by Calculated Risk on 5/18/2009 11:51:00 AM

From Bloomberg: Dollar Libor Drops Most in Two Months as Markets Thaw

The London interbank offered rate, or Libor, for three- month loans slid four basis points to 79 basis points today, the biggest decline since March 19, according to British Bankers’ Association data. It decreased for the past 34 days, including a drop of 11 basis points last week, the most since January.

Anyone with a LIBOR ARM is happy right now.

And a couple of other credit indicators:

There has been improvement in the A2P2 spread. This has declined to 0.47. This is far below the record (for this cycle) of 5.86 after Thanksgiving, and only slightly above the normal spread.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

Meanwhile the TED spread has decreased further over the last week, and is now at 61.97. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.

Last week, FDIC Sheila Bair said "the liquidity crisis is over for good". That might be a little optimistic (some ARS markets are still frozen), but it does appear the Fed has eased the liquidity crisis for now. The Treasury is still working on the solvency issues.

by Calculated Risk on 5/18/2009 10:17:00 AM

From Matt Padilla at the O.C. Register: County absorbs first wave of foreclosures

Banks have seized homes in Orange County at a pace that dwarfs the darkest days of the housing downturn in the 1990s. Yet eager buyers have grabbed those properties, keeping the county's foreclosure inventory in check, according to a special report from MDA DataQuick.

Hold the sigh of relief.

Some economists see a second wave of foreclosures coming.

Click on photo for larger image in new window.

This graphic from the O.C. Register shows where foreclosures are selling - and where they are not selling.

In the low priced areas, first time homebuyers and cash flow investors are buying the foreclosures. But in the high priced areas, there are far fewer buyers - especially since there are few move up buyers.

[F]oreclosure sales appear to be lagging on the coast.

Laguna Beach's 92651 had the highest ratio of unsold foreclosures at 53.8 percent – out of 52 foreclosures, just 24 had sold by April 10. San Clemente's 92672 is right behind with an unsold ratio of 43.9 percent, followed by Laguna Woods' 92637 at 42.9 percent.

Kerry Vandell, finance professor and director of UCI's real estate center, said high prices along the coast cause properties to sell slowly, whether foreclosure or not. For one thing, mortgage rates are higher on bigger loans, he said.

Rates are higher because government-backed mortgages are limited to about $730,000. Anything over that limit is also harder to get.

Laura Pephens, a San Clemente-based banking consultant and director with the California Mortgage Bankers Association, said there is another reason why coastal foreclosures are slower to sell. Banks are more reluctant to lower their asking prices, because the loan balances are bigger.

Here comes the second wave of foreclosures - mostly in mid-to-high priced areas. And these foreclosures will be much harder to sell.

For more:
From the San Francisco Chronicle: More high-end properties sitting on the market

House Price Puzzle: Mid-to-High End and Home Sales: One and Done

by Calculated Risk on 5/18/2009 08:41:00 AM

Press Release: Lowe's Reports First Quarter Sales and Earnings Results

"The economic pressures on consumers remain intense, and bigger ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely," [Robert A. Niblock, Lowe's chairman and CEO said] "But, as spring arrived, we saw relative strength in smaller, outdoor projects."

From the WSJ: Lowe's Earnings Slide 22%, Narrows Revenue Outlook

[Lowe's] now sees [fiscal-year] revenue ranging from down 2% to up 1%, from February's view of down 2% to up 2%. It still sees same-store sales down 4% to 8%.

A 4% to 8% decline in same store sales is a very difficult environment and indicates that home improvement remains very weak.

by Calculated Risk on 5/18/2009 12:04:00 AM

SoCal is shaken, but not stirred. (Magnitude 5.0 quake in LA)

The Housing Market Index will be released on Monday, and housing starts on Tuesday.

The U.S. futures are off tonight:

CBOT mini-sized Dow

Futures from barchart.com

CME Globex Flash Quotes

And the Asian markets. The Asian markets are mostly off tonight (Nikkei off 2.6%)

Best to all.

by Calculated Risk on 5/17/2009 08:59:00 PM

From the Financial Times: Smaller US banks need additional $24bn

Small and medium-sized US banks must raise some $24bn to meet the capital standards set by the government in its stress tests of large institutions, research for the Financial Times shows.

News of the potential capital shortfall could increase pressure on many of the 7,900 US banks that form the backbone of the US financial system.

As many as 500 more banks could close, according to investment bank Sandler O’Neill ... The government’s stress-case would result in capital shortfalls for 38 per cent of the 200 banks below the 19 largest financial institutions ...

Unlike the large banks, it appears these banks will be forced to merge or allowed to fail (and taken over by the FDIC).

by Calculated Risk on 5/17/2009 03:55:00 PM

Here is a photo of the Doris "Tanta" Dungey memorial bench on the campus of Illinois State University (another photo below).

Click on photo for larger image in new window.

This bench was paid for by your donations to The Doris "Tanta" Dungey Endowed Scholarship Fund setup by our very own Bacon Dreamz.

The scholarship received over $26,000 in donations and is fully endowed, although more contributions are welcome (see above link).

Tanta's niece Kate spoke at the dedication of the bench (Kate is a junior journalism student at ISU), and Tanta's parents also attended. Note: "Tanta" was a family nickname for Doris, and means "Aunt" in several languages. Tanta also has a nephew Erik who helped with the Mortgage Pig Wear charity.

For those visiting the campus, here is a map (from Cathy) showing the location of the bench.

