by Calculated Risk on 1/22/2010 07:05:00 PM

Leeton Missouri
Flyover town with small bank
Not too big to fail
by Soylent Green is People
From the FDIC: Sunflower Bank, National Association, Salina, Kansas, Assumes All of the Deposits of Bank of Leeton, Leeton, Missouri

Bank of Leeton, Leeton, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of December 31, 2009, Bank of Leeton had approximately $20.1 million in total assets and $20.4 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.1 million. ... Bank of Leeton is the sixth FDIC-insured institution to fail in the nation this year, and the first in Missouri. The last FDIC-insured institution closed in the state was Gateway Bank of St. Louis, on November 6, 2009.

Small ones count too.

by Calculated Risk on 1/22/2010 06:07:00 PM

Sunny Florida
Premier American Bank
Like Icarus, scorched
by Soylent Green is People
From the FDIC: Premier American Bank, Miami, Florida, National Association, Assumes All of the Deposits of Premier American Bank, Miami, Florida

Premier American Bank, Miami Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Premier American Bank, National Association, Miami, Florida, a newly-chartered national institution, to assume all of the deposits of Premier American Bank. Premier American Bank, N.A. is a subsidiary of Bond Street Holdings, LLC, Naples, Florida.
...
As of September 30, 2009, Premier American Bank had approximately $350.9 million in total assets and $326.3 million in total deposits.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $85 million.... Premier American Bank is the fifth FDIC-insured institution to fail in the nation this year, and the first in Florida. The last FDIC-insured institution closed in the state was Peoples First Community Bank, Panama City, on December 18, 2009.

There were 140 bank failures in 2009, 25 in 2008 and 3 in 2007, so that makes 171 for this cycle.

by Calculated Risk on 1/22/2010 04:00:00 PM

Earlier First American CoreLogic reported that house prices declined in November. This is the Fed's favorite house price index. This post looks at real prices and the price-to-rent ratio, but first a look at the market ...

Click on graph for larger image in new window.

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.

The second graph shows the First American CoreLogic LoanPerformance house price index through November (with and without foreclosures) and the Case-Shiller Composite 20 index through October in real terms (all adjusted with CPI less Shelter).

It is interesting to look at the sharp decline in the index with foreclosures at the end of 2008 - this was what housing economist Tom Lawler described as "destickification" in the high foreclosure areas.

Notice the LoanPerformance price index without foreclosures (in red) is now at the lowest level since July 2002 in real terms (inflation adjusted).

This isn't like 2005 when prices were way out of the normal range by most measures - and it is possible that total national prices bottomed in 2009 (although I think prices will fall further), but prices ex-foreclosures probably still have a ways to go, even with all the government programs aimed at supporting house prices.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph through November 2009 using the First American CoreLogic LoanPerformance House Price Index:

This graph shows the price to rent ratio (January 2000 = 1.0).

This suggests that house prices are still a little too high on a national basis. Also rents are still falling and the OER index tends to lag market rents by a few months. And that will push up the price-to-rent ratio, putting more pressure on house prices.

by Calculated Risk on 1/22/2010 02:26:00 PM

The Fed's favorite house price indicator from First American CoreLogic’s LoanPerformance ...

From LoanPerformance: Home Prices Continue to Depreciate

On a month-over-month basis ... national home prices declined by 0.2 percent in November 2009 compared to October 2009.
...
Including distressed transactions, the HPI has fallen 30.0 percent nationally through November from its peak in April 2006. Excluding distressed properties, the national HPI has fallen 21.8 percent from the same peak.
...
"On average, we are expecting home prices to turn around next spring," said Mark Fleming, chief economist for First American CoreLogic. "While the share of REO sales are down, allowing price declines to moderate, there is concern moving forward with the levels of shadow inventory, negative equity, and the ability of modification programs to mitigate this risk."

Click on graph for larger image in new window.

