by Calculated Risk on 10/24/2008 11:11:00 AM

Here is another way to look at existing homes sales - Not Seasonally Adjusted:

Click on graph for larger image in new window.

This graph shows Not Seasonally Adjusted (NSA) existing home sales for 2005 through 2008. Sales were higher in September 2008 than in September 2007 - the first time the year-over-year sales have increased since November 2005.

However sales in September 2007 were impacted by the credit crisis that started in August 2007. The current wave of the credit crisis will probably impact sales reported in October and November (existing homes sales are reported at the close of escrow).

There have been 3.82 million sales so far in 2008, and sales are currently on pace for about 4.9 million total this year - the lowest annual sales since 1997.

The second graph shows inventory by month starting in 2002.

Inventory levels were flat for years (during the bubble), but started increasing at the end of 2005.

Inventory levels increased sharply in 2006 and 2007, but have only increased slightly in 2008. In fact inventory for August and September 2008 are slightly below the levels of last year. This might indicate that inventory levels are close to the peak for this cycle (and have peaked for 2008), however there is probably a substantial shadow inventory – homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time.

by Calculated Risk on 10/24/2008 10:00:00 AM

From NAR: Existing-Home Sales Rise on Improved Affordability

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.5 percent to a seasonally adjusted annual rate of 5.18 million units in September from a level of 4.91 million in August, and are 1.4 percent higher than the 5.11 million-unit pace in September 2007.
...
Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply² at the current sales pace, down from a 10.6-month supply in August.

Click on graph for larger image in new window.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2008 (5.18 million SAAR) were higher than in September 2007 (5.11 million SAAR). This is the first time sales have increased for any month year-over-year since November 2005.

It's important to note that a large percentage of these sales were foreclosure resales (banks selling foreclosed properties). NAR economist Yun suggested that "distressed sales are currently 35 to 40 percent of transactions". Distressed sales include foreclosure resales and short sales. Although these are real transactions, this means activity (ex-foreclosures) is running around 3 million units SAAR.

The second graph shows nationwide inventory for existing homes. According to NAR, inventory decreased to 4.266 million in September, from a revised all time record of 4.57 million homes for sale in July. Usually inventory peaks in mid-Summer, so July was probably the peak for inventory this year.

This decline was the normal seasonal pattern.

Most REOs (bank owned properties) are included in the inventory because they are listed - but not all. Some houses in the foreclosure process are listed as short sales - so those would be counted too.

The third graph shows the 'months of supply' metric for the last six years.

Months of supply declined to 9.9 months.

This follows the highest year end months of supply since 1982 (the all time record of 11.5 months of supply).

I expect sales to fall further over the next few months, although I think inventory has peaked for the year. I'll have more on existing home sales later.

by Calculated Risk on 10/24/2008 09:23:00 AM

Press Release: PNC to Acquire National City

The PNC Financial Services Group, Inc. and National City Corporation today announced that they have signed a definitive agreement for PNC to acquire National City for $2.23 per share, or an aggregate fixed amount of approximately $5.2 billion in PNC stock. Additionally $384 million of cash is payable to certain warrant holders. ...

PNC plans to issue to the U.S. Treasury $7.7 billion of preferred stock and related warrants under the TARP Capital Purchase Program subject to standard closing requirements.

National City was probably the largest regional U.S. bank in serious trouble.

by Calculated Risk on 10/24/2008 09:14:00 AM

From MarketWatch: S&P 500 futures contract triggers circuit breaker

The Chicago Mercantile Exchange's circuit-breaker rules went into effect Friday as plunging S&P 500 and Nasdaq 100 futures contracts reached pre-specified limits.

The CME limits the S&P 500 futures to a drop of a 60 points and the Nasdaq 100 futures to a drop of 85 points during electronic action.

This follows a night of cliff diving in Asia and Europe.

As an example, the FTSE 100 is off 8.3% as the U.K. economy contracts:

The Office for National Statistics said Friday that the economy contracted a far-bigger-than-expected 0.5% in the third quarter, compared with zero growth in the second quarter. It is the first time the economy has contracted since the second quarter of 1992 and the biggest drop since the fourth quarter of 1990.

