by Calculated Risk on 6/30/2011 02:49:00 AM

No "hate" for housing here ...

From David Streitfeld and Megan Thee-Brenan at the NY Times: Despite Fears, Owning Home Retains Allure, Poll Shows

Nearly nine in 10 Americans say homeownership is an important part of the American dream, according to the latest New York Times/CBS News poll.

Here are the poll results. Unfortunately there is no history for this polling question. The question asked was: "How important a part of the American dream is owning a home – is it a very important part of the American dream, somewhat important, not too important, or not at all important?"

55% said important and another 34% said "somewhat important".

There are a series of new questions on housing (see questions 31 through 61). As an example, Question 54: "In the last three years, have you delayed selling your house because you are waiting for the housing market to improve, or are you not interested in selling your house now?"

Delayed 10%
Not interested 88%
NA 2%

That might indicate a fairly large number of homeowners are "waiting for a better market".

by Calculated Risk on 6/29/2011 06:01:00 PM

From Maryann Haggerty at the NY Times: The Post-Foreclosure Wait (ht Ann)

Fannie Mae, Freddie Mac and the Federal Housing Administration set guidelines for how long a borrower must wait after a “significant derogatory event.”

There are plenty of asterisks and conditions. But to generalize, the wait is longest after a foreclosure. Extenuating circumstances like a job loss, illness or divorce reduce the wait.

With such circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.

“The key is to avoid the foreclosure,” said Andrew Wilson, a spokesman for Fannie Mae. “That is what will help you be eligible for the shorter period.”

As for F.H.A.-insured loans, they are available three years after a foreclosure, assuming perfect credit afterward, and two years after a bankruptcy is discharged. After a short sale, there’s a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances.

Mortgage broker "Soylent Green is People" sent me this short summary last month (with many more details):

"Pre-Foreclosure" = Short Sale.

VA - immediate, providing you've got 12 months clean credit.
FHA - 3 years.
Conventional 4 years.

Foreclosure:

VA - 2 years, providing you've got 12 months clean credit AND the loan that was foreclosed was not a VA
FHA - 3 years, providing that the foreclosed loan was not an FHA mortgage
Conventional - 7 years.

Soylent Green is People thinks we will start seeing "bounce back buyers" later this year and in 2012.

by Calculated Risk on 6/29/2011 03:38:00 PM

This will never happen ...

A quote from Reuters: Exclusive: S&P to deeply cut U.S. ratings if debt payment missed

"If the U.S. government misses a payment, it goes to D," [Standard & Poor's managing director John Chambers told Reuters]. "That would happen right after August 4, when the bills mature, because they don't have a grace period."

That would be the first default in U.S. history.

Reuters quotes Chambers as saying that he views the likelihood of a U.S. default as "extremely low," and that he expects a last minute agreement.

Of course there will be a last minute agreement; the debt ceiling is all about political posing.

Here is what I wrote in early May:

Congress will probably push this to the brink, but they will raise the debt ceiling before the country defaults. The first rule for most politicians is to get re-elected, and the easiest way to guarantee losing in 2012 is to throw the country back into recession. If that happened, I believe the voters would correctly blame the leaders of Congress, and I think Congress knows that too. Therefore it won't happen. I'm not worried and neither are investors.

by Calculated Risk on 6/29/2011 12:45:00 PM

LPS Applied Analytics released their May Mortgage Performance data. From LPS:

The May Mortgage Monitor report released by Lender Processing Services, Inc. (NYSE: LPS) shows that the number of mortgages that are 90 or more days delinquent, combined with the foreclosure inventory at the end of May, totaled 4,084,557. With foreclosure sales at 78,676 at month end, the volume of serious delinquencies and foreclosures over-shadowed the number of foreclosure sales by 50:1. In fact, there are still significantly fewer foreclosure sales than there were before foreclosure moratoria were put into place, and foreclosure sales are declining.

New problem loans, defined as loans that were current six months ago and were 60 or more days delinquent at the end of May, are now less than half the peak levels seen in 2009, and are currently at 1.27%. Overall, when compared to historical norms, delinquencies are almost double and foreclosures are eight times higher.

Negative equity also remains a concern, with nearly 30% of current loans in a negative equity position. The equity impact on new seriously delinquent loans is significant, with loans significantly under-water defaulting up to 10 times as much as loans with equity.

According to LPS, 7.96% of mortgages were delinquent in May, down slightly from 7.97% in April, and down from 9.74% in May 2010.