This was one of Tanta's favorite spots - just outside Milner Library.

There were many donations to other charities in Tanta's name. OSU has received about $4,000, and the Normal Community High School’s Drama Club about $1,800. Thanks to all!

The Mortgage Pig wear for Charity raised over $3,500 for charity (I'm wearing a Mortgage Pig sweat shirt as I type!). Note: the Mortgage Pig Wear is closed for now.

And here is an excerpt from an email from the University of Maryland Medical System (to Cathy):

My name is Nichole Barbuzanes and I work in the UMMS Foundation office ...[and I wanted to] touch base with you regarding donations that have been made in your sisters memory. I am very sorry to hear about her passing but from the numerous ... contributions it is clear that she was loved by all.

So far we have received 45 contributions in her memory, including ... a $40,000 gift from the Denver Foundation from an anonymous contributor. The total is therefore $44,775. WOW!

When our Wall of Honor is updated in the next year ... your sister's name will be included. ...

Sincerely,
Nichole Barbuzanes
Contributor Relations Coordinator
UMMS Foundation

And a second photo of Tanta's bench.

Thank you to everyone for your nice emails, comments and donations to these charities. A special thanks to Bacon Dreamz and Cathy.

Best to all.

by Calculated Risk on 5/17/2009 12:05:00 PM

From the WSJ: Orszag: Economy's Freefall 'Seems to Have Stopped'

"The freefall in the economy seems to have stopped," Mr. Peter Orszag [director of the White House Office of Management and Budget] said during an interview on CNN's "State of the Union." "The analogy is there are some glimmers of sun shining through the trees, but we're not out of the woods yet."

Mr. Orszag ... urged patience when it came to seeing results from the government's $787 billion economic-stimulus plan, noting that only $100 billion has been allocated since the legislation was enacted three months ago.

"It takes time to get money out the door wisely," he said.

I like the "sun shining through the trees" better than "green shoots". And it's important to note that only a fraction of the fiscal stimulus has been allocated so far.

Orszag also made an important comment on healthcare: "If you look at the deficit in Social Security, it's a fraction of the deficit in Medicare. We're trying to deal with the big problem first." I've made this same argument many times - ignore Social Security Insurance until after we find a solution for health care and the structural General Fund budget deficit. That is just good management - go after the big problems first.

by Calculated Risk on 5/17/2009 09:57:00 AM

From the San Francisco Chronicle: More high-end properties sitting on the market

High-end properties are increasingly coming under the sort of pressure once reserved for moderate homes. In fact, as slowing price declines fuel hope that the real estate bottom is near, other signs suggest the worst is on its way for the region's upscale market.
...
In the Bay Area, the months of unsold inventory of existing single-family homes priced above $1 million reached 14 months in March, more than double where it stood a year ago, according to the California Association of Realtors.
...
[T]he type of person who might have been looking to buy a more expensive house in the past today often doesn't have the necessary equity appreciation to consider a million-dollar home.
...
"When you look and see supply has increased, you ask, 'Who are the potential buyers?'" [Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange] said. "That's where the problem kicks in."

The mid-to-high end will come under increasing pressure (see House Price Puzzle: Mid-to-High End). This article touched on the key problem "Who are the potential buyers?".

Usually mid-to-high end homes are bought by move up buyers - in a kind of real estate chain reaction. However, right now a large number of sellers at the low end are lenders (foreclosure resales or short sales) and there is no buyer to move up!

by Calculated Risk on 5/16/2009 09:29:00 PM

Note on comments: Ken will be performing maintenance on the comment system tonight sometime for about 30 minutes.

I don't know if this is real or fake ... but for your amusement on a Saturday night ... a secret basement below an REO in Las Vegas.

In a nondescript Las Vegas house, which was foreclosed/sold at auction, behind a secret panel wall in the kitchen, a stairway leads down 1 1/2 stories to a full-size bank vault door. Behind the door is a whole secret suite of rooms ... A main room with about 1200 sq ft., a toilet, a passage tunnel to a place outside of the property (which was drywalled off), and the kicker, is two concrete and steel tiny rooms with sound-proofed interiors, and no inside doorknob.

Someone alert Geraldo.

by Calculated Risk on 5/16/2009 05:52:00 PM

Alan Blinder (Princeton professor of economics, and former vice chairman of the Federal Reserve) writes in the New York Times: It’s No Time to Stop This Train

From its bottom in 1933 to 1936, the G.D.P. climbed spectacularly (albeit from a very low base), averaging gains of almost 11 percent a year. But then, both the Fed and the administration of Franklin D. Roosevelt reversed course.

In the summer of 1936, the Fed looked at the large volume of excess reserves piled up in the banking system, concluded that this mountain of liquidity could be fodder for future inflation, and began to withdraw it. ...

About the same time, President Roosevelt looked at what seemed to be enormous federal budget deficits, concluded that it was time to put the nation’s fiscal house in order and started raising taxes and reducing spending. ...

Thus, both monetary and fiscal policies did an abrupt about-face in 1936 and 1937, and the consequences were as predictable as they were tragic. The United States economy, which had been rapidly climbing out of the cellar from 1933 to 1936, was kicked rudely down the stairs again ...

At some point the Fed will have to withdraw liquidity. And at some point the budget deficit will have to be addressed. Note: the budget deficit is especially difficult because there is a cyclical deficit built upon a significant structural deficit.

And reversing these monetary and fiscal policies will no doubt raise concerns of a double dip recession. But we are getting ahead of ourselves - we still need to get out of the current recession!