by Calculated Risk on 5/25/2011 11:49:00 AM

Stan Collender writes: Not A Surprise: GOP Plans Vote On Debt Ceiling Bill Next Week

House Republicans announced yesterday that they would bring a "clean" debt ceiling to the House floor next week. ... by allowing members to vote against it now, the leadership will also be making it easier for some of them to vote for a debt ceiling increase later this summer.

The theater of the absurd. Otherwise known as politics.

And from the WSJ: Geithner Dismisses Debt-Ceiling Debate as Political Theater

U.S. Treasury Secretary Timothy Geithner Wednesday dismissed as political theater a House vote on the debt ceiling that is expected to fail, and said Congress would ultimately raise the limit this summer.

“Right now this is all theater. Beneath the theater you are starting to see people work together,” Geithner said

The key point is the vote next week is meaningless and the debt ceiling will be increased this summer.

by Calculated Risk on 5/25/2011 09:51:00 AM

During the housing busts that followed the California housing bubbles of the late '70s and late '80s, there came a period when sentiment for homeownership changed. The evidence was anecdotal, but it was not uncommon to hear people say owning a home was "dumb".

So one thing I've been looking for is a change in sentiment. Earlier posts on this with anecdotal evidence: Housing: Feeling the Hate, More "Hate" for Housing, and More "Hate" for Homeownership.

A shift in sentiment doesn't mean housing prices have bottomed - it just means the market is getting closer. In previous busts it seemed like negative sentiment lasted for a few years.

Last week Trulia and RealtyTrac released a survey of when Americans thought the housing market would recover. (ht Keith Jurow, Keith is far more bearish than I am bearish).

Here is the survey: Trulia and RealtyTrac Survey Reveals 54 Percent of American Adults Now Believe Housing Recovery Remains Unlikely Until 2014 or Later

As more cities across the nation experience double dips in home prices , more than half (54 percent) of U.S. adults believe recovery in the housing market will not happen until 2014 or later, according to the survey released today. In a previous survey conducted six months ago , 42 percent of American adults said they thought the market would turn around by 2012 or had already turned around. Now, only 23 percent continue to think this will happen.

When American Adults Believe Housing Market Will Recover
	Apr-11	Nov-10	% Change
Already Recovered[1]	5%	5%	0%
By the end of 2011	3%	10%	-70%
2012	15%	27%	-44%
2013	24%	24%	0%
2014 or Later	54%	34%	59%

Clearly there has been a sharp shift in when people think the housing market will "recover". Expecting a recovery is somewhat different from asking when people will want to buy, but I think they are somewhat related - if non-owners think the market won't bottom for several years, they would probably also say they won't buy soon too. Just a little more evidence of a shift in sentiment ...

by Calculated Risk on 5/25/2011 07:35:00 AM

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

The Refinance Index increased 0.9 percent to its highest level since December 10, 2010. The seasonally adjusted Purchase Index increased 1.5 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.60 percent, with points decreasing to 0.69 from 0.93 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in graph gallery.

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

Refinance activity increased to the highest level since December 2010.

The four week average of purchase activity is at about 1997 levels. Of course this doesn't includes cash buyers - and there is a very high percentage of cash buyers right now. This suggests weak existing home sales through mid-year (not counting cash buyers).

by Calculated Risk on 5/25/2011 12:50:00 AM

From at the WSJ: Banks Face $17 Billion in Suits Over Foreclosures

State attorneys general told five of the nation's largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices ... The figure doesn't cover additional billions of dollars in potential claims from federal agencies.

The initial number floated by the government was a $20 billion settlement. The banks suggested a $5 billion fund to provide transition assistance for those losing their homes in foreclosure. However the banks already provide transition assistance ("cash for keys") for borrowers who leave the keys and property in decent shape - so that wasn't much of a penalty. I guess this $17 billion is the new government number - so it appears the sides are still far apart.

by Calculated Risk on 5/24/2011 06:35:00 PM

Moody's reported yesterday that the Moody’s/REAL All Property Type Aggregate Index declined 4.2% in March. Note: Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales and there are a large percentage of distressed sales - and that can impact prices and make the index very volatile.

The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement ...So-called trophy properties in New York, Washington, Boston, Chicago, Los Angeles and San Francisco are helping those markets avoid the drag caused by distressed asset sales nationwide, Moody’s reported.

