by Calculated Risk on 12/21/2011 10:00:00 AM

Note: this includes the downward revisions for years 2007 through 2011.

The NAR reports: Existing-Home Sales Continue to Climb in November

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.
...
Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing homes available for sale, which represents a 7.0-month supply4 at the current sales pace, down from a 7.7-month supply in October.
...
Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.

Click on graph for larger image in graph gallery.

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

Sales in November 2011 (4.42 million SAAR) were 4.0% higher than last month, and were 12.2% above the November 2010 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.58 million in November from 2.74 million in October (revised). This is the lowest level of inventory since July 2005.

The last 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. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 18.1% year-over-year in November from November 2010. This is the ninth consecutive month with a YoY decrease in inventory.

Months of supply decreased to 7.0 months in November, down from 7.7 months in October. This is still a little higher than normal. These sales numbers were right at the Tom Lawler's estimate of 4.4 million.

I'll have much more on the revisions later.
All current Existing Home Sales graphs

by Calculated Risk on 12/21/2011 08:20:00 AM

From CoreLogic: CoreLogic® Reports Shadow Inventory as of October 2011 Still at January 2009 Levels

CoreLogic ... reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.
...
Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.5-months’ supply), 430,000 are in some stage of foreclosure (1.4-months’ supply) and 370,000 are already in REO (1.2-months’ supply).
...
The shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006.
...
“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.

Click on graph for larger image.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the "visible supply" and cannot be counted as shadow inventory.

So the key number in this report is that as of October, there were 1.6 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.

Note: The unlisted REO still seems a little high since total REO has dropped sharply over the last couple of quarters.

by Calculated Risk on 12/21/2011 07:23:00 AM

From the MBA: Mortgage Rates Drop to Another 2011 Low in Latest MBA Weekly Survey

The Refinance Index decreased 1.6 percent from the previous week. The seasonally adjusted Purchase Index decreased 4.9 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.08 percent, the lowest rate this year, from 4.12 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.44 percent, the lowest rate this year, from 4.47 percent ...

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

Click on graph for larger image.

The purchase index decreased last week, and the 4-week average decreased slightly. This index has mostly been sideways for the last 2 years - and at about the same level as in 1997.

The MBA index was one of the indicators that suggested the NAR was overestimating existing home sales for the last several years.

All current Existing Home Graphs

by Calculated Risk on 12/20/2011 09:41:00 PM

• From the NY Times: Successful Spanish Debt Auction.

The E.C.B.’s new [long-term repo operation] facility [makes] it possible for banks to borrow from the central bank to fund purchases of government bonds. ... The E.C.B. will announce the results of its three-year liquidity injection on Wednesday morning, and there is wide uncertainty over the degree of demand. In a Reuters poll, traders estimated banks would ask in aggregate for as little as €50 billion to as much as €450 billion.

It is likely the banks are using the ECB's 3 year long-term repo operation to buy debt. Some analyst have called this a "backdoor eurobond".

The Spanish 2 year yield is down to 3.35% - the lowest level since August, and the 10 year yield is down sharply to 5.31% - the lowest since October.

The Italian 2 year yield is down to 4.97% - the lowest level since October, and the 10 year yield is down to 6.61%.

• From the WSJ: Greece Nears Deal With Private Creditors

Greece is close to an agreement with its private-sector creditors to restructure the country's debt, Finance Minister Evangelos Venizelos said. ...Mr. Venizelos said separate negotiations on the new €130 billion bailout would begin on Jan. 16, when European and International Monetary Fund officials return to Athens to hash out details of the new program.

There are the next two hurdles for Greece.

• From the WaPo: IMF calls Irish rescue ‘fragile’

Exports, critical to the small country’s success, are declining. And the weight of outstanding bank debt is making it hard for Ireland to meet the financial targets laid out under the joint IMF-European Union rescue program ... “We have not ruled out success at this point,” Craig Beaumont, the IMF’s mission chief for Ireland, said in a conference call. But “additional support would reinforce the program and improve the prospects.”

That has to be the quote of the day: "We have not ruled out success ..."

Earlier:
• Housing Starts increase in November
• Multi-family Starts and Completions, Record Low Total Completions in 2011
• A comment on Existing Home Sales revisions

by Calculated Risk on 12/20/2011 06:34:00 PM

I'll be posting soon on the housing market (see Ten Economic Questions for 2012). In the meantime, here are two different views on housing ...

First from Daniel Alpert at EconoMonitor: Today’s U.S. New Home Starts and Permits Numbers: “Who Knows What Evil Lurks? The Shadow Knows”

Visible existing home inventory is not down for the right reasons (which would include a tightening in the inventory of unoccupied vacant units). It is down because of the enormous backlog in the aggregate “shadow inventory” of homes that are either in foreclosure, or are heading in that direction. The shadow inventory has grown because of a systemic and/or conscious slowing of the foreclosure and liquidation process in a market challenged by loan documentation problems and the general reticence of lenders to push collateral into the for-sale market at prices that result in sizable losses.

To help readers fully comprehend the dimensions of the shadow issue, I offer the following chart taken from the testimony of Laurie Goodman of Amherst Securities given to a congressional committee in September.

Click on graph for larger image in graph gallery.

Here is the chart for Laurie Goodman's testimony via Daniel Alpert. This shows some substantial shadow inventory (Goodman only included loans 12+ months delinquent or in foreclosure). However this isn't really "shadow" inventory because homes list for sale - that are 12+ months delinquent or in foreclosure - are not subtracted from the total. I don't think the situation is as grim as this chart suggests.

