RSS Feed by Calculated Risk on 11/19/2009 06:45:00 PM
Thursday, November 19, 2009
States: Seriously Delinquent Mortgages vs. Unemployment Rate
Here is a scatter graph comparing the seriously delinquency rate for mortgage loans vs. unemployment rate for all states. The seriously delinquent rate include 90+ days delinquent loans, and loans in the foreclosure process for Q3 2009 (Source: MBA).
Click on graph for larger image in new window.
There is a relationship between delinquency rates and the unemployment rate.
Florida really stands out because of state specific foreclosure laws. Arizona and Nevada also have higher than expected foreclosure rates - possibly because of high investor activity during the housing bubble.
As the unemployment rate continues to rise, the mortgage delinquency rate will increase too.
For more on the MBA National Delinquency Survey, see:
Mortgage Delinquencies and Foreclosures by Period Past Due
by Calculated Risk on 11/19/2009 03:49:00 PM
First, on the market ...
This 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.
Reader Yuri asked me if the number of 30 day delinquencies is decreasing. He was curious if the overall number of delinquencies is increasing because of the loan modifications and other actions that are limiting the outflow - but that that overall increase might be masking some improvement for the inflow of new delinquencies.
This graph shows the delinquencies by time period (30, 60, 90 day, and in foreclosure) for all loans.\
The percentage of 30 and 60 day delinquencies have decreased slightly. However the rates are still near record levels.
For the 30 day bucket, there were 3.57% percent delinquent - not much lower than the high in Q1 of 3.77%. For 60 days, the rate was 1.67% - also below the high in Q1.
Clearly most of the increase was in the 90 day and in foreclosure buckets. And that is why the modification programs are so important.
The second graph provides the same data for prime fixed rate mortgages. Both the 30 and 60 day buckets are still at record levels, although the rate of increase has slowed.
Since prime fixed rate mortgages account for about 2/3s of the mortgage market, a large portion of future foreclosures will probably be from these loans.
Hotel RevPAR off 15.7 Percent
by Calculated Risk on 11/19/2009 01:14:00 PM
From HotelNewsNow.com: New Orleans leads ADR, RevPAR declines in STR weekly numbers
Overall, in year-over-year measurements, the industry’s occupancy fell 6.4 percent to end the week at 52.6 percent, ADR dropped 9.9 percent to US$95.86, and RevPAR decreased 15.7 percent to finish at US$50.47.
Click on graph for larger image in new window.This graph shows the occupancy rate by week for each of the last four years (2006 through 2009 labeled by start of month).
Notes: the scale doesn't start at zero to better show the change. Thanksgiving was late in 2008 (and will be late in 2009), so the dip doesn't line up with the previous years.
Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com
This is a two year slump for the hotel industry. Although occupancy is off 6.4% compared to 2008, occupancy is off about 18% compared to 2006 and 2007.
Smith Travel Research released an updated hotel forecast 2011 can’t get here too soon .
Occupancy: 2009 will end at -8.8 percent (revised from -8.4 percent); 2010 figures will be down 0.2 percent (revised from -0.6 percent); and 2011 will be up 2.4 percent.Here is a PDF of the new forecast (free registration required)
Average daily rate: 2009 will close down 8.9 percent (revised from -9.7 percent); 2010 will be down 3.4 percent (unchanged from previous forecast); and 2011 will be up 5.5 percent.
“In the current cycle, it’s increasingly easy to predict supply and a little easier to predict demand,” [Mark Lomanno, STR’s president] said. “What is difficult is predicting rate growth ... how aggressive the industry will be in raising rates is virtually impossible to predict.”
...
Revenue per available room: 2009’s RevPAR will decline 17.0 percent (revised from 17.1 percent; it will drop 3.6 percent in 2010 (revised from -4.0 percent) before jumping 5.5 percent in 2011.
Supply: The number of guestrooms will end 2009 up 3.2 percent (revised from +3.0 percent); up 1.8 percent in 2010; and up 0.8 percent in 2011.
“The construction pipeline will mostly be built between now and early 2011,” Lomanno said.
...
Demand: Room demand in 2009 will be down 6.0 percent (revised from -5.5 percent) before turning positive in 2010 at +1.6 percent (revised from +1.3 percent). Demand will grow 3.2 percent in 2011, according to the STR forecast.
...