Should be an interesting day ...

by Calculated Risk on 10/23/2008 08:09:00 PM

The Fed has marked down the Bear Stearns assets from $29,526 million to $26,802 million this week. This is a mark down of $2.7 billion or 9.2%. The Fed is now underwater by a little over $2 billion plus lost interest.

Today:

2. Information on Principal Accounts of Maiden Lane LLC
Millions of dollars
Oct 22, 2008

Net portfolio holdings of Maiden Lane LLC (1)	26,802
Outstanding principal amount of loan extended by the Federal Reserve Bank of New York (2)	28,820
Accrued interest payable to the Federal Reserve Bank of New York (2)	205
Outstanding principal amount and accrued interest on loan payable to JPMorgan Chase & Co. (3)	1,175

Last week:

2. Information on Principal Accounts of Maiden Lane LLC
Millions of dollars
Oct 15, 2008

Net portfolio holdings of Maiden Lane LLC (1)	29,526
Outstanding principal amount of loan extended by the Federal Reserve Bank of New York (2)	28,820
Accrued interest payable to the Federal Reserve Bank of New York (2)	195
Outstanding principal amount and accrued interest on loan payable to JPMorgan Chase & Co. (3)	1,174

by Calculated Risk on 10/23/2008 07:08:00 PM

Whenever Tanta doesn't post for a few days, I receive several emails asking about the health of my good friend and co-blogger. Thanks to everyone for your thoughts and concern.

As long term readers know, Tanta is a former bank officer and mortgage lending specialist who is on extended medical leave recovering from cancer.

Tanta posted earlier today: IndyMac-FDIC Mortgage Modification Plan: Still in the Real World

Tanta's health is a private matter, however in her post she disclosed:

On a personal note: I was in the hospital earlier this week, and I'll be in and out for treatment on an out-patient basis tomorrow and early next week. It's chemo again, unfortunately. Even though I did leave the hospital with better pain pills than I had (yay!), I have no idea when I'll be able to post again. I suspect that if you keep your expectations at or below zero for the next week or so, you're unlikely to be disappointed. And now it's nap time ...

I spoke with Tanta yesterday and she was in good spirits and sounded better than she has in some time. Obviously is it bad news that Tanta has to endure chemo again, but I prefer to remember that she suffered through chemo last year and returned as good as ever.

Please no tips. This isn't a cry for sympathy and Tanta has assured me she doesn't need financial help.

Thanks to everyone for your thoughts.

by Calculated Risk on 10/23/2008 06:10:00 PM

I've received numerous emails concerning Greenspan's testimony today. Greenspan has been criticized for keeping rates too low (see CNN: Culprits of the Collapse), however his far larger mistake was opposing oversight when many people were pointing out the extremely lax lending standards.

So I was happy today that the Q&A focused on this issue ... from the WSJ: Greenspan Admits Some Mistakes Amid Grilling by House Lawmakers

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief," according to Mr. Greenspan.

The panel chairman, Henry Waxman (D., Calif.) criticized Mr. Greenspan's approach to mortgage regulation while he was Fed chairman. The Fed "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market," Waxman said, but Mr. Greenspan "rejected pleas that he intervene."
...
[W]hen Mr. Waxman pressed "were you wrong" about the benefits of deregulation, Mr. Greenspan responded, "partially." The "flaw" in the assumptions he had over four decades, Mr. Greenspan said, was that lending institutions themselves were best able to protect the interest of their shareholders.

Greenspan's comments on the economy are also interesting:

"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Mr. Greenspan said in the text of prepared testimony to the U.S. House Government Oversight and Reform Committee.

That, in turn, "implies a marked retrenchment of consumer spending as households try to divert an increasing part of their incomes to replenish depleted assets, not only in their 401Ks but in the value of their homes as well," Mr. Greenspan said.

While Mr. Greenspan assured lawmakers that "this crisis will pass" and that the U.S. will end up with a "far sounder financial system," he warned that it won't come quickly.

Mr. Greenspan said a "necessary condition for this crisis to end is a stabilization of home prices in the U.S."

"At a minimum, stabilization of home prices is still many months in the future," he said.

