by Calculated Risk on 8/24/2009 05:49:00 PM

Check out the updates to the NY Fed Credit Conditions map.

A very cool tool from the NY Fed: New York Fed Launches Expanded U.S. Credit Conditions Section of Website (ht Bob, Justin)

The Federal Reserve Bank of New York today launched an expanded section of its website, adding new regional information on consumer credit conditions intended to assist policymakers address mortgage delinquency and foreclosure issues.

The U.S. Credit Conditions section offers new interactive maps and data on auto and student loan delinquencies, and mortgage “roll” rates. These features complement existing maps and spreadsheets on mortgage foreclosures and delinquencies, measures of subprime and alt-A mortgages and bank credit card delinquencies. The data are available at the state and county level.

by Calculated Risk on 8/24/2009 04:00:00 PM

Here is an email sent out by George Mason University today (thanks to KurtyBoy):

Beginning August 30, after hours parking in the FDIC parking garage, from 5:30 pm to 11:00 pm with a valid Mason Arlington permit, is no longer available.

Click on email for larger image in new window.

KurtyBoy adds: "Notice how the bullet about the parking has been added in a different font? Like a change that just got made.... "

Looks like long hours for Sheila Bair and crew.

And from Jim the Realtor:




Here is the market graph from Doug Short, Doug Short is matching up the market bottoms for four crashes (with an interim bottom for the Great Depression).

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

by Calculated Risk on 8/24/2009 01:52:00 PM

A few comments on the first-time homebuyer tax credit:

A couple of details:

The tax credit is up to 10% of the purchase price, or $8 thousand maximum.

"First-time" homebuyers are defined as anyone who hasn't owned a primarily residence for the last 3 years (not really "first-time").

The tax credit can be used as the downpayment, see Kenneth Harney's: How buyers can use tax credit for down payment

This has led to a frenzy of first-time home buying. Even though the program ends on November 30th, the buyer must close escrow before then - so the program will boost traffic through September and maybe into October.

Existing home sales are reported in the month following the close of escrow. So the program should have a positive impact on reported numbers throughout most of the year.

The odds are very high that the tax credit will be extended. My understanding is the NAR and NAHB are pulling out all the stops and the extension of this credit is their #1 priority. Also, since housing is the top economic priority for the Obama Administration, I think we will see an extension at the same size ($8K), maybe for another 6 months. This extension will probably not be a high priority until October. However, just like with the cash-for-clunkers program, I think the impact will wane over time.

Anecdote: I've spoken with two younger guys (30 ish) who told me they had no down payment, but edit: were looking to buy a house NOW. They are using the tax credit and FHA to buy. I think that conversation is happening in many places.

This suggests existing home sales will decline - perhaps significantly - after the frenzy subsides.

by Calculated Risk on 8/24/2009 12:04:00 PM

These are very important numbers ...

Press Release from Fitch: Fitch: Delinquency Cure Rates Worsening for U.S. Prime RMBS (ht BURN, Ron Wallstreetpit)

While the number of U.S. prime RMBS loans rolling into a delinquency status has recently slowed, this improvement is being overwhelmed by the dramatic decrease in delinquency cure rates that has occurred since 2006, according to Fitch Ratings. An increasing number of borrowers who are 'underwater' on their mortgages appear to be driving this trend, as Fitch has also observed.

Delinquency cure rates refer to the percentage of delinquent loans returning to a current payment status each month. Cure rates have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. ...

'Recent stability of loans becoming delinquent do not take into account the drastic decrease in delinquency cure rates experienced in the prime sector since the peak of the housing market,' said [Managing Director Roelof Slump]. 'While prime has shown the most precipitous decline, rates have dropped in other sectors as well.'

In addition to prime cure rates dropping to 6.6%, Alt-A cure rates have dropped to 4.3%, from an average of 30.2%, and subprime is down to 5.3% from an average of 19.4%. 'Whereas prime had previously been distinct for its relatively high level of delinquency recoveries, by this measure prime is no longer significantly outperforming other sectors,' said Slump.

... Furthermore, up to 25% of loans counted as cures are modified loans, which have been shown to have an increased propensity to re-default.

... 'As income and employment stress has spread, weaker prime borrowers become more likely to become delinquent in their loan payments and are less likely to become current again,' said Slump.

