by Calculated Risk on 3/13/2008 04:17:00 PM

From Phil Izzo at the WSJ: Housing Market Has Further to Fall

On average, economists see a 5.3% drop in house prices, as measured by the Office of Federal Housing Enterprise Oversight, in 2008 and a 1.3% decline in 2009.
...
Ethan Harris of Lehman Brothers said the bottom [for house prices] won’t come until the third quarter of 2009, and warned that “home prices will bottom later in many bubble regions.”

Harris makes a key point: the price bottom will happen at different times in different areas. I expect 2008 to be the worst year in terms of percentage price declines, followed by a few years of smaller declines in the bubble areas. For previous local housing bubbles, it took about 5 to 7 years from peak to trough - and that is my expectation this time too.

Separately, the debate continues to rage over which home-price measure — Ofheo or Case-Shiller – provides the best snapshot of the situation. A slim majority 55%-45% chose the Ofheo index, but problems with both indexes were clear. Ofheo was derided for its limitation to loans backed by government-sponsored entities that leaves out jumbo and nonconforming loans, while Case-Shiller’s more limited coverage of U.S.

I believe the Case-Shiller index is more accurate for the cities that they cover. The Case-Shiller National index probably overstates the price declines, but I think it is closer than OFHEO.

by Calculated Risk on 3/13/2008 02:14:00 PM

From the WSJ: Most Economists Say Recession Has Arrived as Outlook Darkens

"The evidence is now beyond a reasonable doubt," said Scott Anderson of Wells Fargo & Co., who was among the 71% of 51 respondents to say that the economy is now in a recession.
...
The economists also expressed growing concerns that a 2008 recession could be worse than both the 2001 and 1990-91 downturns. They put the odds of a deeper downturn at an average 48%, up from 39% in the previous survey.

Still waiting for ECRI and UCLA ...

by Calculated Risk on 3/13/2008 02:06:00 PM

From DataQuick: Southland home sales still ultra-low; median price slips again

Southern California home sales limped along last month at the slowest pace ever for a February, the result of a market crippled by uncertainty and credit constraints. The median sale price dropped by a record 17.6 percent from a year ago, a real estate information service reported.

A total of 10,777 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in February. That was up 8 percent from 9,983 the previous month but down 39 percent from 17,680 in February last year, according to DataQuick Information Systems.

Last month's sales total was the second-lowest for any month in DataQuick's statistics, which go back to 1988. The prior month's total of 9,983 was the lowest ever. Since September, sales each month have been a record low for that particular month.

Of the homes that resold in February, about one-third, 33.5 percent, had been foreclosed on at some point since January 2007. A year earlier the figure was 3.5 percent. At the county level, the percent of homes resold in February that had been foreclosed on since January 2007 ranged from 25.3 percent in Orange County to 48.1 percent in Riverside County.

"Sales remained extraordinarily low, and a significant portion of what did sell was in areas beset by foreclosure activity. That's where sellers are the most motivated and price cuts are largest. Mainly it's in the inland markets, often in newer suburbs, where prices got pumped up artificially with the sort of crazy loans that no longer exist," said Marshall Prentice, DataQuick president.
...
The median price paid for a Southland home was $408,000 last month, the lowest since $402,500 in October 2004. Last month's median was down 1.7 percent from January's $415,000, and down a record 17.6 percent from $495,000 in February 2007.

Last month's median fell 19.2 percent shy of the $505,000 peak reached last spring and summer. ...

Foreclosure activity is at record levels...

If it wasn't for foreclosures, the sales number would really be awful.

by Calculated Risk on 3/13/2008 01:40:00 PM

From Peter Hong at the LA Times: Southern California home prices still dropping at record rate

The median price for a Southland home last month was $408,000, down 17.6% from a year ago, according to DataQuick Information Systems. Area home prices have now fallen 19% on average from their peaks last year.
...
About one-third of Southern California homes sold in February had been foreclosed since January 2007, according to DataQuick. A year earlier, previously foreclosed homes accounted for 3.5% of sales.

Since September, each month's sales totals have been the lowest for comparable months since 1988, DataQuick said.

And from Jon Lansner at the O.C. Register: O.C. home-sales slump hits 29 months in Feb.

O.C. homebuying has started 2008 at half 2007’s pace, according to DataQuick’s February report. Last month marks the 29th straight month that O.C. homes sales failed to beat the year-ago level.

I'll have more as soon as the DataQuick data is available online.

by Calculated Risk on 3/13/2008 11:11:00 AM

This graph shows the year-over-year change in nominal and real (inflation adjusted) retail sales since 1993.

Click on graph for larger image.

To calculate the real change, the monthly PCE price index from the BEA was used (February PCE prices estimated as the same increase as January).

Although the Census Bureau reported that nominal retail sales increased 2.4% year-over-year, real retail sales declined over 1% (on a YoY basis). This is a recessionary level for retail sales.

by Calculated Risk on 3/13/2008 11:02:00 AM

From the Duke Global CFO Survey: Recession in 2008, no relief until 2009

•54 percent of CFOs say the U.S. is now in recession, and 24 percent of the remaining CFOs say there is a high likelihood of a recession this year. CFOs do not expect the economy to recover until late 2009.

