by Calculated Risk on 6/16/2008 01:46:00 PM

From DataQuick: Southland home sales back to record low; median price slips again

Bargain shoppers helped push Southern California home sales higher in May compared with April - a normal, seasonal lift - but it was still the slowest May in more than 20 years. The median price paid fell a record 27 percent from a year ago, the result of sluggish high-end sales, more sellers dropping their asking prices and lenders selling off more of their aggressively priced, repossessed homes.
...
Sales of post-foreclosure homes continue to dominate many inland markets. Of all the Southland homes that resold in May, 37.4 percent had been foreclosed on at some point in the prior 12 months, compared with a revised 36.2 percent in April and 5.5 percent one year ago. Across the six-county area, these "foreclosure resales" ranged from 25.6 percent of resale activity in Orange County to 56.6 percent in Riverside County.
...
Foreclosure activity is at record levels ...

This is an REO market. Most of the sales activity is at the low end, and even the higher end areas are seeing substantial REO sales activity.

by Calculated Risk on 6/16/2008 01:00:00 PM

Paraphrasing: The outlook is grim. Congress needs to act "urgently". Americans are losing their jobs, losing their homes, losing their home equity. We need help!!!

NAHB wants a tax credit for homebuyers. Builders no longer asking for extension of Net Operating Loss (NOL) carry forward (this was getting too much bad publicity I think).

More: "Buyers are only buying for need (like relocations), not want." People can't move up - they can't sell their homes. Note: this is why the mobility issue I discussed last week is so critical.

"Activity so slow, companies aren't hiring any teenagers this summer."

Builder confidence hits record low.

The NAHB reports that builder confidence was at 18 in June, down from 19 in May. Usually housing bottoms look like a "V"; this one will probably look more like an "L". (this refers to activity like starts and sales, but will probably also be apparent in the confidence survey).

Click on graph for larger image in new window.

Current sales activity at record low of 17.

Chief Economist David Seiders: Expects further declines in new home sales. This survey was before the major run-up in interest rates. Interest rates is another threat to the housing market.

Caroline Baum Asks (my on the fly transcript):

"We've just been through the biggest housing bubble, housing bust in history. Housing is already tax advantaged. Why do we want to artificially stimulate demand when prices are still too high?"

More: Seiders still has sales at bottoming at the middle of this year. He now says risk to his forecast are to the downside - because of this HMI report and higher interest rates.

"Risk (for sales) are piling up on downside. Price erosion (for new homes) through 2009."
Seiders, June, 2008

by Calculated Risk on 6/16/2008 12:03:00 PM

National Association of Home Builders (NAHB) CEO Jerry Howard and Chief Economist David Seiders will announce the June Housing Market Index (HMI) results during the teleconference to representatives from the media and other interested parties on Monday at 1:00 p.m. Howard will focus on the policy side and will discuss the importance of passing economic stimulus legislation, while Seiders will analyze the June HMI numbers and explain how they fit into his overall housing forecast.

Members of the media will be given the opportunity to ask questions at the conclusion of the call. A press release and related data charts will also be released following the call, and will be posted at www.nahb.org/teleconference.

To participate in the call, please dial 1-800-860-2442 (toll-free) and ask for the "NAHB Housing Market Index Call."

If you are unable to participate in the teleconference, you may listen to a full replay of the call after the teleconference has concluded by calling 877-344-7529 and entering 420480 followed by the # sign when prompted for the account number. The replay will be accessible beginning at 4:00pm ET on June 16, and will available until 9:00am ET on July 1.

Source.

I don't know why they are holding a conference call. I doubt it's because builder confidence has improved - or why would they be pleading for help from Congress?

by Calculated Risk on 6/16/2008 08:59:00 AM

From MarketWatch: Lehman posts first loss as public company

Write-downs on soured debt securities and bad trading results led to Lehman Bros. Holdings Inc. reporting [a] second-quarter loss of $2.8 billion ...

A billion here, a billion there.

by Calculated Risk on 6/16/2008 05:00:00 AM

Alec Klein and Zach Goldfarb at the Washington Post present a three part series on the housing boom and bust. Here is the second part, The Bust, discussing the beginning of the housing bust. The third part will be released Tuesday.

On Feb. 27, [2007] ... Federal Reserve ... officials remained unruffled. They privately calculated that even if subprime losses were severe, the dollars involved would be no more than a blip in the overall economy. As late as June, Fed Chairman Ben S. Bernanke spoke via satellite to a conference of international economic officials in South Africa, predicting, "the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system."

Ahhh. Memories of containment.

The full series, with some interactive timeline and other resources is available here.

Note: Tanta receives a nice mention in the resource section.

by Calculated Risk on 6/15/2008 07:02:00 PM

There was a blurb in the WSJ last week about hedge-fund manager Edward Lampert: Lampert Puts Money On Housing Rebound.

Although Lampert invested in several housing related stocks, the vast majority of his housing related investment is in home improvement (specifically Home Depot).

Let's take another look at home improvement (Important Note: this is not investment advice). Home Depot recently held an investor conference on June 5th, and here is the presentation material from CEO Frank Blake (hat tip Dave). In general I think Mr. Blake was very realistic about the tough economic environment for home improvement.

The first slide from Mr. Blake is very familiar to readers of CR:

Click on graph for larger image in new window.

