by Calculated Risk on 4/22/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending April 17, the advance figure for seasonally adjusted initial claims was 456,000, a decrease of 24,000 from the previous week's revised figure of 480,000. The 4-week moving average was 460,250, an increase of 2,750 from the previous week's revised average of 457,500.
...
The advance number for seasonally adjusted insured unemployment during the week ending April 10 was 4,646,000, a decrease of 40,000 from the preceding week's revised level of 4,686,000.

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 increased this week by 2,750 to 460,250.

The dashed line on the graph is the current 4-week average. The current level of 456,000 (and 4-week average of 460,250) is still high, and suggests continuing weakness in the jobs market.

The 4-week average fell to this level in December 2009 following the worst of the recession, and has essentially moved sideways for four months.

by Calculated Risk on 4/21/2010 08:35:00 PM

Existing home sales for March will be released tomorrow and the consensus is for the NAR to report 5.25 million sales on a seasonally adjusted annual rate (SAAR) basis. That is probably close (I'll take the under). The NAR reported a 5.02 million sales rate in February.

1) The Federal tax credit expires at the end of April for buyers to sign a contract. Since existing home sales are reported when the transaction is closed (by the end of June to qualify for the tax credit), the tax credit probably had little impact on March sales. The boost to reported existing home sales from the tax credit will probably come mostly in May and June.

2) New home sales are counted when the contract is signed, so the boost should come earlier (March and April). The Census Bureau will report March new home sales on Friday.

3) The MBA mortgage purchase index is showing only a small pickup in purchase applications - so it appears the boost to sales from the tax credit will be much smaller than last year.

4) The level of existing home inventory is probably the most interesting detail in the NAR report tomorrow. Unfortunately there appears to be some discrepancy between local inventory levels and the number the NAR reports. However, on a year-over-year basis, inventories have been declining for the last 19 months. It is possible that the inventory level in March will be above March 2009 (3.65 million in March 2009). So that is something to watch for ...

by Calculated Risk on 4/21/2010 03:58:00 PM

Just an update ...

From Bloomberg: Portugal Spread to Bunds Widest in 13 Months on Greek Contagion

The yield on Portugal’s 10-year bond jumped 11 basis points to 4.80 percent ... That left the difference in yield, or spread, with bunds 11 basis points wider at 166 basis points, after earlier reaching 172 basis points, the most since March 10, 2009.

Greek 10-year bonds dropped ... sending the yield up 20 basis points to 8.17 percent. The yield premium over bunds jumped 25 basis points to 503 basis points after climbing to more than 522 basis points, the most since at least March 1998, when Bloomberg began compiling the generic prices.

by Calculated Risk on 4/21/2010 12:13:00 PM

The Sacramento Association of REALTORS® is breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales), and I'm following this series as an example to see mix changes in a distressed area.

Starting last month First American Corelogic has started releasing a distressed sales report - and that shows the trend in short sales and REOs nationally.

Click on graph for larger image in new window.

Here is the March data.

The Sacramento Association started breaking out REO sales in 2008, but they have only broken out short sales since June 2009. Almost 65% of all resales (single family homes and condos) were distressed sales in March.

Note: This data is not seasonally adjusted, although the increase in sales in March is slightly above normal because of the tax credit.

The second graph shows the percent of REO, short sales and conventional sales. The percent of short sales is near the high set in December. This will probably continue to increase this year (2010 is the year of the short sale!).

Also total sales in March were off 3.4% compared to March 2009; the tenth month in a row with declining YoY sales - even with a surge from tax credit buying this year!

On financing, nearly 60 percent were either all cash (27.1%) or FHA loans (31.5%), suggesting most of the activity in distressed former bubble areas like Sacramento is first time home buyers using government-insured FHA loans, and investors paying cash.

by Calculated Risk on 4/21/2010 08:57:00 AM

Note: This index is a leading indicator for Commercial Real Estate (CRE) investment.

The WSJ reports that the American Institute of Architects’ Architecture Billings Index increased to 46.1 in March from 44.8 in February. Any reading below 50 indicates contraction.

"This is certainly an encouraging sign that we could be moving closer to a recovery phase, even though we continue to hear about mixed conditions across the country," said Kermit Baker, chief economist at the American Institute of Architects

The ABI press release is not online yet.

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

The second graph compares the Architecture Billings Index with the year-over-year change in non-residential structure investment.

Historically, according to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further significant declines in CRE investment through all of 2010, and probably longer.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

And more on CRE: Fitch: U.S. CMBS Loan Defaults to Exceed 11% by End of 2010

Loan defaults will continue to escalate for U.S. CMBS, with an additional 4.4% likely in 2010 and the overall rate to exceed 11% among Fitch-rated deals by the end of the year, according to Fitch Ratings.

... For the first time in five years, multifamily was not the property type with the most new defaults, with that distinction going to retail (32.3%) last year. Following retail was multifamily (22.1%), office (20.2%) and hotel (17.8%). Fitch projects sizeable default increases for each property type, with rates likely to increase at accelerated rates for office and hotel loans.

'Office defaults spiked in the fourth quarter last year, with further rental and net operating income declines likely through next year before a rebound takes place,' said Senior Director Richard Carlson.

by Calculated Risk on 4/21/2010 08:07:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume, increased 13.6 percent on a seasonally adjusted basis from one week earlier. ...

“Treasury rates fell last week causing a decline in mortgage rates. As a result, refinance applications picked up over the week, as some borrowers took advantage of this recent rate volatility to lock in a low fixed-rate loan,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Purchase applications continued to increase coming out of the Easter holiday, as we approach the end of the homebuyer tax credit, and are up modestly over last month.”

