by Calculated Risk on 5/11/2010 05:17:00 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.

Click on graph for larger image in new window.

Here is the April data.

The Sacramento Association started breaking out REO sales in 2008, but they have only broken out short sales since June 2009 - so we almost have one year of data.

In April, 63% of all resales (single family homes and condos) were distressed sales.

Note: This data is not seasonally adjusted, although the decrease in sales in April is a little surprising 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 and will probably continue to increase later this year (2010 is the year of the short sale!).

The percent of REOs has been generally declining (seasonally there are a larger percentage of REOs in the winter).

Also total sales in April were off 9.1% compared to April 2009; the eleventh month in a row with declining YoY sales - even with the tax credit buying this year!

On financing, over 58 percent were either all cash (27.2%) or FHA loans (30.9%), 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 5/11/2010 03:16:00 PM

Testimony from SEC Chairman Mary Schapiro before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises: Severe Market Disruption on May 6, 2010

This is an overview of what happened, what didn't happen (fat finger, unusual trading in Proctor & Gamble) and possible action to be taken (single stock trading curbs). On changes:

[W]e must consider the various types of “time out” mechanisms that can help maintain a fair and orderly market, both for the broad market and for individual stocks.

For example, we must ask whether the general, market-wide circuit breaker provisions that currently are on the books (none of which were triggered on May 6) need to be revised. I note that a vitally important element of the market-wide circuit breakers is that they apply across all stock and options trading venues and all venues for trading equity security-related futures, because markets for all equity security-related products are closely linked.

I believe that we also must consider the various types of time out mechanisms that can be applied to individual stocks. Although the prices of many stocks on May 6 declined in proportion with the broader market decline that occurred in securities and futures index products, the prices of many other individual stocks declined much, much more (before snapping back largely to the prices at which they were trading prior to the precipitous decline). At this point, the root cause of the sudden disappearance of liquidity in many stocks is unclear. ...

In addition to time out mechanisms, we will consider any other steps that potentially could prevent or help minimize the harm that occurred on May 6. These include: (1) exchange-level erroneous order filters; (2) “collars” on the prices at which market orders or aggressively priced limit orders can be executed; (3) limitations on the size of market orders or aggressively priced limit orders; and (4) eliminating the practice of displaying stub quotes that were never intended to be executed.

by Calculated Risk on 5/11/2010 01:23:00 PM

From the NY Times: Senate Backs One-Time Audit of Fed’s Bailout Role

The Senate on Tuesday voted unanimously to require a one-time audit of the Federal Reserve’s emergency actions during and after the 2008 financial crisis as part of broad legislation overhauling the nation’s financial regulatory system.

This is a one time audit (as opposed to the house bill), and would also require the Fed to release a list by Dec 1, 2010 of all of the institutions that received emergency assistance during the financial crisis.

by Calculated Risk on 5/11/2010 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 2.7 million job openings on the last business day of March 2010, the U.S. Bureau of Labor Statistics reported today. The job openings rate was unchanged over the month at 2.0 percent. The hires rate (3.3 percent) was little changed, and the separations rate (3.1 percent) was unchanged in March.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. The CES (Current Employment Statistics, payroll survey) is for positions, the CPS (Current Population Survey, commonly called the household survey) is for people.

The following graph shows job openings (purple), hires (blue), Total separations (include layoffs, discharges and quits) (red) and Layoff, Discharges and other (yellow) from the JOLTS.

Unfortunately this is a new series and only started in December 2000.

Click on graph for larger image in new window.

Notice that hires (blue) and separations (red) are pretty close each month. This is the level of turnover each month. Right now about 4 million people lose their jobs each month, and a little over 4 million are hired (this is the labor turnover in the economy).

When the hires (blue line) is above total separations (as in March), the economy is adding net jobs, when the blue line is below total separations, the economy is losing net jobs.

According to the JOLTS report, there were 4.242 million hires in March (SA), and 4.016 million total separations, or 226 thousand net jobs gained. The comparable CES report showed a gain of 230 thousand jobs in March (after revision).

Layoffs and discharges have declined sharply from early 2009 - and that is a good sign.

Hiring picked up in March, although the number of job openings is still very low, as is the turnover rate.

by Calculated Risk on 5/11/2010 08:52:00 AM

From NFIB: Small Business Optimism Index Improves in April

The National Federation of Independent Business Index of Small Business Optimism gained 3.8 points in April, rising to 90.6 and ending seven straight quarters of under 90 readings. The persistence of Index readings below 90 is unprecedented in survey history. Nine of the 10 Index components rose, particularly the outlook for general business conditions and sales, and one was unchanged. Still, job measures barely moved and capital expenditure plans were flat.

“The gains are a step in the right direction, but they are not enough to signal a solid recovery is in place,” said William Dunkelberg, NFIB chief economist. “Owners are feeling a little better about things, but not enough to turn them into concrete action.”

The outlook has improved, and sales and earnings have picked up some, but hiring is "bleak".

“What small businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities,” said Dunkelberg. “Bottom line, the recovery will be sub-par in comparison to the recoveries we experienced following past severe recessions such as 1980-82."

