by Calculated Risk on 7/23/2009 12:30:00 PM

From HotelNewsNow.com: STR reports US performance for week ending 18 July 2009

In year-over-year measurements, the industry’s occupancy fell 8.9 percent to end the week at 66.2 percent. Average daily rate dropped 9.4 percent to finish the week at US$97.33. Revenue per available room for the week decreased 17.5 percent to finish at US$64.41.

Although the occupancy rate was off 8.9 percent compared to last year, the occupancy rate is off about 13 percent compared to the same week in 2006 and 2007. This is a multi-year slump ...

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 8.0% from the same period in 2008.

The average daily rate is down 9.4%, and RevPAR is off 17.5% from the same week last year.

Note: Business travel is off much more than leisure travel - so the summer months will probably not be as weak as other times of the year. September will be a real test for business travel.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/23/2009 10:59:00 AM

Here is another graph of inventory. This shows inventory by month starting in 2004.

Inventory in June 2009 was below the levels in June 2007 and June 2008 (this is the 5th consecutive month with inventory levels below 2 years ago) and almost down to the levels of June 2006.

It is important to watch inventory levels very carefully. If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market!

Note: 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. There are also reports of REOs being held off the market, so inventory is probably under reported.

The second graph shows the year-over-year change in existing home inventory.

Prices will probably continue to fall until the months of supply reaches more normal levels (closer to 6 months compared to the current 9.4 months), and that will take some time.

However this trend of declining year-over-year inventory levels is a positive for the housing market (while remembering the shadow inventory)

by Calculated Risk on 7/23/2009 10:00:00 AM

The NAR reports: Existing-Home Sales Up Again

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.
...
Total housing inventory at the end of June fell 0.7 percent to 3.82 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, down from a 9.8-month supply in May.

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 June 2009 (4.89 million SAAR) were 3.6% higher than last month, and were 0.2% lower than June 2008 (4.90 million SAAR).

Here is another way to look at existing homes sales: Monthly, Not Seasonally Adjusted (NSA):

This graph shows NSA monthly existing home sales for 2005 through 2009. For the first time in several years, sales (NSA) were slightly higher in June 2009 than in June 2008.

It's important to note that the NAR says about one-third of these sales were foreclosure resales or short sales. Although these are real transactions, this means activity (ex-distressed sales) is much lower.

The third graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 3.82 million in June. The all time record was 4.57 million homes for sale in July 2008. This is not seasonally adjusted.

Typically inventory increases in June, and peaks in July or August. This decrease in inventory was a little unusual.

Also, many REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently there have been stories about a substantial number of unlisted REOs and other shadow inventory - so this inventory number is probably low.

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

Months of supply declined to 9.4 months.

Sales increased slightly, and inventory decreased, so "months of supply" decreased. A normal market has under 6 months of supply, so this is still very high.

I'll have more soon ...

Note: New Home sales will be released on Monday.

by Calculated Risk on 7/23/2009 09:00:00 AM

UPS CEO opening comments on conference call:

“On our last call we told you economic conditions for the second quarter would be slightly worse than the first and UPS performance would reflect those conditions. And that's what happened. The results we announced today are a clear indication of the tough economic environment. As you're aware, the rates of decline of some key economic indicators, like GDP and industrial production, have slowed. Other indicators, like manufacturing and service sector indices, are exhibiting signs of improvement. Most forecasters are saying that we may be at the bottom. Whether or not we're at the bottom is not the main issue; what is important is how long we remain here and what type of recovery we will have. Remember, all these indicators are still well into negative territory, illustrating the challenges that lie ahead. We will continue to manage the Company under the assumption that the economy will stay at this level until definitive signs of improvement materialize.

UPS executives went on to say (paraphrasing) that 1) trends in July have shown no improvement to date, 2) don’t have any confidence that trends or volumes will improve materially in Q3, 3) economy sitting here at this bottom.

by Calculated Risk on 7/23/2009 08:30:00 AM

NOTE: The seasonally adjusted weekly claims numbers is being impacted by the layoffs in the automobile industry. Usually auto companies cut back production in the summer, and the numbers are adjusted for that pattern - but this year the companies cut back much earlier. This distortion appears much smaller this week, and is expected to be over soon.

The DOL reports on weekly unemployment insurance claims:

In the week ending July 18, the advance figure for seasonally adjusted initial claims was 554,000, an increase of 30,000 from the previous week's revised figure of 524,000. The 4-week moving average was 566,000, a decrease of 19,000 from the previous week's revised average of 585,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 11 was 6,225,000, a decrease of 88,000 from the preceding week's revised level of 6,313,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 19,000, and is now 93,250 below the peak of 15 weeks ago. It appears that initial weekly claims have peaked for this cycle.

The level of initial claims has fallen quickly - but is still very high (over 550K), indicating significant weakness in the job market.

Following the earlier recessions (like '81), weekly claims fell quickly, but in the two most recent recessions, weekly claims declined a little and then stayed elevated for some time. I expect weekly claims to stay elevated following the current recession too.

by Calculated Risk on 7/22/2009 11:59:00 PM

Note: Thomas Lawler is a former Fannie Mae and Wall Street economist who now writes a newsletter. He did an excellent job calling the housing bubble and bust, and I've quoted him a few times over the years.

From James Hagerty at the WSJ: As Housing Loses its Stickiness, Prices Reach Bottom Quicker

Tom Lawler has a new concept. He calls it the “de-stickification” of house prices.

Though Mr. Lawler was among the more bearish of housing economists when the market was still bubbling, he recently has been arguing that prices for low- and mid-range homes are stabilizing in many parts of the country ...

