by Calculated Risk on 7/18/2011 07:59:00 PM

Note: There are various reports that the servicers are still filing documents with robo-signing. Geesh!

From Eric Wolff at the North County Times: Foreclosure auctions getting pricey

Competition at foreclosure auctions has become fierce in 2011 as more bidders battle over fewer properties, according to analysts and pricing data.

The number of bidders ballooned this spring, as small-time investors entered the market and institutional investors started buying more ...

In the first half of 2011, the median gap between opening bids and winning bids grew to the highest amount in the last five years, according to a North County Times analysis of data from ForeclosureRadar.
...
"Margins have started to dry up a lot," said Bruce May, a Vista house investor who has abandoned the auctions because of the competition.

That last comment reminds me of the famous Yogi Berra quote: "It's so crowded, nobody goes there.". The lenders would probably get higher prices if they put the auctions online and gave people better advance notice.

Earlier:
• NAHB Builder Confidence index increases in July, Still Depressed
• Residential Remodeling Index at new high in May
• Lawler: Existing Home Sales Down in June

Weekend:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th

by Calculated Risk on 7/18/2011 03:58:00 PM

Economist Tom Lawler sent me an update to his June forecast (about the same sales and inventory forecast as the post this weekend with more detail), from Lawler:

Based on my regional tracking of local home sales reports, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 4.71 million in June, down 2.1% from May’s pace and down 9.9% from last June’s pace. While at first glance this below-consensus forecast might seem at odds with May’s increase in pending sales, that increase followed a sharp drop in April, and pending sales tend to lead closed sales by over a month (though lags vary dramatically across areas/regions).

Last June the NAR estimated that existing home sales ran at a seasonally adjusted annual rate of 5.23 million. Looking at local realtor reports, there were only a handful of areas experiencing YOY increases in sales; some experienced modest declines; and quite a few experienced sizable YOY declines. This June had the same number of business days as last June, and this June’s seasonal factor shouldn’t be much different from last June’s.

On the inventory front, the NAR’s numbers appear to display a different seasonal pattern than do actual listing data, though I don’t have a long time series comparison. Based on the limited information I have, I expect the NAR’s inventory measure will decline by about 1.5% from May to June, and will be down about 5.7% from last June. The NAR’s inventory measure has shown decidedly smaller YOY declines this year than have actual listings, potentially suggesting that sales vs. a year ago have been weaker than the NAR’s estimates suggest.

On the pending home sales front, deriving estimates is more challenging because many realtor groups don’t report statistics on new pending sales to the public. Of course, many realtor groups don’t actually TRACK new pending sales, and as a result the NAR’s sample for pending sales is only about half as large as that used to estimate closed existing home sales. This is one of many reasons why the correlation between the NAR’s pending home sales index and closed existing home sales is not as high as one might expect.

However, based on the data I’ve seen so far, I estimate that the NAR’s pending home sales index in June will show a seasonally adjusted increase of 2.6% from May, which translates into a YOY gain of 20%. Last June, of course, pending sales were extremely depressed, as the federal home buyer tax credit – which expired based on contract signing last April – led many home buyers to accelerate planned home purchases. Based on the May and June pending sales data, existing home sales should rebound modestly in July and August.

by Calculated Risk on 7/18/2011 01:19:00 PM

The next emergency EU summit is scheduled for this coming Thursday.

Wolfgang Münchau is very concerned, from the Financial Times: Plan D stands for default and death of euro

The biggest single danger in the eurozone crisis now is that events are moving too fast ... It was a huge mistake to postpone an emergency EU summit until Thursday this week.
excerpt with permission

This is a key meeting. If there is no agreement on how to proceed, the markets could really panic.

Also many people were disappointed with the stress tests released Friday. From the WSJ: Euro Stress Tests Tell Only Half the Story

Here is what the official stress tests results didn't tell you: 27 European banks would need to raise a combined €82 billion ($155 billion) in new capital ... That is well above the €2.5 billion shortfall, spread across eight banks, announced Friday.

The €82 billion doesn't tell the full story.

Naturally bond yields are rising. A key European analyst (I can't name) put out a note last night that ended with "Run like hell."

The Greek 2 year yield is up to a record 36%.

The Portuguese 2 year yield is up to a record 20.4%.

The Irish 2 year yield is up to a record 23.2%.

And of bigger concern ... the Italian 2 year yield is up to a record 4.6%. And the Spanish 2 year yield is up to a record 4.6%.

Still much lower than Greece, Portugal and Ireland, but rising fast.

