homes sold in December 2006. December '07 sales were the lowest December since 1994 (40,000).
	The median and average sales prices are generally declining. Caution should be used when analyzing monthly price changes since prices are heavily revised and do not include builder incentives. The median sales price of new houses sold in December 2007 was $219,200; the average sales price was $267,300.
	The seasonally adjusted estimate of new houses for sale at the end of December was 495,000. The 495,000 units of inventory is slightly below the levels of the last year. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are once again at record levels. Actual New Home inventories are probably much higher than reported - my estimate is about 100K higher.
	This represents a supply of 9.6 months at the current sales rate.

This is another VERY weak report for New Home sales. Most revisions continue to be down. This is the fifth report after the start of the credit turmoil, and, as expected, the sales numbers are very poor.

I expect these numbers to be revised down too. More later today on New Home Sales.

by Calculated Risk on 1/28/2008 09:29:00 AM

From the WSJ: ADS Says Blackstone Deal Unlikely

Alliance Data Systems Corp. ... Blackstone ... likely won't go through with its $6.4 billion acquisition ...

... Blackstone told the data processor and marketing firm in a letter late Friday it doesn't expect the deal to get the necessary approvals from OCC and that the regulator is demanding "extraordinary measures" which "represent operational and financial burdens ... that cannot be reasonably assumed."

"Extraordinary measures" are usually doable during better times. This seems like another way to leave your lover (from Paul Simon):

You just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just get yourself free

by Calculated Risk on 1/27/2008 08:36:00 PM

House of Cards (video): "Steve Kroft reports on how the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, is now roiling capital markets worldwide."

Here is the foreclosure site mentioned in the story. I live in a neighborhood that is "immune" to the housing bust. Oh yeah, that site shows a number of REOs and preforeclosure homes in my neighborhood.