Part of the bear case involves the historical observation that it takes many years for house prices to bottom out because they are “sticky,” or slow to adjust downward even when supply surges and demand evaporates. In the past, home prices adjusted slowly in such circumstances because homeowners are stubborn and often don’t need to sell immediately. When Los Angeles had a housing slump in the early 1990s, caused in part by a plunge in aerospace-related employment, the Case-Shiller price index for the city started falling gradually in early 1990 and didn’t hit bottom until 1996.

This time around, Mr. Lawler argues, things are happening a lot faster. That’s partly because banks are dealing with a foreclosure rate not seen at least since the Great Depression. ...

That has forced prices down much more quickly than would have been expected in some of the milder down cycles of the past, Mr. Lawler says. ...

Not that Mr. Lawler sees another housing boom around the corner.

Once again house prices were sticky. Even in the low priced areas with significant foreclosure activity, prices have fallen for several years. The question is how sticky?

What Lawler is apparently suggesting is that significant foreclosure activity makes prices less sticky in for "low- and mid-range" priced homes - I agree - and I've argued before that some low priced areas could be near the price bottom.

The dynamics will probably be different in the mid-to-high priced areas. With few move-up buyers, I expect prices to fall for some time in the mid-to-high priced range bubble areas (especially in real terms). Of course foreclosure activity is picking up in the high priced areas - see DataQuick's report today - but I think it will still take some time for prices to fall to the market clearing price.

by Calculated Risk on 7/22/2009 07:38:00 PM

Note: Comments working! Thanks Ken!

From Bloomberg: CIT Bond Advisers Said to Push for Bankruptcy After August Swap (ht Bob_in_MA)

Even if CIT succeeds in getting 90 percent of the $1 billion of floating-rate notes due Aug. 17 swapped at a discount, the advisers will seek a so-called pre-packaged bankruptcy ... Should the CIT offer ... fail, Houlihan ... will recommend the steering committee let CIT file for bankruptcy before paying the August maturity ...

The "Tony Soprano" debt deal was just a delaying tactic. That appeared clear given the terms. And this is why the deal required the onerous 5% upfront fee - and significant overcollaterization - because it was BK if you do, BK if you don't.

by Calculated Risk on 7/22/2009 06:07:00 PM

From Bloomberg: Subprime-Mortgage Loss Forecast Is Raised by Standard & Poor’s

Standard & Poor’s again boosted its projections for losses from U.S. subprime mortgages backing securities ... Losses on loans backing 2006 securities will reach an average of about 32 percent of the original balances, while losses for similar 2007 bonds will total about 40 percent, the New York-based ratings firm said in a statement today. In February, S&P said the losses would total an average of 25 percent for 2006 bonds and 31 percent for 2007 securities.

Ouch!

by Calculated Risk on 7/22/2009 04:13:00 PM

By popular demand ...

Click on graph for larger image in new window.

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

The dashed line is the closing price today.

The S&P 500 is up 41% from the bottom (277 points), and still off 39% from the peak (611 points below the max).

This puts the recent rally into perspective. The S&P 500 first hit this level in Sept 1997; about 12 years ago.

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

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

by Calculated Risk on 7/22/2009 02:08:00 PM

Please see graph at bottom of post ...

From DataQuick: California Second Quarter Mortgage Defaults Edge Down

The number of foreclosure proceedings started against California homeowners fell slightly in the April-through-June period compared with the prior three months, but remained higher than last year. The dip from earlier this year occurred as lenders and their loan servicers took time to revise procedures and priorities in an environment of continuing home price depreciation, economic distress and mortgage defaults, a real estate information service reported.

Lenders sent out a total of 124,562 default notices during the second quarter (April through June). That was down 8.0 percent from the prior quarter's record 135,431 default notices, and up 2.4 percent from 121,673 in second quarter 2008, according to MDA DataQuick.

"There is a perception that the housing market is dragging along bottom, that it probably won't get much worse, and that the lenders need to get serious about processing the backlog of delinquencies, either with work-outs or foreclosure. We're hearing that some lenders and servicers are doing just that, hiring more people to do the necessary paperwork. That means the foreclosure numbers will probably shoot back up during the third quarter," said John Walsh, DataQuick president.

The median origination month for last quarter's defaulted loans was July 2006, the same as during the first quarter. A year ago the median origination month was April 2006, so the foreclosure process has moved three months forward during the past 12 months.

"Either the mid 2006 loans were particularly nasty, or lenders and servicers haven't kept up with new delinquencies. Looking below the surface statistics it appears likely that it's both," Walsh said.
...
While most first quarter 2009 foreclosure activity was still concentrated in affordable inland communities, there were signs that the foreclosure problem was intensifying in more expensive areas. The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for more than 52.0 percent of all default activity in 2008. In first quarter 2009 it fell to 47.5 percent, and last quarter it dipped to 45.0 percent.
emphasis added

There is a lot of interesting data in this report. A few key points:

2009 will probably be another record year for NODs (although the lenders were playing catch-up in Q1)

2006 was a toxic year (probably because that was when house prices peaked or were starting to fall).

Defaults are movin' on up into the mid and high priced areas.

Click on graph for larger image in new window.

This graph shows the Notices of Default (NOD) by year through 2009¹ in California from DataQuick.

¹ 2009 estimated as twice Q1 and Q2 NODs.

Clearly 2009 is on pace to break the record of 2008, and the pace will probably pickup in the 2nd half of 2009. I'd expect somewhere in the 550 thousand to 600 thousand range for the entire year.