This graph shows residential investment (RI) as a percent of GDP for the last 60 years. Blake has added the average of 4.8% on the graph, and clearly RI is well below the average.

Note: I usually present the last 50 years, and the average is closer to 4.6%.

This might convince some people that the end is near in the slump in RI. But let's break it down by two key components of RI: new single family structures and home improvement.

**************************
The next graph shows residential investment in new single family structures as a percent of GDP.

As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales (related to RI in single family structures).

Currently investment in single family structures is below 1.6% of GDP, significantly below the average of the last 40 years of 2.4% - although still above the low in 1982 of 1.2%.

But what about home improvement?

The third graph shows home improvement investment as a percent of GDP.

Home improvement is at 1.3% of GDP, off the high of 1.4% in Q1 2007 - but still well above the average of the last 40 years of 1.07%.

This would seem to suggest there is significant downside risk to home improvement spending over the next few years.

And finally, Mr. Blake presented this graph on subprime and Alt-A mortgage origination.

This shows the stunning surge in subprime and Alt-A lending starting in 2004 and running well into 2007.

The graph is captioned: "The worst part of the mortgage market is behind us", but it probably should have been captioned "Worst part of mortgage origination is behind us".

The fallout from these poorly underwritten loans happens when these houses fall into foreclosure, and delinquency and foreclosure rates are still rising - and rising sharply for Alt-A and even prime loans. The worst of the origination is definitely behind us, but the worst of the impact on the economy from this poor underwriting is probably still to come.

Read on ... there is much more.

by Calculated Risk on 6/15/2008 05:18:00 PM

From the Financial Times: Barclays seeks to raise £4bn

Barclays is seeking to raise as much as £4bn ($8bn) from outside investors ... Analysts believe Barclays ... is being less conservative than some of its rivals in marking down assets ...

The confessional will still be busy.

by Calculated Risk on 6/15/2008 01:53:00 PM

From the WSJ: AIG Chief Expected to Step Down

The board of American International Group Inc. is meeting today to accept the possible resignation of Chief Executive Martin Sullivan ...

At the heart of AIG's current problems are the record-setting, multi-billion losses AIG has recorded in the last two quarters ...

Another Sunday board meeting. These are never good news.

Update: CNBC is reporting Lehman is meeting this weekend too:

Senior executives at Lehman Brothers, the embattled Wall Street securities firm, have been summoned this weekend for a series of meetings as the firm prepares to release second-quarter earnings on Monday and speculation swirls that the firm may be sold to a larger bank, CNBC has learned.

by Calculated Risk on 6/15/2008 09:49:00 AM

Alec Klein and Zach Goldfarb at the Washington Post present a three part series on the housing boom and bust starting today. The first part, The Bubble, discusses the causes of the housing market crisis. The next two parts will be released Monday and Tuesday.

The full series, with some interactive timeline and other resources is available here.

Note: Tanta receives a nice mention in the resource section.

The young woman who walked into Pinnacle's Vienna office in 2004 said her boyfriend wanted to buy a house near Annapolis. He hoped to get a special kind of loan for which he didn't have to report his income, assets or employment. Mortgage broker [Kevin] Connelly handed the woman a pile of paperwork.

On the day of the settlement, she arrived alone. Her boyfriend was on a business trip, she said, but she had his power of attorney. Informed that for this kind of loan he would have to sign in person, she broke into tears: Her boyfriend actually had been serving a jail term.

Not a problem. Almost anyone could borrow hundreds of thousands of dollars for a house in those wild days. Connelly agreed to send the paperwork to the courthouse where the boyfriend had a hearing. As it happened, he was freed that day. Still, Connelly said, "that was one of mine that goes down in the annals of the strange."

The problem was the strange was commonplace during the boom.

by Calculated Risk on 6/14/2008 06:41:00 PM

The WaPo had a story this morning, Held Back by the House, about a couple who moved from Florida to Washington because of a job change. They have been unable to sell their Florida home, and remarked:

"If we knew then what we know now, we would have stayed where we were."

Of course many homeowners now know they are trapped:

[D]epressed sales and sinking home prices in many parts of the country are complicating relocations and transfers for thousands of workers ... A survey last year by Worldwide ERC, a nonprofit association that represents relocation specialists, found that depressed home values emerged as the No. 1 reason for resisting job transfers for the first time in more than 10 years.

Of the member organizations that reported employee reluctance to move, 71 percent cited the sluggish real estate market as an impediment to a job-related move, up from 16 percent last year.

"This is a dramatic shift," said Cris Collie, the group's chief executive. "The top issue has consistently been family concerns, such as dual-career couples, children at a critical school age or caring for elderly parents who live nearby.

There are probably close to 10 million households currently with zero or negative equity in the U.S. For these homeowners, it will be very difficult to accept a job transfer to a different county or state.

Definition: Negative Equity: a homeowner owes more than their home is worth.

To size the problem: According to the Census Bureau, from 2005 to 2006 (the most recent data), approximately 1.7 million owner-occupied households, moved to a different county or state. If approximately 1 in 8 households (the same proportion as with negative equity) will not accept a transfer now because of depressed home values that would be about 200,000 households per year that will be reluctant to accept job transfers.

This will not only impact the earning potential of these households, but this could also impact the performance of various companies. A significant majority of households that migrate have incomes above the median - and negative equity situations will limit the ability of companies to transfer these senior employees.