Check out the Italian and Spanish 10 year yields for more hockey sticks! Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/18/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) increased to 15 in July from 13 in June. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Gains Two Points in July

Builder confidence in the market for newly built, single-family homes rose two points to 15 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today. The gain largely offsets a three-point dip recorded in June, and marks the ninth time out of the past 10 months in which the index has held within the same three-point range.
...
"We view the upward movement in the July HMI as a correction from an exceptionally weak number in June that was at least partly attributable to negative economic news and the close of a disappointing spring selling season," said NAHB Chief Economist David Crowe. "The strong rebound in sales expectations for the next six months likewise marks a return to trend. Basically, the market continues to bounce along the bottom, with conditions in some locations beginning to improve."
...
Two out of three of the HMI's component indexes rebounded in July from declines in the previous month. The component gauging current sales conditions rose two points to 15, returning to its May level, while the component gauging sales expectations in the next six months rose seven points to 22, which is where it stood in April. The component gauging traffic of prospective buyers held even with the previous month, at 12.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the July release for the HMI and the May data for starts (June housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 7/18/2011 08:12:00 AM

The BuildFax Residential Remodeling Index was at 124.3 in May, up from 109.7 in April. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 22% year-over-year--and for the nineteenth straight month--in May to 124.3, the highest number in the index to date. Residential remodels in May were up month-over-month 14.6 points (13%) from the April value of 109.7, and up year-over-year 22.1 points from the May 2010 value of 102.2.
...
All regions were up month-over-month, with the Northeast up 9.8 points (12%), the South up 7.3 points (7%), the Midwest up 16.3 points (18%), and the West up 8.7 points (7%).
...
"Through the first five months of 2011 we have seen impressive gains within the remodeling index and May has continued that trend with a record setting month," said Joe Emison, Vice President of Research and Development at BuildFax. "Even with the continued struggles in the economy, the remodeling industry has been a bright spot, as consumers look to make upgrades to their current homes, rather than purchasing a new residence.”

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 22% from May 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

by Calculated Risk on 7/17/2011 08:23:00 PM

From economist Tom Lawler:

Based on what data I've seen so far, I estimate that existing home sales, as estimated by the NAR, ran at a seasonally adjusted annual rate of about 4.72 million in June, down from 4.81 million in May. That is below consensus, but is what the incoming data suggest [CR note: consensus is 4.9 million SAAR]. It's actually not shockingly inconsistent with the pending sales data, which showed a huge drop in April and then an increase in May, since the lag from pending to closed is on average over a month -- though it appears to vary a boatload across various markets.

Trying to gauge the NAR's inventory measure from actual listings data has been tricky, but as best as I can tell from the relationship between actual listings and the NAR's number, the NAR will probably report a decline in listings on the month of about 1 to 1.5%.

Pending sales in June appear to have increased slightly from May.

CR Notes: The NAR reported existing home sales at a 4.81 million (SAAR) in May, inventory of 3.72 million units, and 9.3 months of supply.

Based on Tom Lawler's estimate, this will be the lowest level of inventory in June since 2005. And sales will decline about 10% YoY from June 2010 - the last month that was boosted by the homebuyer tax credit. Months of supply would increase slightly from May.

No official word yet on when the NAR will release their benchmark revision (expected later this summer - and expected to show significant downward revisions to sales and inventory for the last several years).

Yesterday:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th

by Calculated Risk on 7/17/2011 05:05:00 PM

Yesterday:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th

Several readers have asked me for source data on U.S. government receipts and outlays. I've also been asked if receipts are really near a record low since WWII as a percent of GDP.

First, here is the budget data from the Congressional Budget Office (CBO). Under "Supplemental Material", the CBO provides historical budget data in both PDF and excel formats.

The White House also provides historical data on budget receipts and outlays. This is from the CBO for 2010 and earlier.

The data shows that total receipts are near a record low as a percent of GDP since WWII. The record low was in 1950, and it will be close this year (in fiscal 2011). But that masks some significant change in the mix of receipts.

The following graph shows receipts by source as a percent of GDP since WWII.

Both income (blue) and corporate taxes (red) are near record lows. Combined income and corporate taxes could rise almost 50% (as a percent of GDP) and receipts would still only be at the median for the 50 years from 1946 through 1996.

Notice the sharp decline in off-budget social insurance in 2011 (Social Security insurance). That is mostly the reduction in the payroll taxes for this year.

Also hidden in the "other" category has been the sharp reduction in the estate tax.

by Calculated Risk on 7/17/2011 12:03:00 PM

From Roger Vincent at the LA Times: Apartments are the development du jour among builders

If you see a building under construction, it's most likely an apartment complex.
...
Homeownership goes in and out of favor, UCLA professor Stuart Gabriel said, and now it's in decline.

