by Calculated Risk on 11/16/2011 06:00:00 AM

The BuildFax Residential Remodeling Index was at 141.4 in September, up from 138.6 in August. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax: Remodeling Activity Reaches Record Levels According to BuildFax Remodeling Index for September

Today, BuildFax®, unveiled its BuildFax Remodeling Index (BFRI) for September 2011, which shows that remodeling activity reached a record high during the month.
...
The latest BFRI showed that September 2011 became the month with the highest level of remodeling activity since the Index was introduced in 2004 and represented the 23rd consecutive month of increases. In addition, BuildFax data revealed the most popular permitted residential remodeling jobs since 2006 have been roof remodels/replacements, followed by deck and bathroom remodels.
...
“Mortgage rates continue to be near record lows, and as homeowners from coast to coast refinance, they are continuing to update their current home and invest in their properties,” said Joe Emison, Vice President of Research and Development at BuildFax. “The data from BuildFax show that homeowners are not only doing important ‘maintenance’ projects, such as fixing their roof, but also taking on projects that add to the ‘livability’ of their homes by adding decks, remodeling their bathrooms and updating their kitchens."

Click on graph for larger image.

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 34% from September 2010. This is the highest year-over-year increase in activity since the index started.

Even though new home construction is still moving sideways, 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 11/15/2011 08:40:00 PM

Here are the new Home Affordable Refinance Program (HARP) guidelines from Fannie Mae: Selling Guide Announcement SEL-2011-12

As noted by the FHFA last month, the HARP deadline will be extended, there is no maximum LTV (except in certain cases), and most Reps and warrants have been eliminated.

On the timing, according to Fannie Mae: "The expansion of the LTV ratio limits is effective for Refi Plus mortgage loans with application dates on or after December 1, 2011." Desktop Underwriter® (DU) will be updated in March.

One of the keys is the elimination of most Reps and warrants, from Fannie Mae:

For DU Refi Plus:

• The lender is not responsible for any of the representations and warranties associated with the original loan.

• The lender is relieved of the standard underwriting representations and warranties (eligibility, credit history, liabilities, income and asset assessment) with respect to the new mortgage loan if the lender meets all of the following requirements:
- All data in the loan casefile is complete, accurate, and not fraudulent.
- The lender follows the instructions in the DU Underwriting Findings Report regarding income, employment, asset, and fieldwork documentation.
- The lender complies with all other requirements documented in the Selling Guide, A2-2.1-04, Limited Waiver of Contractual Warranties for Mortgages Submitted to DU.

For Refi Plus:

• With respect to the original loan, the lender must represent and warrant to the following:

- The loan was eligible for sale in accordance with Fannie Mae’s Charter at the time of delivery to Fannie Mae.

- The loan was originated in compliance with laws. See the A3-2-01, Compliance with Laws.

- The lender represents and warrants that the original loan being refinanced by a Refi Plus mortgage loan was not originated or sold pursuant to any scheme or pattern of fraud ...

If I'm reading this correctly, the elimination of Reps and warrants for the original loan applies to Desktop Underwriter® (DU) and that will not be updated until March.

by Calculated Risk on 11/15/2011 06:44:00 PM

From DataQuick: Southland Home Sales Inch Up from 2010; Median Price Down Again

Southland home sales rose slightly in October compared with a year earlier but were still nearly 30 percent below the long-term average. ...
A total of 16,829 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in October. That was down 7.3 percent from 18,149 in September and up 0.5 percent from 16,744 in October 2010, according to San Diego-based DataQuick.

A drop in sales between September and October is not unusual, but last month’s decline was larger than the average change – a decline of 0.7 percent – between those months since 1988, when DataQuick's statistics begin.
...
While October sales of existing (not new) houses and condos rose 2.2 percent and 1.3 percent, respectively, from a year earlier, sales of newly built homes dropped 18.4 percent to the lowest level on record for an October.
...
“The lower conforming loan limits implemented last month help explain the relatively sharp drop in mid- to high-end sales during October. Now we’ll have to see if the private loan market can fill the void,” said John Walsh, DataQuick president.
...
Distressed property sales accounted for 52.5 percent of the Southland resale market last month, up from 50.8 percent in September but down from 53.7 percent a year earlier. Nearly one out of three homes resold last month was a foreclosure, while roughly one in five was a “short sale.”

New home sales were at a record low (Note: DataQuick reports new home sales at closing - the Census Bureau reports new home sales when contracts are signed - usually about six months earlier). Also over half of existing home sales in SoCal were distressed sales in October; a very unhealthy market.

