by Calculated Risk on 10/26/2010 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for August (actually a 3 month average of June, July and August).

This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Home Prices Increases Slow Down in August

Data through August 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites in August compared to what was reported for July 2010. The 10-City Composite was up 2.6% and the 20-City Composite was up 1.7% from their levels in August 2009. Home prices decreased in 15 of the 20 MSAs and both Composites in August from their July levels.

Click on graph for larger image in new window.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 29.2% from the peak, and down 0.2% in August(SA).

The Composite 20 index is off 28.8% from the peak, and down 0.3% in August (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 is up 2.5% compared to August 2009.

The Composite 20 is up 1.7% compared to August 2009.

The year-over-year increases are slowing and will probably be negative later this year.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in only 1 of the 20 Case-Shiller cities in August seasonally adjusted. Only New York saw a price increase (SA) in August, and that was very small.

Prices in Las Vegas are off 57.5% from the peak, and prices in Dallas only off 6.9% from the peak.

Prices are now falling - and falling just about everywhere. And it appears there are more price declines coming (based on inventory levels and anecdotal reports).

by Calculated Risk on 10/26/2010 08:40:00 AM

A quick quote from Bank of England's Mervyn King: “Banking: From Bagehot to Basel, and Back Again”

The words “banking” and “crises” are natural bedfellows. If love and marriage go together like a horse and carriage, then banking and crisis go together like Oxford and the Isis, intertwined for as long as anyone can remember.

From the press release:

[T]he Governor of the Bank of England, Mervyn King, outlines the challenges of managing the financial system and suggests a framework for assessing proposals designed to reduce the riskiness inherent in banking and solve the “Too Important to Fail” problem.

He discusses several options including the imposition of a permanent tax on banks, higher capital requirements and limits on leverage.

“Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis. This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too.”

by Calculated Risk on 10/25/2010 08:16:00 PM

From Nick Timiraos at the WSJ: Housing Gloom Deepens

The growing pessimism is attributed partly to rising inventory in many markets ... The Wall Street Journal's latest quarterly survey ... in 28 major metropolitan areas found inventories of unsold homes were up in 19 markets ... compared with a year ago ...

"We'll see some additional price declines," said David Berson, chief economist at PMI Group Inc ... "The gains we've seen can't be sustained given the current supply situation."

I highlighted the 8.9% year-over-year inventory increase in the NAR report - a strong indicator of more house price declines to come, especially with the already high level of supply.

This survey from the WSJ shows that the inventory increases are fairly widespread. And that suggests that price declines will probably be widespread too. This morning CoreLogic noted that house prices declined in 78 out of the largest 100 metropolitan areas in their August report.

Tomorrow Case-Shiller will report on August house prices, and the expectations are for a slight decline in prices - and it will be interesting to see how many of the 20 Case-Shiller cities are showing price declines.

by Calculated Risk on 10/25/2010 03:57:00 PM

Earlier posts on Existing Home sales:

September Existing Home Sales: 4.53 million SAAR, 10.7 months of supply

Existing Home Inventory increases 8.9% Year-over-Year

Almost every analyst comment I read this morning started with "existing home sales were above expectations". Really? Here was Tom Lawler's projection of 4.50 million (NAR reported 4.53 million). Pretty close. Of course inventory and months-of-supply were a little higher than I expected.

The Dallas Fed released the regional manufacturing survey this morning: Texas Manufacturing Activity Expands and Business Conditions Improve

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, was positive for the second consecutive month and slightly higher than its September reading.

Despite the rise in output, several other manufacturing activity indicators fell again. The new orders and shipments indexes were negative for the fifth consecutive month. The capacity utilization index dipped below zero, with more than one-quarter of respondents reporting a decrease.
...
Labor market indicators worsened slightly in October. Hours worked fell for the fourth consecutive month, and the employment index dipped back into negative territory ...

So the headline number improved slightly, but the internals were weak.

From Treasury: HAMP Servicer Performance Report Through September 2010. If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 45% - about the same as last month. And the back end DTI was an astounding 79.7%.

This means that for the median borrower, about 80% of the borrower's income went to servicing debt. And the median is 63.3% after the modification. So I expect the redefault rate to be high. Although Treasury is arguing the modifications are performing "well":

At nine months, nearly 90% of homeowners remain in a permanent modification, with 11% defaulted. Fewer than 16% of permanent modifications are 60+ days delinquent.

With a median back end DTI after modification of 63.3%, I expect the redefault rate will move higher. Also here the October Housing Scorecard.

From Fed Chairman Ben Bernanke this morning:

Before I address the specific topics of this conference, I would like to note that we have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions. The federal banking agencies are working together to complete an in-depth review of practices at the largest mortgage servicing operations. We are looking intensively at the firms' policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures. We take violations of proper procedures seriously. We anticipate preliminary results of the review next month. In addition, Federal Reserve staff members and their counterparts at other federal agencies are evaluating the potential effects of these problems on the real estate market and financial institutions.

And from Nelson Schwartz at the NY Times: Foreclosures Had Errors, Bank Finds

Bank of America... confirmed that it had discovered errors, including incorrect data and misspelled names, in the paperwork it has reviewed.

by Calculated Risk on 10/25/2010 01:41:00 PM

Notes: CoreLogic reports the year-over-year change. The headline for this post is for the change from July 2010 to August 2010. The CoreLogic HPI is a three month weighted average of June, July and August, and is not seasonally adjusted (NSA).