Regardless of aggregate roll-to-delinquent behavior, it will be difficult to argue that the market has stabilized or that performance has improved, until there is a concurrent increase in cure rates. This is especially true in the prime sector, which remains performing many times worse than historic averages. Prime 60+ delinquencies have more than tripled in the past year, from $9.5 billion to $28 billion total, or roughly $1.6 billion a month.
emphasis added

This really puts the recent rise in delinquencies in perspective. Look at this graph from MBA Forecasts Foreclosures to Peak at End of 2010

Click on graph for larger image in new window.

This graph shows the delinquency and in foreclosure rates for all prime loans.

Prime loans account for all 78% of all loans.

Back in the 2000 to 2006 period, 45% of those delinquencies cured. Now, according to Fitch, only 6.6% cure - and a large percentage of those "cures" are modifications - and there is a large redefault rate on those loans.

by Calculated Risk on 8/24/2009 10:33:00 AM

From the Chicago Fed: Index shows economic activity improved in April

The Chicago Fed National Activity Index was –0.74 in July, up from –1.82 in June. All four broad categories of indicators improved in July, while three of the four continued to make negative contributions to the index. Production-related indicators made a positive contribution to the index for the first time since October 2008 and for only the second time since December 2007.

Click on table for larger image in new window.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:

"[T]he Chicago Fed National Activity Index (CFNAI), is a weighted average of 85 existing, monthly indicators of national economic activity. The CFNAI provides a single, summary measure of a common factor in these national economic data ...

[T]he CFNAI-MA3 appears to be a useful guide for identifying whether the economy has slipped into and out of a recession. This is useful because the definitive recognition of business cycle turning points usually occurs many months after the event. For example, even though the 1990-91 recession ended in March 1991, the NBER business cycle dating committee did not officially announce the recession’s end until 21 months later in December 1992. ...

When the economy is coming out of a recession, the CFNAI-MA3 moves significantly into positive territory a few months after the official NBER date of the trough. Specifically, after the onset of a recession, when the index first crosses +0.20, the recession has ended according to the NBER business cycle measures."

Note: this is based on only a few recessions, but this is one of the indicators to watch to determine when the recession ends. This suggests the economy was still in recession in July.

Of course this says nothing about economic purgatory ...

by Calculated Risk on 8/24/2009 08:52:00 AM

From Bloomberg: Roubini Sees Increasing Risk of Double-Dip Recession

Nouriel Roubini ... said the chance of a double-dip recession is increasing ... The global economy will bottom out in the second half of 2009, Roubini wrote ...

“There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policy makers are damned if they do and damned if they don’t.”

Government and central bank officials may undermine the recovery and tip their economies back into “stagdeflation” if they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, Roubini says. He defines “stagdeflation” as recession and deflation.
...
Roubini currently expects a U-shaped recovery, where growth will be “anemic and below trend for at least a couple of years,” he said.

There are still many problems in the economy, including the housing market, commercial real estate, household balance sheets (still too much debt), consumer spending, and more. As Roubini notes, there are significant risks "associated with exit strategies from the massive monetary and fiscal easing".

From the WSJ: Policy Makers Seek to Learn From 1937's Stalled Comeback

The Great Depression was W-shaped. The stock-market collapse led to a steep economic decline. But by 1933, the economy had rebounded. Then a series of monetary and fiscal blunders drove the country back into a deep recession at the end of 1937.

That episode is at the heart of the debate over how quickly the government and the U.S. Federal Reserve should unwind the emergency measures they have taken to fend off a Depression-like contraction.

For the administration, the answer is clear: Err on the side of continued expansionary policies. "What you learned from that episode in 1937 is that it's not enough to be recovering," says Christina Romer, chairman of the president's Council of Economic Advisers and an expert on the Great Depression. "You don't want to do anything when you start recovering that nips it off too soon."

by Calculated Risk on 8/23/2009 07:31:00 PM

From Reuters: Analyst Bove sees 150-200 more U.S. bank failures (ht Ron at WallStreetPit)

[Dick] Bove said "perhaps another 150 to 200 banks will fail," on top of 81 so far in 2009, adding stress to the FDIC's deposit insurance fund.
...
Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.

He said these assessments could total $11 billion in 2010, on top of the same amount of regular assessments. "FDIC premiums could be 25 percent of the industry's pretax income," he wrote.