This graph shows the national LoanPerformance data since 1976. January 2000 = 100.

The index is off 5.7% over the last year, and off 30.0% from the peak.

The index has declined for three consecutive months. I'll have some comparisons to Case-Shiller later, but according to First American CoreLogic, prices are now falling again. It might take another month for this to show up in the Case-Shiller index because it is an average over three months.

by Calculated Risk on 1/22/2010 12:18:00 PM

From HotelNewsNow.com: STR: US hotel industry ends '09 with double-digit RevPAR drop

Revenue per available room fell 16.7 percent to US$53.71 during 2009, according to year-end reports from Smith Travel Research.

The industry’s occupancy fell 8.7 percent to 55.1 percent for the year and average daily rate dropped 8.8 percent to US$97.51.

“Good riddance to 2009, a year which we believe will go down as the worst in the modern hotel industry,” said Mark Lomanno, president at STR.

The occupancy rate in 2009 was the lowest since the Great Depression.

And on the weekly number, from HotelNewsNow.com: STR reports US performance for week ending 16 January 2010

In year-over-year measurements, the industry’s occupancy ended the week virtually flat with an 0.8-percent decrease to 47.8 percent. Average daily rate dropped 7.4 percent to finish the week at US$94.78. RevPAR for the week fell 8.2 percent to finish at US$45.33.

Click on graph for larger image in new window.

This graph shows the occupancy rate by week since 2000, and the rolling 52 week average occupancy rate.

Notes: the scale doesn't start at zero to better show the change.

The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays. It appears the occupancy rate might have stopped falling (Smith Travel Research reported the occupancy rate was off 0.8% compared to the same week in 2009), and business travel is the key over the next few months. However the low occupancy rate will continue to put pressure on the average daily room rate.

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

by Calculated Risk on 1/22/2010 10:00:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally higher in December. Forty-three states and the District of Columbia recorded over-the-month unemployment rate increases, four states registered rate decreases, and three states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50 states and the District of Columbia.
...
Michigan again recorded the highest unemployment rate among the states, 14.6 percent in December. The states with the next highest rates were Nevada, 13.0 percent; Rhode Island, 12.9 percent; and South Carolina, 12.6 percent. North Dakota continued to register the lowest jobless rate, 4.4 percent in December, followed by Nebraska and South Dakota, 4.7 percent each. The rate in South Carolina set a new series high, as did the rates in three other states: Delaware (9.0 percent), Florida (11.8 percent), and North Carolina (11.2 percent). The rate in the District of Columbia also set a new series high (12.1 percent).
emphasis added

Click on graph for larger image in new window.

This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

Sixteen states and D.C. now have double digit unemployment rates. Indiana, Missouri and Washington are all close.

Five states are at record unemployment rates: South Carolina, Florida, North Carolina, Georgia and Delaware, and several other states are close.

by Calculated Risk on 1/22/2010 08:47:00 AM

From ABC News: Senate Dems Not Sure They Can Get Enough Votes to Reconfirm Bernanke

... ABC News has learned that the Senate Democratic leadership isn't sure there are enough votes to re-confirm Ben Bernanke for another term as chairman of the Federal Reserve.

Bernanke's term expires on Jan. 31.
...
[Sen. Bernie Sanders, I-Vt.], Sen. Jim Bunning, R-Ky., Sen. Jim DeMint, R-S.C., and Sen. David Vitter, R-La., have all put holds on Bernanke's nomination, requiring 60 votes to proceed to a vote.

From the WSJ: Fed's Bernanke Faces Tighter Vote in Senate

Ben Bernanke's confirmation for a second term as Federal Reserve chairman will go down to the wire and could be a closer vote than seemed likely just a few weeks ago.
...
Mr. Bernanke met with Senate Majority Leader Harry Reid Thursday as Democratic and Republican leaders surveyed senators to tally votes on the nomination. Mr. Bernanke needs 60 supporters to win approval for another four-year term.

by Calculated Risk on 1/22/2010 12:27:00 AM

But what changes isn't exactly clear ...

