by Calculated Risk on 5/20/2009 11:42:00 AM

From Bloomberg: Geithner Says Toxic-Asset Plan to Start in Six Weeks

Treasury Secretary Timothy Geithner said he expects a pair of government programs to help banks remove their distressed assets will start by early July ...

The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion of government funds to finance sales of as much as $1 trillion in distressed mortgage-backed securities and other assets.

Here is Geithner's prepared statement.

by Calculated Risk on 5/20/2009 09:44:00 AM

Matt Padilla at the O.C. Register presents a new reset / recast chart from Credit Suisse: Loan reset threat looms till 2012

Credit Suisse is using recast dates for Option ARMs and reset dates for all other loans.

As Tanta noted: "Reset" refers to a rate change. "Recast" refers to a payment change.

Resets are not a huge problem as long as interest rates stay low, but recasts could be significant.

Note that Wells Fargo expects only a small percentage of their $115 billion "pick-a-pay" Option ARM portfolio they acquired via Wachovia (originally from World Savings / Golden West) to recast by 2012 (because Golden West had very generous NegAM terms). I'm not sure how that fits with this chart.

by Calculated Risk on 5/20/2009 09:00:00 AM

From the AIA: Architecture Billings Index Points to Possible Economic Improvement

After an eight-point jump in March, the Architecture Billings Index (ABI) fell less than a full point in April. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI rating was 42.8, down from the 43.7 mark in March. This was the first time since August and September 2008 that the index was above 40 for consecutive months, but the score still indicates an overall decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 56.8.

“The most encouraging part of this news is that this is the second month with very strong inquiries for new projects. A growing number of architecture firms report potential projects arising from federal stimulus funds,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Still, too many architects are continuing to report difficult conditions to feel confident that the economic landscape for the construction industry will improve very quickly. What these figures mean is that we could be seeing things turn around over a period of several months.”

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index is still below 50 indicating falling demand.

Historically there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on commercial real estate (CRE). So there will probably be further dramatic declines in CRE investment later this year.

Back in 2005, Kermit Baker and Diego Saltes of the American Institute of
Architects wrote a white paper: Architecture Billings as a Leading Indicator of Construction

The following graph is an update from their paper.

This graph compares the Architecture Billings Index and year-over-year change in non-residential construction spending from the Census Bureau.

This graph suggests the non-residential construction collapse will be very sharp, and although there isn't enough data to know if this is predictive of the percentage decline in spending, it does suggest a possible year-over-year decline of perhaps 20% to 30% in non-residential construction spending.

by Calculated Risk on 5/20/2009 08:32:00 AM

From the Detroit News: Feds to inject $7.5B more into GMAC (ht jb)

The Treasury Department is preparing to announce as early as today that it will invest an additional $7.5 billion in GMAC LLC in a deal that could allow the U.S. government to hold a majority stake in the Detroit-based auto finance company.

The Stress Test results showed GMAC needs another $11.5 billion in capital, so there is probably more coming.

by Calculated Risk on 5/19/2009 11:11:00 PM

From Bloomberg: Japan’s Economy Shrank Record 15.2% Last Quarter (ht creditcriminalslovetarp, Angry Saver, and others)

Japan’s economy shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending.

The contraction followed a revised fourth-quarter drop of 14.4 percent ...

Exports plunged an unprecedented 26 percent last quarter ...

by Calculated Risk on 5/19/2009 07:51:00 PM

From the Financial Times: Home Depot chief warns on US housing

Growing optimism over the US housing market may be premature, a leading retailer warned on Tuesday.
...
"We are concerned about the accelerating rates of foreclosures, particularly in the western part of the country,” [Frank Blake, chief executive of Home Depot] said, noting that one out of every 54 homes in California was in foreclosure.

Mr Blake said that a slowing foreclosure rate in California during the fourth quarter had led to an improvement in regional store sales but the trend had then reversed as foreclosure rates rose again in the first quarter.

The shift “provides a cautionary note on signalling a recovery prematurely”, he said. “Before we see real improvement we believe we need to see sustainable deceleration in foreclosures.”

Now that the foreclosure moratorium is over, the pace of foreclosures is picking up again. And, according to Mr. Blake, this will probably impact the home improvement companies.

by Calculated Risk on 5/19/2009 05:35:00 PM

The following table shows how the mix of units can skew the median price. This is just an example (not based on actual data).

In this example, from 2002 to 2005 low priced homes doubled in price, and high priced homes increased by two-thirds. The mix remained the same (50 units of each), and the median price increased 75%.

Median Price Example

Item	2002	2005	2007	2009	2010
Low Price	$100	$200	$200	$100	$100
High Price	$300	$500	$500	$400	$300
Low End Units Sold	50	50	40	40	20
High End Units Sold	50	50	50	10	30
Median Price	$200	$350	$500	$100	$300
Change in Low Price	--	100%	none	-50%	none
Change in High Price	--	67%	none	-20%	-25%
Change in Median Price	--	75%	43%	-80%	200%

Now look at what happened in 2007. Since subprime imploded first, the number of units sold at the low end decreased to 40 from 50. Everything else stayed the same - and just the change in the mix (higher percentage of high end homes) pushed up the median price! Note that the median price (light blue) increased WITHOUT any actual prices increasing. This happened at the beginning of the housing bust in many areas.