Meredith Whitney said Friday that she expects around 300 banks to fail this cycle. With 109 failures so far (81 this year), 300 seems low. I'll take the over ...

by Calculated Risk on 8/23/2009 06:09:00 PM

(ht The Economic Populist)

"We've got a problem with terminology because we usually say either the economy is in recession or the economy is recovering. Either you're in hell, or you're in heaven. And the trouble is we're actually in purgatory. We're actually in a situation almost for sure GDP is growing; almost for sure the business cycle leading committee will eventually decide that the recession ended this summer. But almost surely also we're still losing jobs. The unemployment rate is going to continue to rise. So we're in that infamous jobless recovery state."
...
"What we have now is a whole lot better than seeing the end of the world six months down the pike, but it is not good enough - or even remotely good enough."
emphasis added

by Calculated Risk on 8/23/2009 11:34:00 AM

For something a little different ...

For the first time since the automatic cost of living adjustments (COLA) were adopted in 1975, Social Security benefits will not increase in December 2009. This also means the contribution base (currently $106,800) will not increase in 2010.

There is also a reasonable chance that there will be little or no increase in benefits in 2011 (starting in December 2010).

Click on graph for larger image in new window.

This graph shows the cost of living adjustments for social security benefits since 1975 (increases start in December, but are mostly for the following year).

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W¹ for the three months in Q3 (July, August, September) and compares to the average for the proceeding year Q3 months. Note: this is not the headline CPI-U.

In 2007, the average of CPI-W was 203.596. In 2008, the average was 215.495. That gives an increase of 5.8%.

Since Q3 2008 CPI-W has fallen - to 210.526 in July - and CPI-W will certainly be below 215.295 in August and September.

Instead of cutting benefits by the change in CPI-W, the benefits will stay the same for 2010.

However, for 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average - the 215.495 in Q3 2008. This means CPI-W could increase 2.3% over the next year, and there would be no increase in Social Security benefits in 2011.

Contribution and Benefit Base

In addition, this means the contribution base will not increase in 2010. Although the base is calculated using the National Average Wage Index, the law - as currently written - prohibits an increase in the contribution and benefit base if COLA is not greater than zero.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

In 2011, for benefits, the increase will be zero or small because the calculation is based on CPI-W in Q3 2008.

However, for the contribution base in 2011, if the COLA is even slightly positive, the increase will be based on changes in the national average wage index (not COLA).

Note: It seems very likely that the base in 2011 will be increased by new legislation, so this probably will not matter - but it does matter for 2010.

⁽¹⁾ CPI-W usually tracks CPI-U (headline number) pretty well. From the BLS:

The Bureau of Labor Statistics publishes CPIs for two population groups: (1)the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) ... which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.

by Calculated Risk on 8/23/2009 09:16:00 AM

We've discussed this all year, and this is happening in many low priced areas ...

From Carolyn Said at the San Francisco Chronicle: 'Cash is king' in market for foreclosed homes

"Since January, I've put in 10 bids (on foreclosed homes); some were up to $80,000 over asking price and were still turned down," said [first-time home buyer, Jay] Nielsen, 41, a medical assistant. Each time, the banks selected offers from investors with all-cash offers - even when those offers were lower than his, Nielsen said.

"Cash is king right now," said Glen Bell of Keller Williams Realty in Berkeley. For foreclosed homes, "a cash offer that hits the target price will many times trump a higher-priced offer with a loan. The ability to close has become just as important to banks as price. The prospect of a property being tied up longer, still on their books and then falling out is costly."

The result is that average consumers say they are being shut out because they can't compete against deep-pocketed investors snapping up homes to rent out or flip. ...

All-cash sales are most common where prices are low and bank-owned properties account for the lion's share of listings. In foreclosure-ridden Pittsburg, for instance, 42.7 percent of home sales in the first three weeks of July had no record of a purchase loan, according to county data analyzed by MDA DataQuick. The median price for those transactions was $105,000.

There is a buying frenzy right now for first-time homebuyers trying to take advantage of the $8,000 tax credit (see 6 things to know for details) before the program expires at the end of November (must close escrow by then).

Meanwhile cash-flow investors are buying properties in the same price range (the numbers don't work on higher priced homes). In some of these areas, the only buyers are first-time homebuyers frequently using the tax credit as their downpayment and investors. The sellers are banks or short sales.

Not exactly signs of a healthy market.