From Peter Goodman at the NY Times: Treasury Weighs Fixes to a Program to Fend Off Foreclosures

The Treasury is likely to alter the program by making pay stubs an acceptable means of verifying income, rather than requiring tax documents ...

The changes by the Treasury Department are expected to include greater assistance for homeowners no longer able to make mortgage payments because their paychecks have shrunk ... The Treasury was still debating the method ... looking at either direct cash assistance or a grace period in which borrowers could postpone payments. That component may not be announced next week, but would follow soon after.
...
The changes to be introduced next week are unlikely to address what has emerged as a potent factor propelling a wave of foreclosures: the roughly 15 million borrowers who are said to be underwater ...

Unless I'm missing something, the only change to be announced next week, mentioned in the article, is allowing borrowers to use pay stubs to verify income, as opposed to providing tax documents. That doesn't make much sense since it is pretty easy to provide tax documents, and underwriting in arrears is one of the keys to the program (the failure to document income was one of the problems with nontraditional mortgages). This sounds like another delaying tactic.

by Calculated Risk on 1/21/2010 09:55:00 PM

Kind of a theme ...

From Carolyn Said at the San Francisco Chronicle: Rents, occupancy fall in 4th quarter

Both national and Bay Area rents have fallen steadily for the past five quarters, said apartment data specialist RealFacts of Novato.
...
Nationally, the average monthly rent was $933, down from $994 a year earlier, while the occupancy rate is 91.3 percent, compared with 92.2 percent a year ago.
...
The biggest rent declines in the Bay Area were for units that cannot accommodate roommates ... Average rents fell 9.5 percent for studios and 10.9 percent for junior one bedrooms compared with a year ago, RealFacts said.

... about 60 percent of [SoCal] properties are offering concessions, such as a first month's free for new long-term leases, or gifts of iPods or flat-screen TVs.

"Everybody's freaking out and trying to bring in people anyway they can," [Denise Castellucci, a spokeswoman for RealFacts] said.

[The worst areas were] ... Phoenix, where fourth-quarter rents were down 8.7 percent compared with the prior quarter; Las Vegas, down 8.2 percent; Salt Lake City, down 7.3 percent; and Denver, down 6.1 percent.

Oh no, everyone is freaking out!

Note that the rent declines do not include concessions, so effective rents have fallen even further.

This is good news for renters, but this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks - and more bank failures.

And falling rents are already pushing down owners' equivalent rent (OER). OER has declined since August 2009, and will probably continue to decline throughout 2010. Since OER is the largest component of CPI, this will apply downward pressure on CPI all year. And lower rents will also put pressure on house prices, since renting is a competing product.

by Calculated Risk on 1/21/2010 06:31:00 PM

From Jeff Collins at the O.C. Register: O.C. rents fall 6.7% to mid-2006 level

The average rent for a unit in a large Orange County apartment complex fell to $1,473 a month in the fourth quarter of 2009, the fifth straight quarter to see monthly rents drop.

Apartment tracker RealFacts reports today that numerous empty apartments forced local landlords to cut rent $105 a month on average — 6.7% — vs. the fourth quarter of 2008. And it’s the lowest average rent in 3 1/2 years.

“They’ve come down quite a bit,” observed Hugo Gonsalez, manager for Nextrent.com, a Santa Ana rental listing service. “You see eight empty units (in an apartment complex) where you used to see one.”

Reis reported that the U.S. apartment vacancy rate hit a record high in Q4, and the Census Bureau reported the total rental vacancy rate was at a record 11.1% in Q3 (Q4 numbers will be released in early February).

The higher vacancy rate is being driven by people doubling up during the recession, and also by the first time home buyer tax credit. This is pushing down rents, and will also put pressure on house prices (since renting is an alternative).