The overall index shows “no sign of recovery,” Moody’s said.

Almost a third of all March transactions measured by Moody’s were considered distressed, meaning the properties’ owners faced foreclosure, had difficulty covering their mortgage payments or experienced other financial problems. It was the largest proportion of distressed property sales in the history of the index, Moody’s said.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in graph gallery.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are down 8.5% from a year ago and down about 47% from the peak in 2007. Prices are at new post-bubble lows - and about at the levels of early 2002.

For more on CRE prices, here is the CoStar report for March prices.

Earlier:
• New Home Sales in April at 323 Thousand SAAR, Ties Record low for April
• Lawler: FDIC-insured institutions’ Real Estate Owned (REO) decrease in Q1
• New Home Sales graphs

by Calculated Risk on 5/24/2011 02:51:00 PM

From economist Tom Lawler:

The FDIC released its Quarterly Banking Profile for the first quarter of 2011. ... On the REO front [lender Real Estate Owned], the carrying value of 1-4 family residential real estate owned on FDIC-insured institutions’ balance sheet on 3/31/11 was $13.2795 billion, down from $14.0498 billion on 12/31/10 and $14.5527 billion last March. The steep drop suggests that banks probably increased the pace at which they sold SF REO properties last quarter.

Click on graph for larger image in new window.

As I have noted before, it is unfortunate that the FDIC does not collect data on the NUMBER of REO properties held, and there are actually significantly different estimates across analysts of the average carrying value of 1-4-family REO properties at FDIC-insured institutions. If one were to assume an average carrying value of about $150,000 – which is slightly over 50% above that for Fannie and Freddie – then FDIC-insured institutions would have owned about 88,530 residential REO properties last quarter. (Barclays Capital analysts believe the average carrying value is higher, and as a result the number of properties would be lower).

Using the $150,000 number, here is a chart of REO holdings of Fannie, Freddie, FHA, and FDIC-insured institutions.

Note that this is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories. At the end of last year Fannie, Freddie, FDIC-insured institutions, FHA, and private-label RMBS accounted for approximately 89% of the dollar balance of 1-4 family first-lien mortgage debt outstanding. If one “grossed up” the estimates shown in the chart by this factor – which probably produces a “too high” number – then one estimate of the total REO inventory for 1-4 family properties would be around 615,000.

Of course, such an estimate probably understates the effective number of REO properties. E.g., institutions could well have unloaded properties in bulk sales to private entities looking to fix up and then sell and/or rent the properties but who have not yet done so. However, at least based on available lender data, estimates of the number of REO properties from RealtyTrac look materially too high, and overall REO inventories have clearly declined over the last two quarters.

CR Note: this is probably a good estimate of REO inventory. The key is REO inventory is declining again even though some organizations have significantly increased their foreclosure activity and are working through the backlog of seriously delinquent mortgages.

by Calculated Risk on 5/24/2011 12:25:00 PM

• From the Richmond Fed: Manufacturing Activity Stalled in May; But Expectations Remain Upbeat

In May, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — fell sixteen points to −6 from April's reading of 10. Among the index's components, shipments decreased nineteen points to −13, new orders dropped twenty-five points to finish at −15
...
The pace of hiring held steady at District plants in May. The manufacturing employment index was unchanged at 14 and the average workweek measure flattened, losing seven points to 0. However, wage growth slowed sharply, falling sixteen points to 6.

This was the first regional manufacturing survey to show contraction - the others showed sharply slower growth in May.

Also the Richmond Fed service survey indicated slowing: Service Sector Activity Slowed in May; Hiring and Wages Remained Strong at Non-Retail Firms, and Leveled off at Retail Businesses (This is new and not closely followed).

• FDIC releases Q1 Quarterly Banking Profile

The number of institutions on the "Problem List" flattened. The net increase of four, to 888, is the smallest in three-and-a-half years. The number of "problem" institutions is the highest since March 31, 1993, when there were 928. Total assets of "problem" institutions increased from $390 billion to $397 billion.

I'll have more from this later.

• Home sales: Distressing Gap. The following graph shows existing home sales (left axis) and new home sales (right axis) through April. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Click on graph for larger image in graph gallery.