•Optimism reached its lowest point since the optimism index launched six years ago. Pessimists outnumber optimists by a nine-to-one margin, with 72 percent of CFOs more pessimistic and only 8 percent more optimistic about the U.S. economy than they were last quarter.

•Weak consumer demand and turmoil in the credit and housing markets are the top macro-concerns of CFOs. The high cost of labor ranked as the top internal concern.

•Credit conditions have directly hurt 35 percent of companies, through decreased availability of credit and higher interest rates (up 118 basis points on average). Sixty percent of firms have postponed expansion plans in response to credit market unrest.

•Capital spending is expected to increase only 3.3 percent. Price inflation is expected to rise 3 percent over the next 12 months.

NO ECONOMIC RECOVERY UNTIL 2009

The outlook for the U.S. economy is dismal. Only 13 percent of CFOs think the U.S. economy will turn the corner and begin to rebound in 2008. Another 40 percent say the rebound will occur in the first half of 2009, while 47 percent say recovery will occur more than 15 months from now.

“Our survey started showing evidence of an economic slowdown a year ago,” said John R. Graham, director of the survey and a finance professor at Duke’s Fuqua School of Business. “Today, not only do the CFOs say we are already in recession, they predict a prolonged economic downturn. The news from CFOs is pretty grim.”

CFOs sure are bearish!

by Anonymous on 3/13/2008 10:41:00 AM

I was challenged the other day to defend my claim that the Feldstein Plan (stay above water by repaying your loans faster!) was "teh dumbest" plan I'd seen so far. I should have known that the rhetorical mobilization of hyperbole is an act with karmic consequences.

Via Mish, I bring you Complete CRAP (the Congressional Realtors Appropriation Proposal):

As a longtime realtor in Cobb County, Sen. Johnny Isakson has seen housing downturns before. "We had recessions in 1968, 1974, 1982, and 1991, by every measurement, this is going to be a deeper and bigger recession in residential housing. It's a significant event."

Isakson is pitching an idea to his colleagues in Congress: a $15,000 tax rebate check to anyone who agrees to buy a home. Congressional budget analysts project the program would cost $14 billion over the next few years. But Isakson said the rebate checks are well worth the hefty price tag. "If we can convince buyers to come back to the marketplace and buy these houses, then the houses aren't vacant. It's replaced by an owner-occupant, who is there making payments on a loan and helping all of the other houses around."

I suggest, as an alternative, that members of Congress donate their evenings and weekends, from now until November, appearing gratis at open houses throughout their districts. What better way to convince people to buy homes than to offer them the chance to meet a lawmaker in person, right in the proposed kitchen? Senator Iskason could demonstrate the correct use of granite countertops, while extolling the virtues of free-market capitalism and owner-occupied housing.

Plus it would keep them off the teevee.

by Calculated Risk on 3/13/2008 10:17:00 AM

From Bloomberg: Carlyle Capital Nears Collapse as Rescue Talks Fail

Carlyle Group's mortgage-bond fund moved a step closer to collapse, saying creditors plan to seize the fund's assets after it failed to meet more than $400 million of margin calls.
...
The fund said in a statement that it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets after it failed to reach an agreement with lenders, Carlyle Capital said. Any remaining debt is expected to go into default ``soon'', the fund added.

This will lead to forced sales of mortgage assets and further write-downs for several banks including Citigroup and Deutsche Bank.

by Calculated Risk on 3/13/2008 10:04:00 AM

From the Census Bureau:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.2 billion, a decrease of 0.6 percent from the previous month, but 2.6 percent above February 2007. Total sales for the December 2007 through February 2008 period were up 3.3 percent from the same period a year ago. The December 2007 to January 2008 percent change was revised from +0.3 percent to +0.4 percent.

Retail trade sales were down 0.6 percent from January 2008, but were 2.4 percent above last year. Gasoline station sales were up 20.2 percent from February 2007 and sales of sporting goods, hobby, book, and music stores were up 6.3 percent from last year.

Not only were sales down in February, but adjusted for inflation, retail sales are down year-over-year - a pretty strong indicator that the economy is in recession.

by Calculated Risk on 3/12/2008 08:47:00 PM

From the WSJ: S&P Cuts CIFG Credit Ratings

S&P lowered its ratings four notches to A+ on CIFG Guaranty, CIFG Europe and CIFG Assurance North America Inc. Less than a month ago, S&P had affirmed CIFG's AAA rating with a negative outlook, meaning a downgrade was possible.

The agency said the company's "scaled-back underwriting activity, turnover of senior staff and recent other rating downgrades ... will impinge on CIFG's ability to carry out its business plans and broaden its market acceptance."

And from MarketWatch: Moody's, S&P confirm Ambac's AAA ratings

Moody's affirmed Ambac Assurance Corp.'s Aaa rating, while S&P took Ambac Assurance's AAA off CreditWatch Negative.

Still, Fitch stuck with its AA rating and Moody's noted that it has a negative outlook on Ambac's bond insurance units.