NAR is scheduled to reported October existing home sales on Monday, November 21st and so far it appears sales will be down in October (seasonally adjusted) compared to September.

by Calculated Risk on 11/15/2011 04:04:00 PM

From economist Tom Lawler: HUD released the annual Actuarial Review of the FHA’s Mutual Mortgage Insurance Fund for FY 2011, which is required by law and which is performed by an independent entity (lately IFE Group) to assess the “economic net worth” and “financial soundness” of the fund. According to the latest review, the estimated “economic net worth” of the MMIF (ex HECMs) at the end of FY 2011 (9/30/11) – defined as the sum of existing capital resources plus the net present value of the current books of business (using “base-case” economic scenarios) – was just $1.19 billion, down from $5.16 billion at the end of FY 2010. The “base case” scenario for home prices is based on Moody’s July 2011 forecast for the FHFA home price index, which I guess IFE Group uses because the FHFA HPIs cover a large number of MSAs, even though these HPIs are widely viewed as not being the “best” measures of home price trends. This forecast shows home price declining modestly next year.

Last year, the actuarial review estimated that by the end of FY 2011 the MMIF’s “economic value” would rise to $10.969 billion, as opposed to the latest report’s decline to $1.1193 billion. The FHFA “national” HPI fell in 2010 and early 2011 by more than was projected in the “base-case” used for the FY2010 actuarial review. However, Moody’s forecast for home price appreciation is a bit above last July’s, and as a result the “base-case” economic assumptions actually were a PLUS to IFE’s estimate of the FY 2011 “economic value.”

The major “negative hit” to the MMIF EV was related to “updated econometric model and portfolio status” factors, especially (1) much slower prepayment forecasts, and (2) the elimination of last year’s questionable “policy year dummy variables.” In addition, there was a negative “adjustment for foreclosure loans,” reflecting the unusually large number of loans in the foreclosure process at the time of the review, including a larger-than-normal number of properties where foreclosures had apparently been completed but servicers had not yet filed claims.

Click on graph for larger image.

CR Note: here are the house price scenarios used in the analysis.

As with last year, this year’s review included some “sensitivity analysis,” which suggested that the MMIF’s exposure to “bad” scenarios had worsened from last year. [Below] are tables showing the estimated “economic value” of the MMIF under alternative scenarios from the FY 2010 Actuarial Review, and from the FY 2011 Actuarial Review.

CR Note: This table is from the FY 2010 Actuarial Review.

And the second table is from the 2011 review. As Tom Lawler notes, the FHA has performed worse than the base case for 2010 - and there are much bigger expected losses under the “Worse-than-Base-Case” scenarios.

Note that (1) the “economic value” of the 2011 book in a “near-term” rebound scenario in the FY 2011 AR is substantially lower that the projected economic value of the 2011 book in the “base-case” scenarios; and (2) the economic values of the FY 2011 under the “worse-than-base-case” scenarios are massively worse than was the case last year.

Folks who want to read the whole thing can find it here.

by Calculated Risk on 11/15/2011 01:15:00 PM

From the NY Fed earlier today: Conditions for New York manufacturers held steady in November

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers held steady in November. After a string of five consecutive months of negative readings, the general business conditions index rose nine points, to 0.6. While the new orders index edged down to -2.1, indicating that orders were a little lower, the shipments index rose to 9.4, indicating an increase in shipments. The inventories index fell to -12.2 — a sign that inventory levels dropped.
...
Employment indexes were mixed: employment levels were slightly lower and the average workweek slightly longer.

This was slightly above the consensus forecast. The futures indexes really "surged" indicating
"a widespread expectation that conditions would improve in the months ahead".

And from the Chicago Fed: Third Quarter Midwest Farmland Values Surge

At 25 percent, the year-over-year gain in agricultural land values in the third quarter of 2011 for the Seventh Federal Reserve District was the largest in just over three decades. Moreover, at 7 percent, the quarterly increase in the value of “good” farmland matched the highest since the late 1970s.

I just hope farmers and farm land lenders remember the lessons of the '80s - and that farmers don't borrow too much, and lenders think about tighter lending standards.

by Calculated Risk on 11/15/2011 11:34:00 AM

From the WSJ: Recession Fears Haunt Euro Zone

The euro-zone economy barely grew in the third quarter despite a temporary bounce in Germany and France, raising fears that the euro bloc may already be sliding into recession ... Gross domestic product in the 17-nation euro zone grew 0.6% at an annualized rate during the third quarter ... Germany's economy recovered to post a 2% annualized growth rate ... France grew 1.6% after stagnating in the second quarter.

Those two countries comprise half of euro-zone GDP, indicating that the rest of the euro bloc contracted as a whole ...

Below is a table for several European bond yields (links to Bloomberg).

The Italian 10 year bond yield is up to 7.07%. The Italian 2 year yield is up to 6.54%.

The Spanish 10 year bond yield has increased to 6.34%. The Spanish 2 year yield is up to 5.3%.

The French 10 year bond yield is at 3.67%. The Belgium 10 year yield is up to 4.9%.

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 11/15/2011 10:04:00 AM

This report shows some improvement from the report last year, but the house price assumptions seem optimistic.