The gap is due mostly to the flood of distressed sales. This has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

Earlier:
• New Home Sales in April at 323 Thousand SAAR, Ties Record low for April

by Calculated Risk on 5/24/2011 10:00:00 AM

The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 323 thousand. This was up from a revised 301 thousand in March (revised from 300 thousand).

Click on graph for larger image in graph gallery.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000 ... This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.

And a long term graph for New Home Months of Supply:

Months of supply decreased to 6.5 in April from 7.2 months in March. The all time record was 12.1 months of supply in January 2009. This is still higher than normal (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This represents a supply of 6.5 months at the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 67,000 units in April. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In April 2011 (red column), 32 thousand new homes were sold (NSA). This ties the record low for the month of April.

The record low for April was 32 thousand in both 1982 and 2009 - and now 2011. The high was 116 thousand in 2005.

Although above the consensus forecast of 300 thousand, this ties the record low for April - and new home sales have averaged only 298 thousand SAAR over the last 12 months ... moving sideways at a very low level.

by Calculated Risk on 5/24/2011 08:53:00 AM

This speech is on financial education, but the following comments outlined some of the impact of the financial crisis on financial decisions.

From Fed Governor Elizabeth Duke: Research, Policy, and the Future of Financial Education

The financial crisis and the slow recovery from it has obviously had a dramatic impact on the financial decisions made by American families. Many now have fewer financial resources and limited options. The pace and timing of their saving and investing life cycle has also been disrupted.
...
In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are employed will have fewer resources for saving and investing than their predecessors. Young people are living with their parents longer, which helps conserve their limited resources but likely places a strain on their parents' budgets.

Also troubling is research showing that many consumers who should be saving for retirement instead have been forced to take hardship withdrawals from their 401(k) plans. According to an analysis by Vanguard, hardship withdrawals increased by 49 percent between 2005 and 2010. Other types of withdrawals increased by 56 percent.

The increasing use of retirement savings for other purposes is particularly troubling given that the responsibility for saving for retirement has shifted away from employers to individual employees.
...
Individuals who are approaching retirement age, in particular, are being forced to make changes to their plans for retirement. Social Security Administration data indicate that in 2009 and 2010, the proportions of men and women claiming social security benefits at age 62 began to rise again after several years of decline. Workers have either chosen to leave the work force early in the last few years or, more likely, have applied for social security benefits as early as possible because of the weak job market.
...
The recession has clearly disrupted the future expectations and financial plans of millions of Americans, but even in the best of circumstances, effectively managing one's longevity risk requires a level of financial knowledge well beyond that required of any previous generation.

Many in the 401(k) generation are now reaching retirement - with little in savings and using withdrawals from their 401(k) plans just to get by. A grim retirement ...

by Calculated Risk on 5/23/2011 07:56:00 PM

There was a theme today - mortgage delinquencies and REO (lender Real Estate Owned).

Although the FHA hasn't released their March data online yet, housing economist Tom Lawler obtained a copy and sent me the data. He also sent me an estimate of the Private Label Securities (PLS) REO inventory (from Barclays Capital). We can now update the Q1 graph with the final FHA data.

The combined REO inventory for Fannie, Freddie and the FHA decreased to 287,380 at the end of Q1, from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

Click on graph for larger image in new window.

The REO inventory for the "Fs" increased sharply in 2010, but may have peaked in Q4 2010. The Fs acquired 101,997 REO units in Q1, but sold 110,023. Both are records, and the numbers will probably increase all year.

The second graph includes the data for the Fs and adds Private Label Securities (PLS).

The PLS blew up first because it contained the worst of the worst loans; poorly underwritten subprime and Alt-A.

Also the PLS wasn't set up to effectively manage REO and they just dumped houses on the market. Usually house prices are sticky downwards - prices decline, but slowly. However this dump of REOs led to what Tom Lawler called "destickification" with house prices falling rapidly in many low end areas with high foreclosure rates.

Now about half of the REOs are owned by the Fs and they are little more careful in releasing REO to the market.

Note: We still need to add REO for bank and thrifts based on the FDIC Q1 QBP that will probably be released this week.

Earlier on delinquencies and REO:
• Mortgage Delinquencies by Loan Type
• The Foreclosure Pipeline
• Delinquency Graphs