LPS reports that 4.11% of mortgages were in the foreclosure process, down from 4.14% in April. This gives a total of 12.07% delinquent or in foreclosure. It breaks down as:

• 2.27 million loans less than 90 days delinquent.
• 1.92 million loans 90+ days delinquent.
• 2.16 million loans in foreclosure process.

For a total of 6.35 million loans delinquent or in foreclosure in May.

Click on graph for larger image in graph gallery.

This graph shows the total delinquent and in-foreclosure rates since 1995.

The total delinquent rate has fallen to 7.96% from the peak in January 2010 of 10.97%. A normal rate is probably in the 4% to 5% range, so there is still a long way to go.

However the in-foreclosure rate at 4.11% is barely below the peak rate of 4.21% in March 2011. There are still a large number of loans in this category (about 2.16 million).

This graph provided by LPS Applied Analytics shows the aging for the in-foreclosure bucket.

About 34% of those 2.16 million loans in the foreclosure process have not made a payment in over 2 years. Another 35% have not made a payment in over a year (but less than 2 years).

The good news is there has been some improvement in the early stages, however there are still 4.08 million loans seriously delinquent or in the foreclosure process.

by Calculated Risk on 6/29/2011 10:00:00 AM

• From the NAR: Pending Home Sales Turn Around in May

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 8.2 percent to 88.8 in May from an upwardly revised 82.1 in April [from 81.9] and is 13.4 percent higher than the 78.3 reading in May 2010. The data reflects contracts but not closings, which normally occur with a lag time of one or two months.
...
This is the first time since April 2010 that contract activity was above year-ago levels ...

This was very close to Tom Lawler's forecast.

• From the WSJ: Greece Secures Austerity Vote

Greece's Parliament has passed a ... five-year austerity plan ... additional €28.4 billion ($40.81 billion) in spending cuts and new taxes [that] was set as a condition for another international bailout to keep Greece from defaulting on its debt.
...
Greece faces another critical test Thursday, when parliament is set to hold an article-by-article vote on the legislation implementing the austerity plan and a promised €50 billion privatization program.

Another vote tomorrow ...

by Calculated Risk on 6/29/2011 07:26:00 AM

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

The Refinance Index decreased 2.6 percent from the previous week. The seasonally adjusted Purchase Index decreased 3.0 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.46 percent from 4.57 percent, with points increasing to 1.19 from 0.91 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year rate recorded in the survey since the middle of November 2010.

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

Click on graph for larger image in graph gallery.

The four week average of purchase activity is at about 1997 levels - and mostly moving sideways. Of course there is a very high percentage of cash buyers right now, but this suggests weak existing home sales through the next month or two.

by Calculated Risk on 6/28/2011 10:19:00 PM

Two stories on the proposed BofA settlement with MBS investors:

• From the WSJ: BofA Nears Huge Settlement

Bank of America Corp. is close to an agreement to pay $8.5 billion ... with a group of 22 investors who hold mortgage-backed securities originally valued at $105 billion, including the giant money manager BlackRock Inc., the insurer MetLife

• From the NY Times: $8.5 Billion Deal Near in Suit on Bank Mortgage Debt

The settlement goes beyond the securities owned by these investors, however. It covers nearly all of Countrywide’s first-lien mortgages, which total $424 billion worth of original, unpaid principal balances. As a result, investors beyond those that are concluding the settlement stand to benefit.

This potential settlement started with repurchase requests from private investors based on Reps and Warranties for the mortgages included in the MBS. This was a complicated negotiation because these loans had significant risk layering (stated income, option ARMs, high LTV, and high debt-to-income ratios etc.) and these risk factors were disclosed to the investors. However, even with the disclosures, many of the loans were clearly defective; the underwriting didn't even meet the disclosed loose standards. I guess they should have disclosed that the underwriting standard was "fog a mirror, get a loan"!

Earlier on Case-Shiller:
• Case Shiller: Home Prices increase in April
• Update: Real House Prices and Price-to-Rent

by Calculated Risk on 6/28/2011 05:05:00 PM

A couple of key points on existing home inventory:

1) Changes in inventory usually lead prices.

2) The NAR method for estimating inventory has probably led to inventory being overstated for the last few years (along with sales). It appears this discrepancy started in 2007 (or earlier), and the error has probably increased since then.

Keeping those two points in mind, here is a repeat of a graph I posted last week.

Click on graph for larger image in graph gallery.