In the period I marked as 2009, the low end prices have fallen all the way back to 2002 prices. However the high end prices have only fallen 20%. The low end is seeing fairly high activity (40 units), but at the high end sales activity has collapsed (10 units). Look at the median price (in orange) - it has fallen more than the prices have declined for even the low end!

And finally, in 2010, prices fall further at the high end - and have stabilized at the low end. As prices fall, the volume picks up at the high end. And what happens to the median price? It increases by 200% (marked in red)!

UPDATE: Oops - I used average instead of median a couple of places (sorry - technical problems today),

This illustrates why we need to be very careful with median prices (like from NAR, DataQuick or other sources). The mix can distort the price, and I expect to read about median prices increasing later this year or in 2010, even though actual prices are still falling!

by Calculated Risk on 5/19/2009 04:01:00 PM

From Reuters: GM Bankruptcy Would Include Quick Sale to Feds

If General Motors files for bankruptcy ... plans include a quick sale of the automaker's healthy assets to a new company owned by the U.S. government, a source familiar with the situation said Tuesday.

...the plan also called for the government to forgive the bulk of $15.4 billion worth of emergency loans that the U.S. has already provided to GM.

Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is still the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

The second graph shows the S&P 500 since 1990.

The dashed line is the closing price today.

The market is only off 42% from the peak.

by Calculated Risk on 5/19/2009 02:46:00 PM

Note: I think California data provides an overview of the key dynamics in the housing market.

From DataQuick: Southland home sales hot inland, cool on coast; median price dips

Southern California homes sold at a faster pace than a year ago for the 10th consecutive month in April as first-time buyers and investors continued to target distressed inland properties. ...

A total of 20,514 new and resale houses and condos closed escrow in the six-county Southland last month. That was up 5.2 percent from 19,506 in March and up 31.4 percent from 15,615 a year ago ... Last month’s sales were the highest for that month since April 2006, when 27,114 homes sold, but were 18.2 percent below the average April sales total since 1988, when DataQuick’s statistics begin.

Foreclosure resales – homes sold in April that had been foreclosed on in the prior 12 months – accounted for 53.6 percent of all Southland resales last month. It was the seventh consecutive month in which post-foreclosure properties made up more than half of all resales.

The deep discounts associated with foreclosures have created stiff competition for builders, who last month sold the lowest number of newly constructed homes for an April since at least 1988.

At the same time, the number of single-family houses that resold last month was at record or near-record-high levels for an April in many of the more affordable, foreclosure-heavy inland markets. They included Palmdale, Lancaster, Moreno Valley, Perris, Indio, San Jacinto, Lake Elsinore and Victorville.

The sales picture was dramatically different in many older, high-end communities closer to the coast, where foreclosures and deep discounts are less common. Sales of existing houses remained at or near record lows for an April in markets such as Beverly Hills, Malibu, Palos Verdes Peninsula, Manhattan Beach and Pacific Palisades.

Key points:

Ignore median price. The mix changes the median price too much.

The low end is hot. Record or near record sales in the "affordable, foreclosure-heavy" communities.

The high end is cool. This will change once prices start to fall (See House Price Puzzle: Mid-to-High End)

Foreclosures are still near record levels - and will probably hit records again now that the moratorium is over. Foreclosure resales accounted for 53.6 percent of all resales last month. Remember the Distressing Gap!

by Calculated Risk on 5/19/2009 02:15:00 PM

From the Federal Reserve: Federal Reserve announces that certain high-quality commercial mortgage-backed securities will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF)

The Federal Reserve Board on Tuesday announced that, starting in July, certain high-quality commercial mortgage-backed securities issued before January 1, 2009 (legacy CMBS) will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF).
...
The CMBS market, which has financed approximately 20 percent of outstanding commercial mortgages, including mortgages on offices and multi-family residential, retail and industrial properties, came to a standstill in mid-2008. The extension of eligible TALF collateral to include legacy CMBS is intended to promote price discovery and liquidity for legacy CMBS. The resulting improvement in legacy CMBS markets should facilitate the issuance of newly issued CMBS, thereby helping borrowers finance new purchases of commercial properties or refinance existing commercial mortgages on better terms.

To be eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages and, as detailed in the attached term sheet, meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. The FRBNY will review and reject as collateral any CMBS that does not meet the published terms or otherwise poses unacceptable risk.

Eligible newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and must not have a rating below triple-A from any of these rating agencies.

Term Asset-Backed Securities Loan Facility (Legacy CMBS): Terms and Conditions

Term Asset-Backed Securities Loan Facility (Legacy CMBS): Frequently Asked Questions