Greenspan is now saying what many of us were warning about several years ago.

by Calculated Risk on 10/23/2008 05:10:00 PM

DataQuick reports that the new California law that took effect in early September significantly reduced the number of NODs in September. The new law requires lenders to make contact with borrowers at least 30 days before filing a Notice of Default, and the reduction in NODs is probably temporary. Note: according to RealtyTrac, California accounts for about one-third of the nation’s foreclosure activity.

Click on map for larger image.

This graphs shows the NODs by year in California according to DataQuick. NODs for 2008 were estimated with Q4 at the same pace as Q3.

In the early to mid-'90s there was a huge surge in foreclosure activity in California (California had a significant housing correction and recession in the early '90s). That mid-'90s spike in NODs looks almost insignificant now!

Here is the DataQuick report: California mortgage default filings drop amid procedural change

The number of mortgage default notices filed against California homeowners fell last quarter for the first time in three years as a change in the state's formal foreclosure process took effect. If that procedural change hadn't kicked in during early September, indications are that third-quarter default filings would have been about the same as the record number filed in this year's second quarter ...

Mortgage servicers recorded 94,240 "notices of default" on homes during the July-through-September period. That was down 22.5 percent from a revised record of 121,673 in this year's second quarter, and up 29.9 percent from 72,571 in third-quarter 2007, according to MDA DataQuick. The San Diego-based firm's default statistics begin in 1992.

In September the number dropped to 14,995 filings as a new state law took effect early that month. It requires that in many instances lenders must try to contact homeowners delinquent on their mortgage payments, then wait 30 days before filing a default notice.
...
During the first week of September, before the law took effect, roughly 2,000 default notices were filed each business day in California. In the week after the law kicked in, average daily filings plunged to less than 100, then went back up to around 500 daily the final week of September.

"It's unclear just how much foreclosure activity will be time-shifted into future months. We'll know more when we have fourth-quarter numbers. What's interesting is that the surge in activity certainly did level off during the second and third quarters. A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us. Or it may be that those processing the default paperwork are just maxed out," said John Walsh, DataQuick president.

by Calculated Risk on 10/23/2008 02:56:00 PM

From MarketWatch: European credit spreads jump to record highs

Gauges that track the risk of European and Asian corporate defaults spiked to record levels Thursday as the outlook for the global economy dimmed and emerging markets came under increased strain.
Credit-default swap indexes compiled by data provider Markit surged through previous record wide levels "amid pessimism over the economic outlook," said Markit vice president Gavan Nolan in a report.

The yield on 3 month treasuries: 0.94%, down slightly from 1.01% (slightly worse)

A good sign would be if the daily volatility subsides, and the yield moves up closer to the Fed funds rate, or about 1.25%. Of course the Fed is expected to lower rates next week by anywhere from 25 bps to even 75 bps - so this might be as good as it gets for the 3 month treasury.

The TED spread: 2.58 up slightly from 2.50 yesterday (slightly worse)

The two year swap spread from Bloomberg: 117.00 up from 107.25 (slightly worse)

Activity in the Treasury's Supplementary Financing Program (SFP). This is the Treasury program to raise cash for the Fed's liquidity initiatives. If this program slows down borrowing, I think that would be a good sign.

Here is a list of SFP sales. No new announcements today, but this will take some time. No Progress.

The A2P2 spread is 4.6 Wednesday, up from 4.45 for Tuesday. Worse.

During a recession, this spread usually increases because the risk of default for lower quality paper increases. However the recent values (over 400 bps) are far in excess of normal. If the credit crisis eases, I'd expect a significant decline in this spread.

Industry contacts. I spoke with an industry contact this morning, and they still cannot obtain a loan for an acquisition. No improvement yet.

Another disappointing day with no progress. Most indicators are slightly worse.

by Calculated Risk on 10/23/2008 02:20:00 PM

Here is the Philadelphia Fed state coincident index release for September.

The indexes increased in 15 states for the month, decreased in 28, and were unchanged in the remaining seven (a one-month diffusion index of -26).

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. Most states are in recession, although a portion of the central U.S. is still growing (from Texas up to Montana).

This is what a recession looks like based on the Philly Fed states indexes.

This is a graph of the monthly Philly Fed data of the number of states with one month increasing activity.

Note: the Philly Fed calls some states unchanged with minor changes.

Most of the U.S. was has been in recession since late last year based on this indicator.