From HUD: FHA Issues Annual Financial Status Report to Congress

In reporting on findings of the annual independent actuarial study, HUD indicates that, in the midst of continued weakness in housing markets across the county, the MMI Fund capital ratio remains positive this year at 0.24 percent. With new risk controls and premiums put in place by the Obama Administration, the independent actuaries predict the Fund will return to the Congressionally-mandated threshold of two percent capital more quickly than was projected by last year’s review.
...
As was the case last year, the new actuarial study shows that FHA is expected to sustain significant losses from loans insured prior to 2009, and thus its capital reserve remains below the congressionally mandated threshold of two percent of total insurance-in-force. However, the actuaries’ report concludes that, barring a further significant downturn in home prices, the MMI Fund will start to rebuild capital in 2012, and return to a level of two percent by 2014 – outpacing last year’s prediction.
...
Losses on loans insured through the first quarter of fiscal year 2009 continue to place a significant strain on the Fund and are expected to reach $26 billion within a few more years. Though they were prohibited in 2009, the ongoing effect of so-called “seller-funded downpayment assistance loans” is still significant. The net expected cost of those loans, as projected by the independent actuaries, grew by $1.8 billion over the past year to $14.1 billion. Conversely, the actuaries found that the FY2010 and FY2011 books are expected to be very profitable, providing significant net revenues to offset losses on earlier books.

Long term readers will remember the many posts by Tanta and myself warning about the negative impact of "DAPs" (the seller-funded downpayment assistance programs that allowed buyers to put no money down). The DAPs were finally banned, but they caused significant losses for the FHA.

This assumes prices increase slightly next year: "The base-case scenario provided by Moody’s Analytics indicates price declines in 2011 of 5.6% and predicts a small amount of growth in prices in 2012 (1.3%), followed by ore steady growth starting in 2013."

Here is the HUD report - and the graph below shows the house price scenarios included in the report.

Click on graph for larger image.

NOTE: Prices are for the FHFA index (GSE loans only), and the FHFA index didn't increase as rapidly as Case-Shiller, and didn't decline as fast either (the GSE loans have performed significantly better than the Wall Street originate-to-distribute loans).

The “Mild Second Recession” utilized by the actuaries poses an additional 9 percent decline in home prices beyond the 5.6 percent base-case decline, for a total two-year decline of 14.6 percent.

FHA estimates that the fund could withstand an additional decline in house prices of 4% beyond the base-case decline without experiencing a negative capital situation.

I don't think we will see another sharp decline in house prices - although I think prices will fall to new post-bubble lows this winter. I also don't think we will see the steady increase in prices as shown by all of these forecasts. Usually prices move sideways for a few years at the end of a housing bust (especially in real terms).

Special note: Tanta's birthday was November 15th. Tanta vive!

by Calculated Risk on 11/15/2011 08:30:00 AM

On a monthly basis, retail sales were up 0.5% from September to October (seasonally adjusted, after revisions), and sales were up 7.9% from October 2010. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $397.7 billion, an increase of 0.5 percent (±0.5%) from the previous month and 7.2 percent (±0.7%) above October 2010. Total sales for the August through October 2011 period were up 7.6 percent (±0.5%) from the same period a year ago. The August to September 2011 percent change was unrevised from +1.1 percent (±0.3%).

Retail sales excluding autos increased 0.6% in October. Sales for September were unrevised with a 1.1% increase.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 19.5% from the bottom, and now 5.1% above the pre-recession peak (not inflation adjusted)

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 6.0% on a YoY basis (7.2% for all retail sales).

This was well above the consensus forecast for retail sales of a 0.2% increase in October, and no change ex-auto.

This was a solid report, especially following the very strong September report.
All current retail sales graphs

by Calculated Risk on 11/14/2011 09:16:00 PM

From the Miami Herald: Florida’s economy faces ‘moderate’ risk from European recession

Florida would fare better than many states should Europe slip into recession, a new study [by Wells Fargo] found. ... The report makes no mention of another key concern for Florida: European tourism. The United Kingdom is Florida’s second largest source of international travelers behind Canada, with Germany holding the fifth slot behind Brazil and Mexico.

Here is a map from the referenced report by economist Mark Vitner and Michael Brown at Wells Fargo. The map shows European exports as a percent of state GDP.

Click on graph for larger image.

Utah has a very high percentage of exports to Europe - mostly silver and gold to the United Kingdom. West Virginia exports coal.

As the Miami Herald article notes, Florida will probably also be impacted by less tourism too.

However the largest potential impact is probably from financial contagion as opposed to trade and tourism. Catherine Rampell has a summary of the various channels of contagion: The Euro Zone Crisis and the U.S.: A Primer

by Calculated Risk on 11/14/2011 06:31:00 PM

An update to the weekly schedule ...

----- Thursday, Nov 17th -----
10:00 AM: Mortgage Bankers Association (MBA) 3rd Quarter 2011 National Delinquency Survey (NDS)

The following graph shows the percent of loans delinquent by days past due for Q2.

The MBA reported 8.44% of mortgage loans were delinquent at the end of Q2, seasonally adjusted, and another 4.43% were in the foreclosure process (total of 12.87%, essentially unchanged from Q1).

Click on graph for larger image.

This graph shows the percent of loans delinquent by days past due in Q2. Based on other data, the delinquency rate probably decreased slightly in Q3.

However the key problem is the large number of seriously delinquent loans (90+ days and in the foreclosure process). And there probably was little change in those percentages in Q3.