From CoreLogic: August Home Prices Declined 1.5 Percent Year Over Year

CoreLogic ... today released its Home Price Index (HPI) which shows that home prices in the U.S. declined for the first time this year. According to the CoreLogic HPI, national home prices, including distressed sales, declined 1.5 percent in August 2010 compared to August 2009 and increased by 0.6 percent in July 2010 compared to July 2009. Excluding distressed sales, year-over-year prices declined 0.4 percent in August 2010. ...

“Price declines are geographically expanding as 78 out of the largest 100 metropolitan areas are experiencing declines, up from 58 just one month ago” said Mark Fleming, chief economist for CoreLogic.

Click on graph for larger image in new window.

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

The index is down 1.5% over the last year, and off 28.2% from the peak.

The index is 5.4% above the low set in March 2009, and I expect to see a new post-bubble low for this index later this year or early in 2011. As Fleming noted, prices are falling in most areas now (unusually for the summer months).

Earlier posts on Existing Home sales:

September Existing Home Sales: 4.53 million SAAR, 10.7 months of supply

Existing Home Inventory increases 8.9% Year-over-Year

by Calculated Risk on 10/25/2010 11:22:00 AM

Earlier the NAR released the existing home sales data for September; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in new window.

Although inventory decreased slightly from August 2010 to September 2010, inventory increased 8.9% YoY in September. This is the largest YoY increase in inventory since early 2008.

Note: Usually July is the peak month for inventory.

The year-over-year increase in inventory is very bad news because the reported inventory is already historically very high (around 4 million), and the 10.7 months of supply in September is far above normal.

And double digit months-of-supply suggests house prices will continue to fall.

By request - the second graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2010. Sales for the last three months are significantly below the previous years, and sales will probably be well weak for the remainder of 2010.

The bottom line: Sales were weak in September - almost exactly at the levels I expected - and will continue to be weak for some time. Inventory is very high - and the significant year-over-year increase in inventory is very concerning. The high level of inventory and months-of-supply will put downward pressure on house prices.

by Calculated Risk on 10/25/2010 10:00:00 AM

The NAR reports: September Existing-Home Sales Show Another Strong Gain

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, jumped 10.0 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.
...
Total housing inventory at the end of September fell 1.9 percent to 4.04 million existing homes available for sale, which represents a 10.7-month supply at the current sales pace, down from a 12.0-month supply in August.

Click on graph for larger image in new window.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2010 (4.53 million SAAR) were 10% higher than last month, and were 19.1% lower than September 2009 (5.6 million SAAR).

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased slightly to 4.04 million in September from August from 4.12 million in August. The all time record high was 4.58 million homes for sale in July 2008.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory increasing in the spring and into the summer. I'll have more on inventory later ...

The last graph shows the 'months of supply' metric.

Months of supply decreased to 10.7 months in September from 12.0 months in August. This is extremely high and suggests prices, as measured by the repeat sales indexes like Case-Shiller and CoreLogic, will continue to decline.

Ignore the NAR spin and the median price! These fairly weak numbers are exactly what I expected.

The ongoing high level of supply - and double digit months-of-supply are the key stories. I'll have more ...

by Calculated Risk on 10/25/2010 08:30:00 AM

Note: This is a composite index based on a number of economic releases.

From the Chicago Fed: Index shows economic activity slowed further in September

Led by declines in production-related indicators, the Chicago Fed National Activity Index decreased to –0.58 in September from –0.49 in August.
...
The index’s three-month moving average, CFNAI-MA3, ticked down to –0.33 in September from –0.32 in August. September’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

Click on graph 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:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 10/24/2010 11:03:00 PM

Posted earlier:

Schedule for Week of Oct 24th

Summary for Week ending Oct 23rd

Michael Powell at the NY Times looks at short sales and foreclosures: Owners Seek to Sell at a Loss, but Bankers Push Foreclosure

The article offers two explanations for why lenders seem to prefer foreclosures: 1) short sale fraud, and 2) some incentives might favor foreclosure.

From Powell:

[F]inancial incentives can push toward a foreclosure rather than a short sale. Servicers can reap high fees from foreclosures. And lenders can try to collect on private mortgage insurance.

Some advocates and real estate agents also point to an April 2009 regulatory change in an obscure federal accounting law. The change, in effect, allowed banks to foreclose on a home without having to write down a loss until that home was sold. By contrast, if a bank agrees to a short sale, it must mark the loss immediately.

In a more normal environment, servicers can "reap high fees" from foreclosures, but in the current environment there is a less of an incentive (since investors are reviewing all expenses closely). And mortgage insurance is a definite stumbling block to some short sales. But there is little evidence of the banks sitting on REOs to avoid taking losses (there just aren't that many REOs on their balance sheets) - so I think that point is incorrect.

When I've spoken to lenders / servicers, short sale fraud is always the first thing they mention. There are all kinds of possible frauds - from non-arms length transactions (selling to friends or relatives), off the record kickbacks to the owner, and "flopping", where the agent presents an offer to the bank from a partner - even though the agents has received higher offers, and then the partner flips the house after the short sale splitting the profits with the agent.

Even with all these problems, and the long waits for buyers, short sales have increased significantly this year.

by Calculated Risk on 10/24/2010 08:19:00 PM

Posted earlier:

Schedule for Week of Oct 24th

Summary for Week ending Oct 23rd

Here is a preview (here is the link if the embed doesn't work).

Not on preview, but one 99er was asked ...
Q: "What comes next?"
A: "The abyss"