Note: although the press release doesn't mention it, there is a heavy concentration of construction related businesses in the small business sector - and obviously that is one of the weakest areas.

by Calculated Risk on 5/10/2010 10:43:00 PM

Note: this is the employment section of the April survey that will be released Tuesday.

From the WSJ: At Small Businesses, Hiring Still Drags

April marked the 27th consecutive month in which small businesses either shed more or the same number of jobs that they added, according to a monthly survey to be released Tuesday by the National Federation of Independent Business, a trade group in Washington, D.C. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey's 35-year history. Going forward, more small-business owners say they plan to eliminate jobs compared with those that expect to create new jobs over the next three months.

And from the National Federation of Independent Business: Jobs Picture Still Bleak for Small Business

“The steep recession will unlikely be followed by a steep recovery, the numbers just aren’t moving in that direction. [said William C. Dunkelberg, chief economist for the National Federation of Independent Business] "April marks the 27th consecutive ‘no new jobs’ monthly reading."

“There is little enthusiasm among owners to hire more workers, primarily due to continued weak sales trends.”

by Calculated Risk on 5/10/2010 07:11:00 PM

Here is a 60 Minutes piece on Walking Away, aka 'Strategic Defaults' and as ' Ruthless Defaults' by lenders. (ht Michael).

Just a note - anyone considering this should talk to an attorney, and they should also talk with their lender. If it can be arranged, a short sale is much better than a foreclosure for all parties ...

by Calculated Risk on 5/10/2010 03:55:00 PM

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased by 22% in Q1 2010 from Q4 2009. The REO inventory (foreclosed homes) increased 59% compared to Q1 2009 (year-over-year comparison).

Click on graph for larger image in new window.

This graph (ht Tom Lawler) shows the REO inventory for Fannie, Freddie and FHA through Q1 2010.

Even with all the delays in foreclosure, the REO inventory has increased sharply over the last three quarters, from 135,868 at the end of Q2 2009, to 153,007 in Q3 2009, 172,357 at the end of Q4 2009 and now 209,500 at the end of Q4 2010.

These are new records for all three agencies.

Remember this is just a portion of the total REO inventory. Private label securities and banks and thrifts hold an even larger number of REOs. For more, see Tom Lawler's earlier post: REO: Agencies vs. Private Label and from James Hagerty at the WSJ in March writing about a Barclays Capital report: Supply of Foreclosed Homes on the Rise Again.

by Calculated Risk on 5/10/2010 02:16:00 PM

From the SEC: Statement on Meeting With Exchanges

"This morning, SEC Chairman Mary Schapiro had a constructive meeting with the leaders of six exchanges — the New York Stock Exchange, NASDAQ, BATS, Direct Edge, ISE and CBOE — and the Financial Industry Regulatory Authority to discuss the causes of Thursday's market events, the potential contributing factors, and possible market reforms.

"As a first step, the parties agreed on a structural framework, to be refined over the next day, for strengthening circuit breakers and handling erroneous trades."

Why not use technology to slow down price changes on individual stocks? It is amazing that we still don't have an explanation for the weird price changes last Thursday.

by Calculated Risk on 5/10/2010 11:23:00 AM

First American CoreLogic released the Q1 2010 negative equity report today.

CoreLogic reported today that more than 11.2 million, or 24 percent, of all residential properties with mortgages, were in negative equity at the end of the f irst quarter of 2010, down slightly from 11.3 million and 24 percent from the fourth quarter of 2009. An additional 2.3 million borrowers had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for over 28 percent of all residential properties with a mortgage nationwide.

From the report:

Negative equity continues to be concentrated in five states: Nevada, which had the highest percentage negative equity with 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (34 percent). Las Vegas remains the top ranked CBSA with 75% of mortgaged properties being underwater, followed by Stockton (65%), Modesto (62%), Vallejo-Fairfield (60%) and Phoenix (58%). Phoenix had more than 550,000 underwater borrowers, the most households of any metropolitan market in the country. Riverside (463,000), Los Angeles (406,000) Atlanta (399,000) and Chicago (365,000) round out the top five markets.

Click on image for larger graph in new window.

This graph shows the negative equity and near negative equity by state.

Although the five states mentioned above have the largest percentage of homeowners underwater, 10 percent or more of homeowners have negative equity in 33 states and the D.C., and over 20% have negative equity or near negative equity in 23 states and D.C. This is a widespread problem.

Note: Louisiana, Maine, Mississippi, South Dakota, Vermont, West Virginia and Wyoming are NA on the graph above.

The second graph shows the distribution of homeowners with a mortgage with near or negative equity.

The share of borrowers whose mortgage debt exceeds the property value by 25% or more fell slightly to 10.4% or 4.9 million borrowers, down from 10.6% or 5 million borrowers. The aggregate dollar value of negative equity for these deeply underwater borrowers was $656 billion dollars.

Research has shown that once negative equity exceeds 25 percent "owners begin to default with the same propensity as investors", and it is these 4.9 million borrowers - with $656 billion in debt - that are most at risk for foreclosure.