The Refinance Index increased 15.8 percent from the previous week and the seasonally adjusted Purchase Index increased 10.1 percent from one week earlier. ...

The refinance share of mortgage activity increased to 60.0 percent of total applications from 58.9 percent the previous week. ...

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.04 percent from 5.17 percent, with points increasing to 0.98 from 0.91 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

So far the increase in activity because of the expiration of the tax credit has been "modest". I expect any increase this year to be less than the increase last year ...

by Calculated Risk on 4/20/2010 10:18:00 PM

Jennifer Schonberger at Motley Fool interviews Professor Robert Shiller: Shiller: The Housing Recovery Could Be on Shaky Ground.

A couple of comments from Shiller, first on house prices:

Robert Shiller: Home prices have been going up for nearly a year now, according to our data, the S&P/Case-Shiller indices ... Normally we could extrapolate that kind of upward trend because historically home prices have shown a lot of momentum. But I think we're in a very unusual circumstance because of the massive bailouts, the homebuyer tax credits, the Fed's purchase of mortgage-backed securities -- and these things are coming to an end. So it's an unusual period. So I don't trust the trend that we have. I'm worried that it might get reversed.

And on asset prices:

Shiller: We have had kind of a mini-bubble in the stock market and the housing market. It wasn't just because of rate cuts. It was also because of government stimulus and bailouts. So the question is: Are we at risk for even more price increases, and another bubble? I think we are at risk, but I'm not predicting it. I think it's more likely we don't do so well from here.

by Calculated Risk on 4/20/2010 06:48:00 PM

From Tamar Lewin and Sam Dillon at the NY Times: School Districts Warn of Even Deeper Teacher Cuts (ht Ann)

School districts around the country ... are warning hundreds of thousands of teachers that their jobs may be eliminated in June.

... their usual sources of revenue — state money and local property taxes — have been hit hard by the recession. In addition, federal stimulus money earmarked for education has been mostly used up this year.
...
Districts in California have pink-slipped 22,000 teachers. Illinois authorities are predicting 17,000 public school job cuts. And New York has warned nearly 15,000 teachers that their jobs could disappear in June.

Secretary of Education Arne Duncan estimated that state budget cuts imperiled 100,000 to 300,000 public school jobs. In an interview on Monday, he said the nation was flirting with “education catastrophe.”

These cuts will make the employment situation worse. This is also a reminder that the Federal stimulus spending peaks in Q2, and then starts to decline in Q3.

by Calculated Risk on 4/20/2010 04:00:00 PM

As a followup to the previous post, here is some more data from DataQuick:

"We are seeing signs that the worst may be over in the hard-hit entry-level markets, while problems are slowly spreading to more expensive neighborhoods. We're also seeing some lenders become more accommodating to work-outs or short sales, while others appear to be getting stricter about delinquencies. It's very noisy out there," [John Walsh, DataQuick president] said.

The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for 47.5 percent of all default activity a year ago. In first-quarter 2010 that fell to 40.9 percent.

California's mid- to high-end housing markets were more likely to have seen a rise in mortgage defaults last quarter, though the concentration of default activity - measured by defaults per 1,000 homes - remained relatively low in those areas.

For example, zip codes statewide with median home sale prices of $500,000-plus saw mortgage defaults buck the overall trend and rise 1.5 percent last quarter compared with the prior quarter, while year-over-year the decline was 19 percent (versus a 40.2 percent marketwide annual decrease). Collectively, these zips saw 4.5 default notices filed for every 1,000 homes in the community, compared with the overall market's rate of 9.3 NODs for every 1,000 homes statewide.

In zip codes with medians below $500,000, mortgage default filings fell 5.8 percent from the prior quarter and declined nearly 43 percent from a year earlier. However, collectively these zips saw 10.5 NODs filed for every 1,000 homes - more than double the default rate for the zips with $500,000-plus medians.

On average, homes foreclosed on last quarter spent 7.5 months winding their way through the formal foreclosure process, beginning with an NOD. A year ago it was 6.8 months. The increase could reflect, among other things, lender backlogs and extra time needed to pursue possible loan modifications and short sales.

Foreclosure resales accounted for 42.6 percent of all California resale activity last quarter. It was up from a revised 40.6 percent the prior quarter, and down from 57.8 percent a year ago, the peak.

The foreclosure rates in the mid-to-high end areas will never be as high as in the low end areas, but the percentage of total foreclosures will probably continue to increase. I also expect the average time in the foreclosure process to start to decrease this year as the lenders start clearing out the backlog.

by Calculated Risk on 4/20/2010 02:06:00 PM

Click on graph for larger image in new window.

This graph shows the Notices of Default (NOD) by year through 2009, and for Q1 2010, in California from DataQuick.

Although the pace of filings has slowed, it is still very high by historical standards.

From Alejandro Lazo at the LA Times: California foreclosures drop 4.2% as lenders work with troubled borrowers

Across California, a total of 81,054 homes received a notice of default in the first quarter compared with 84,568 in the fourth quarter of 2009 and a record 135,431 in the first quarter of 2009.

In terms of new NOD filings, the peak was probably in 2009. A few key points:

There are a record number of homes in the foreclosure process and the timeline from the filing of the initial NOD to REO has been extended significantly. There are so many homes in the pipeline the number of distressed sales (foreclosures and short sales) will probably increase sharply throughout 2010 - even if NODs decline.

Many of these NODs are probably in mid-to-high end areas (as opposed to the flood of low end foreclosures in 2008). As I've been noting for over a year, prices have probably bottomed in some low end areas, but we will probably see further price declines in many mid-to-high end areas.

Although NODs will probably decline in 2010, the number will still be very high. The number of filings in Q1 alone would be a normal year.