“Clearly commercial real estate will be a second shoe dropping in 2010,” [Randy Smith, STR’s co-founder and chairman] said. “That’s going to be a process that will hurt demand for the hotel industry. A huge chunk of demand for our industry will continue to be wiped out as long as the construction industry is on its back.”
The good news is the supply of new hotels is slowing sharply. The bad news is that means less construction employment - and also negatively impacts hotel occupancy.
MBA Forecasts Foreclosures to Peak in 2011
by Calculated Risk on 11/19/2009 11:08:00 AM
On the MBA conference call concerning the "Q3 2009 National Delinquency Survey", MBA Chief Economist Jay Brinkmann said this morning:
Note: Many more questions this time!
A few graphs ...
Click on graph for larger image in new window.The first graph shows the delinquency and in foreclosure rates for all prime loans.
Prime loans account for about 76% of all loans.
"We're all subprime now!" NOTE: Tanta first wrote this saying in 2007 in response to the 'contained to subprime' statements.
The second graph shows just fixed rate prime loans (about two-thirds of all loans).Prime ARMs have a higher delinquency rate than Prime FRMs, but the foreclosure crisis has now spread to Prime fixed rate loans.
Note that even in the best of times (with rapidly rising home prices in 2005), just over 2% of prime FRMs were delinquent or in foreclosure. However the cure rate was much higher back then since a delinquent homeowner could just sell their home.
The third graph shows the delinquency and in foreclosure process rates for subprime loans. Although the increases have slowed, about 40% of subprime loans are delinquent or in foreclosure.
And a final comment: historically house prices do not bottom until after foreclosure activity peaks in a certain area. Since the subprime crisis delinquency rates might be peaking, it would not be surprising if prices are near a bottom in the low end areas. But in general I'd expect further declines in house prices - especially in mid-to-high end areas.
MBA: Record 14.4 Percent of Mortgage Loans in Foreclosure or Delinquent in Q3
by Calculated Risk on 11/19/2009 10:00:00 AM
The MBA reports a record 14.4 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q3 2009. This is an increase from 13.2% in Q2 2009.
From the MBA: Delinquencies Continue to Climb in Latest MBA National Delinquency Survey
The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter.
Top Line Results
The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972.
The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.
The percentage of loans on which foreclosure actions were started during the third quarter was 1.42 percent, up six basis points from last quarter and up 35 basis points from one year ago.
The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs. The percentage of loans 30 days past due is still below the record set in the second quarter of 1985.
Increases Driven by Prime and FHA Loans
“Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent,” said Jay Brinkmann, MBA’s Chief Economist.
“Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures. 33 percent of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44 percent of the quarterly increase in foreclosures. The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54 percent of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.
“The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans. In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures.
“The foreclosure rate on FHA loans also increased, despite having a large increase in the number of FHA-insured loans outstanding. The number of FHA loans outstanding has increased by about 1.1 million over the last year. This increase in the denominator depresses the delinquency and foreclosure percentages. If we assume these newly-originated loans are not the ones defaulting and remove the big denominator increase from the calculation results, the foreclosure rate would be1.76 percent rather than 1.31 percent reported.
....
“The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve. First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace. Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates. Second, the number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers. The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country.”
Weekly Initial Unemployment Claims: 505,000
by Calculated Risk on 11/19/2009 08:30:00 AM
The DOL reports on weekly unemployment insurance claims:
In the week ending Nov. 14, the advance figure for seasonally adjusted initial claims was 505,000, unchanged from the previous week's revised figure of 505,000. [Revised from 502,000] The 4-week moving average was 514,000, a decrease of 6,500 from the previous week's revised average of 520,500.
...
The advance number for seasonally adjusted insured unemployment during the week ending Nov. 7 was 5,611,000, a decrease of 39,000 from the preceding week's revised level of 5,650,000.
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 6,500 to 514,000, and is now 144,750 below the peak in April.
The level is still very high suggesting continuing job losses in November.
Wednesday, November 18, 2009
The Failure of Regulatory Oversight
by Calculated Risk on 11/18/2009 10:33:00 PM
This is a recurring theme: a bank fails, the Inspector General reviews the failure and discovers that the field examiners saw problems starting around 2002, and ... nothing happened for years.
We saw this with the Federal Reserve and the failure of Riverside Bank of the Gulf Coast, and with the FDIC / OTS and the failure of IndyMac.