"The pendulum swings back and forth a bit," Gabriel said. "Homeownership is not dead, it's just in a period of adjustment."

Least popular are homes in remote "exurbs" far from cities, he said. With gasoline prices at sustained highs, many people want to be closer to their jobs in urban centers where the most affordable housing is often apartments.

Demographics and generational trends are also working in favor of apartments. Many renters in their 20s and 30s are delaying marriage and childbearing ... and cherish the mobility to move where their careers take them. Other young people who have moved back home with their parents or doubled up with friends can be expected to rent their own apartments when they get jobs or feel more secure about their employment.
...
Permits to build nearly 1,000 apartments were issued in May in the city of Los Angeles, the most since November 2008, the Construction Industry Research Board said.

The pickup in apartment construction is one of the few bright spots for construction employment and residential investment. If there was an increase in housing starts in June, the increase was probably from multi-family starts. (June housing starts will be released on Tuesday).

It is important to note that even with a strong increase in multi-family construction, it is from a very low level, and multi-family is a small part of residential investment (RI).

However - don't expect much new office construction any time soon, from the LA Times: It's still an office tenant's market in the Southland

by Calculated Risk on 7/17/2011 08:47:00 AM

From David Leonhardt at the NY Times: How the Bursting of the Consumer Bubble Continues to Hold the Economy Back (ht Ann)

THERE is no shortage of explanations for the economy’s maddening inability to leave behind the Great Recession and start adding large numbers of jobs ... the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble ...

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.
...
Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future

Here is the NY Fed paper by Jonathan McCarthy that Leonhardt mentions: Discretionary Services Expenditures in This Business Cycle

The pronounced weakness in personal consumption expenditures (PCE) for services has been an unusual feature of the 2007-09 recession and the slow recovery from it. Even in 2010:Q4, when real PCE increased at a relatively robust 4.1 percent annual rate, real PCE on services rose at only a 1.4 percent rate. This weakness has been especially evident in “discretionary” services (to be defined below), which fell more in the recent recession than in previous recessions and since have rebounded more sluggishly. In this post, I suggest that the continued sluggishness in these expenditures lends a note of caution regarding the sustainability of recent PCE strength. ... this in turn raises some concern about the future strength of the recovery.

The chart below shows how much real per capita (to account for differing rates of population growth over time) discretionary services expenditures fell from their previous peak—a zero value in this chart means that these expenditures were above their previous peak. The drop in discretionary services expenditures in the last recession was much more severe than in previous recessions ...

Click on graph for larger image in graph gallery.

Because many of these expenditures can be deferred when economic conditions are strained (for example, eating at home rather than eating out, or passing on the visit to Disney World) and given the increasing share of services in the economy, discretionary services will remain a significant factor in business cycles. In the recent recession, the large rise in unemployment and the sharp drop in household wealth appear to have led households to reduce discretionary services expenditures to a greater extent than we have seen previously, as they attempted to maintain a smoother path of non-discretionary services expenditures.

... the fact that discretionary services expenditures remain significantly below their previous peaks is of concern for the overall economic outlook. Although these expenditures can be deferred in instances of temporary income drops, the sluggish recovery in these expenditures suggests, consistent with the permanent income/life cycle hypothesis, that households may perceive more persistent shocks to their overall wealth. ... Accordingly, the continued sluggishness of discretionary service expenditures at this point in the expansion lends a note of caution regarding the recently improved economic growth outlook.

This is one of the reasons I track some items of discretionary spending like hotels and restaurants.

To take this a step further - with the lack of demand, there is still too much excess capacity in most areas of the economy for a large contribution from new investment (except in equipment and software). We see this excess in housing (there is an excess supply of vacant housing units), and excess capacity in overall industrial production. There is also excess existing supply in office space, retail space, and other categories of commercial real estate.

In addition, household debt, as a percent of income, remains very high and household deleveraging is ongoing. That is why so many companies identify their number one problem as "lack of customers" (see the small business survey released this week).

Until the excess capacity (and excess supply) is absorbed, and household balance sheets are back in order, the recovery will remain sluggish.

by Calculated Risk on 7/16/2011 10:33:00 PM

Last month, 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.

Click on graph for larger image in graph gallery.

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

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

HousingTracker reported that the mid-July listings - for the 54 metro areas - declined 10.9% from last year.

Of course there is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed inventory will put less downward pressure on house prices and is something to watch carefully all year.

Earlier:
• Summary for Week Ending July 15th
• Schedule for Week of July 17th