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

According to the NAR, inventory decreased 4.4% year-over-year in May from May 2010. This was the fourth consecutive month with a YoY decrease in inventory. So even though inventory (and months-of-supply) is still very high, it appears that inventory is now decreasing.

However it appears the NAR is understating the decline in inventory.

A few weeks ago, Tom Lawler posted on how the NAR estimates existing home inventory. The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory). Sometime this summer, I expect the NAR to revise down their estimates of inventory and sales for the last few years. Also the NAR methodology for estimating sales and inventory will likely (hopefully) be changed.

While we wait for the NAR, I think the HousingTracker data that Tom mentioned might be a better estimate of changes in inventory (and always more timely). Ben at HousingTracker.net is tracking the aggregate monthly inventory for 54 metro areas.

This graph shows the NAR estimate of existing home inventory through May (left axis) and the HousingTracker data for the 54 metro areas through June. The HousingTracker data shows a steeper decline (as mentioned above, the NAR will probably revise down their inventory estimates this summer).

The third graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the weekly average for June listings - for the 54 metro areas - declined 8.5% from last June.

Although inventory is still high, the decline in inventory will put less downward pressure on house prices and is something to watch carefully this year.

Earlier ...
• Case Shiller: Home Prices increase in April
• Update: Real House Prices and Price-to-Rent

by Calculated Risk on 6/28/2011 02:05:00 PM

Earlier today from the Richmond Fed: Manufacturing Activity Stabilized in June; Expectations Edge Higher

In June, the seasonally adjusted composite index of manufacturing activity — our broadest measure of the sector — picked up nine points to 3 from May's reading of −6. Among the index's components, shipments added twelve points to −1, new orders rose sixteen points to finish at 1, while the jobs index slipped two points to 12.
...
Hiring activity at District plants was also mixed in June. The manufacturing employment index eased two points to 12 and the average workweek measure turned negative, losing five points to −5. However, wage growth edged higher, gaining three points to finish at 9.

This is the second regional survey to show expansion in June and was slightly stronger than expected (the Dallas Fed showed slower expansion in June).

Earlier this month, the Philly and Empire State surveys indicated contraction. So far these regional surveys suggest the ISM index will be in the low 50s in June (or possibly even below 50). I'll post a graph of the regional surveys vs. the ISM index on Thursday. The ISM index will be released Friday.

Earlier ...
• Case Shiller: Home Prices increase in April
• Update: Real House Prices and Price-to-Rent

by Calculated Risk on 6/28/2011 11:13:00 AM

First a comment on the Case-Shiller seasonal adjustment: A few years ago, several people (including me), noticed that the seasonal adjustments weres getting pretty "wild". This was because of all the distressed sales - distressed sales are distributed throughout the year (with no seasonal pattern), and non-distressed sales were still following the usual pattern. So there was a very large percentage of distressed sales in the winter, and this led to huge swings in the seasonal adjustment.

In response, S&P started reporting on the Not Seasonally Adjusted (NSA) data. This is OK, but it can be a little confusing. Seasonally prices usually increase in April from March - so some of the increase this morning was due to seasonal factors. In fact the Seasonally Adjusted (SA) Case-Shiller composite 20 index was at a new post-bubble low. Note: April is still a seasonally weak month (the NSA index is below the SA index), but not as weak as March.

Just on a seasonal basis, the NSA index should increase through September. Starting in June, the NSA index will be above the SA index. A little confusing.

Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here).

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 1999/2000 levels.

Nominal House Prices

Click on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2011), and the monthly Case-Shiller Composite 20 SA (through April) and CoreLogic House Price Indexes (through April) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index is back to Q3 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is back to January 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 1999 levels, the Composite 20 index is back to September 2000, and the CoreLogic index back to January 2000.

A few key points:
• In real terms, all appreciation in the last decade is gone.

• Real prices are probably still too high. This isn't like in 2005 when prices were way out of the normal range. In many areas - with an increasing population and land constraints - there is an upward slope to real prices (see: The upward slope of Real 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 using the Case-Shiller Composite 20 and CoreLogic House Price Index (through March).

This graph shows the price to rent ratio (January 1998 = 1.0).

Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices. In recent months, OER has been increasing - lowering the price-to-rent ratio.

On a price-to-rent basis, the Composite 20 index is back to October 2000 levels, and the CoreLogic index is back to February 2000.

Earlier ...
• Case Shiller: Home Prices increase in April