Eric Dash at the NY Times has more: Pathology of a Crisis
At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.This is screaming for an open and transparent Congressional investigation (or something like the Pecora Commission, ht Mock Turtle). After the examiners discovered problems at the banks in a timely fashion, what happened next? Were further actions blocked by supervisors? Did examiners feel each bank was an isolated incident? How will the new regulatory structure solve this problem?
And a chilling quote from Eric Dash's article:
“Hindsight is a wonderful thing,” said Timothy W. Long, the chief bank examiner for the Office of the Comptroller of the Currency. “At the height of the economic boom, to take an aggressive supervisory approach and tell people to stop lending is hard to do.”But isn't that the regulator's job?
Note: Alison Vekshin at Bloomberg had an excellent article last month on the same topic: FDIC Failed to Limit Commercial Real-Estate Loans, Reports Show
MBA: Purchase Applications Fall to 12 Year Low
by Calculated Risk on 11/18/2009 08:30:00 PM
Another busy day and I skipped the MBA market index earlier ... note: The MBA Q3 delinquency report will be released tomorrow.
The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey
The Market Composite Index, a measure of mortgage loan application volume decreased 2.5 percent on a seasonally adjusted basis from one week earlier. ...It appears the post home buyer tax credit slump is in full swing. The tax credit was extended and the eligibility expanded, but interest will probably wane (you can only pull so much demand forward).
The Refinance Index decreased 1.4 percent from the previous week and the seasonally adjusted Purchase Index decreased 4.7 percent from one week earlier. The seasonally adjusted Purchase Index has declined for six consecutive weeks and is at its lowest level since November 1997.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.83 percent from 4.90 percent, with points increasing to 1.17 from 1.03 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest contract rate observed by the survey since mid-May of this year.
Click on graph for larger image in new window.This graph shows the MBA Purchase Index and four week moving average since 2002.
Note: The increase in 2007 was due to the method used to construct the index: a combination of lender failures, and borrowers filing multiple applications pushed up the index in 2007, even though activity was actually declining.
One million Workers to Exhaust Unemployment Benefits in January
by Calculated Risk on 11/18/2009 05:42:00 PM
Yogi Berra
From the NY Times (edit): Jobless Benefits Set to Expire Unless Congress Acts
About one million laid-off workers will see their unemployment benefits end in January ...Note: I'm surprised that any lawmakers were "surprised". The expiration date was in the recent bill, and I mentioned that another extension would be coming soon.
The [recently] added federal benefits were built on a series of previous extensions that are slated to end on Dec. 31 ...
According to projections released Wednesday by the National Employment Law Project, an advocacy group that worked with state officials to develop the numbers, 474,111 unemployed workers will exhaust their state benefits during January ... An additional 581,000 workers will see their federal benefits end in January, according to the study.
Housing Leads the Economy, Existing Home Sales are Irrelevant
by Calculated Risk on 11/18/2009 03:30:00 PM
After reading some of the commentary regarding the housing starts report this morning, it might be useful to reiterate these three points:
Residential investment is reported quarterly by the Bureau of Economic Analysis (BEA) as part of the GDP report. We can also use monthly housing starts and new home sales as indicators of residential investment. I've written extensively about how residential investment is an excellent leading indicator for the economy (also see Dr. Leamer's paper: Housing and the Business Cycle)
This morning several commentators suggested that housing starts were depressed in October because of the expiration of the tax credit (new home buyers had to close by Nov 30th to get the tax credit), and also because of the weather. Probably. But the key point is that housing starts will not increase rapidly because of the large overhang of existing vacant housing units (see 2nd graph here). And that suggests that the economy will not recover quickly either.
Another key point is that existing home sales are largely irrelevant for the economy. This is an important point to remember next week when the NAR announces that existing home sales surged to 5.8 million units or so in October (seasonally adjusted annual rate). Some reporters and analysts will jump on the existing home sales report as evidence of a housing recovery. Others will point to it as showing that the first-time home buyer tax credit is helping the economy.
Both points are wrong.
The only contribution from existing home sales to the economy are some commissions and fees. That is good news for real estate agents and mortgage brokers, but not for the overall economy.
The good news is the level of inventory for new and existing homes is declining. The bad news is the inventory of rental units is at record levels - as is the combined inventory of vacant single family homes and rental units. Residential investment will not increase significantly until this overhang is reduced.
The key to reducing the overall inventory is new household formation (encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory). And the key to new household formation is jobs. And usually the best leading indicator for jobs is residential investment. Somewhat of a circular trap.
And that suggests the recovery will be sluggish and unemployment will stay high for some time.
