by Calculated Risk on 3/25/2008 10:03:00 AM

From MarketWatch: Home prices fall a record 10.7% in past year

Home prices in 20 major U.S. metro areas have plunged a record 10.7% in the past year as prices continued to decelerate, Standard & Poor's said Tuesday.

The 20-city Case-Shiller home price index fell a record 2.4% in January, the 18th consecutive decline in prices. For 10 major cities, prices fell 2.3% in January and 11.4% for the past 12 months.

"No markets seem to be completely immune from the housing crisis,' said David Blitzer, chairman of the index committee at S&P.

The article mentions Charlotte is up year-over-year, but prices are now falling there too.

Here is the S&P/ Case-Shiller data. Note that the most recent data is for January, and this is NOT the Case-Shiller national index (these are prices for 20 of the largest cities, and a composite index of those cities).

by Anonymous on 3/25/2008 08:42:00 AM

Yves at naked capitalism had a good post yesterday on the infamous Bear Stearns Ten Buck Rechuck, that I think needs repeating:

According to Sorkin, the $2 price for Bear was the Fed's and Treasury's idea; JP Morgan was prepared to pay more, but they nixed the idea, saying they did not like the "optics" of the deal. The implication is that the officials overstepped their bounds. That is a pretty outrageous spin when the government is putting up taxpayer money.

Had it been an option, the Fed should have nationalized Bear. It was going to declare bankruptcy Monday if there was no deal; its shareholders would have been wiped out. Why am I so confident of this view? If bondholders, as rumored, were buying shares to make sure the JPM deal went through (and thus would take losses on their stock purchases when the deal closed), that meant that they thought their bonds were worth well under 100 cents on the dollar in a bankruptcy. Shareholders are subordinate to bondholders, so equity owners would have gotten zilch.

I can think of a host of reasons, however, why the Fed did not go the nationalization route, the biggest being that it lacked clear authority (it couldn't declare Bear to be insolvent, as it could a member bank). And letting Bear fail (and having accounts frozen) was what the Fed was trying to avoid, so letting it fail and then seizing control (even assuming it could do that) was never an option. No doubt, the central bank also did not want to assume administrative control of an entity that it had never regulated (ie, its supervisors had never kicked its tires) that dealt actively in markets in which the Fed has little expertise. Even in an orderly liquidation scenario, that it a lot to take on.

Sorkin nevertheless argues that the Fed did Bear a dirty because:

.....the night that Bear signed the original bid, the Fed opened what’s known as the discount window to companies like Goldman Sachs and Lehman Brothers — oh, yes, and to Bear, too. Except that the Fed didn’t tell Bear that it planned to open the window when it was signing its deal with JPMorgan.

This verges on being revisionist history. First and most important, the discount window was opened to keep the panic about Bear from spreading to other firms, most notably Lehman. It almost certainly would not have happened then if Bear was not on the verge of imploding. Remember, a mere week and a day ago, there was pervasive fear that the wheels were about to come off the financial system, particularly if counterparties started getting leery of dealing with Lehman.

Moreover, usage of the new discount window the first week was light due to worries about stigma. If Bear had gone and used it aggressively, it may well have reinforced rather than allayed fears about the trading firm's health. If other firms continued to refuse to deal with Bear, its collapse was assured. There was a very real possibility that even if Bear had remained independent and used the window, its bankruptcy merely would have been delayed a day or two. And it would have been well nigh impossible to put together a three party takeover deal between the close of business in New York and market opening in Asia on a weekday.

But the most appalling aspect of Sorkin's account: he acts as if Bear had the right to be informed of the Fed's plans. Sorkin seems to have forgotten the golden rule: he who has the gold makes the rules. The Fed had every right to be calling the shots. They were taking the biggest risk in this transaction. The notion that a firm about to fail is entitled to be treated as a being on an equal footing with its rescuers is absurd. And the fact that Sorkin (and presumably others on Wall Street) sympathize with this view says the industry badly needs to be leashed and collared.

This, frankly, is the reason why I am so incredibly appalled by this:

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 San Francisco banker said any deal would have to meet the company's traditional acquisition targets and benefit the bank's acquired customers.

To even mention, in public, that one "wouldn't be averse to a Fed-assisted transaction" is to hint that the acquisition targets you are looking at are in as dire straits as Bear Stearns. What is Stumpf trying to do, start a run on an insured bank? Or, well, the other option is that Stumpf doesn't believe that Bear was such a mess--that, precisely, it is "on an equal footing with its rescuers."

Either way you slice it, the very fact that he could say such a thing in public tells you how far down the wrong road we've gone. I vote for the leash and collar, pronto.

by Anonymous 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.