Alpert also presents a table from Goodman showing an estimate of supply and demand over the next several years (see Alpert's post). I think this is overly pessimistic. Most distressed homes are occupied, and when the occupants leave, most of them become renters. That doesn't increase the overall housing supply (many of the distressed home are bought by investor/landlords and rented - frequently to people who lost their homes in foreclosure).

On the flip side, John Talbott writes at the HuffPo: Homes - Buy Now! Talbott uses several metrics - home prices relative to construction costs, price-to-rent ratio, price-to-income ratio, real prices - and argues now is a good time to buy. (Note: Talbott wrote a book in 2003 titled: The Coming Crash in the Housing Market)

Unfortunately Talbott doesn't provide a graph for price-to-rent, so here is one:

This graph uses both Case-Shiller and CoreLogic house price indexes and compares the indexes to Owners' Equivalent Rent (OER) from the BLS.

The price to rent ratio was set to 1.0 in January 1998. The price-to-rent ratio has fallen significantly, but appears to still be elevated on a national basis. A price-to-income chart (nationally) would also show slightly elevated prices (not shown since income data is released with a lag).

Talbott then shows prices adjusted by the price of gold. Oops. Gold is not a good measure to deflate prices.

This graph shows the quarterly Case-Shiller National Index SA (through Q3 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes in real terms (adjusted for inflation using CPI less Shelter).

As I've pointed out before, there is an upward slope to real house prices in many land constrained areas with increasing population - so just like for the price-to-rent ratio, this measure is close to normal, but still slightly elevated.

I'll post some more thoughts over the next couple of weeks, but I think it is location dependent now - although I expect to see some more price declines on the national repeat sales indexes. Some areas have a significant backlog of distressed homes, and there is no rush to buy in those areas. In other areas, prices have probably already bottomed (or are close enough that there will be some attractive prices).

Earlier:
• Housing Starts increase in November
• Multi-family Starts and Completions, Record Low Total Completions in 2011
• A comment on Existing Home Sales revisions

by Calculated Risk on 12/20/2011 02:55:00 PM

Tomorrow the National Association of Realtors (NAR) is scheduled to release the November Existing Home Sales report and downward revisions for sales and inventory for the years 2007 through 2011.

Economist Tom Lawler estimates the NAR will report a 1.8% increase in sales from October. He expects a downward revision of about 13%, so he expects the NAR to report sales of around 4.4 million at a seasonally adjusted annual rate (SAAR) in November. Consensus expectations are for 5.08 million sales (SAAR), but that is pre-revision.

It is possible that the downward revision will be even larger, but reported sales will probably be in the low to mid 4 million range.

However the key number in the report is inventory. Using data from HousingTracker.net, it appears that visible inventory (listed for sale) will be back to late 2005 levels. Nick Timiraos at the WSJ writes today: Already Low, Housing Inventory Drops More

The number of homes listed for sale in the U.S. fell for the sixth straight month in November to the lowest level since the housing bust began in 2006.

The 2.01 million homes listed for sale was down by 4.8% from October and by 21.3% from one year ago, according to data compiled by Realtor.com.

Although there are many distressed sales still to come, this decline in visible inventory is a significant story.

Of course the headlines tomorrow will probably be about the significant downward revision to sales. Diana Olick at CNBC writes: Beware of the Big Bad Home Sales Revisions

Expectations are that home sales could be revised down anywhere from 10 percent to 20 percent. The Realtors’ chief economist said the revision would be, “meaningful.”
...
The Realtors’ revisions will change perception; they may even change consumer sentiment. Headlines will scream Wednesday morning, and reporters like me will jump in with the “breaking news” that far fewer existing homes sold over the past four years than previously thought.
...
The crash will look bigger. Will that change anything in the economy today? Will it affect the housing market going forward? ... My guess is no, but the revisions — and the hue and cry surrounding them — will hurt consumer confidence, which was beginning to come around ever so slightly.

Yes, there will be screaming headlines tomorrow, and probably accusations against the NAR, but that means reporters are missing the key story - the decline in visible inventory.

Earlier:
• Housing Starts increase in November
• Multi-family Starts and Completions, Record Low Total Completions in 2011

by Calculated Risk on 12/20/2011 01:00:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally lower in November. Forty-three states and the District of Columbia recorded unemployment rate decreases, three states posted rate increases, and four states had no rate change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 13.0 percent in November. California posted the next highest rate, 11.3 percent. North Dakota again registered the lowest jobless rate, 3.4 percent, followed by Nebraska, 4.1 percent, and South Dakota, 4.3 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). Every state has some blue - indicating no state is currently at the maximum during the recession.

The states are ranked by the highest current unemployment rate. Seven states and the District of Columbia still have double digit unemployment rates.

All current employment graphs
Earlier:
• Housing Starts increase in November
• Multi-family Starts and Completions, Record Low Total Completions in 2011

by Calculated Risk on 12/20/2011 10:37:00 AM

Since it usually takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - builders are on track to complete a record low, or near record low, number of multi-family units this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling total.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

Click on graph for larger image.

The rolling 12 month total for starts (blue line) has been increasing all year. It now appears multi-family starts will be around 170 thousand units in 2011, up from 104 thousand units in 2010. That is a 60%+ increase in multi-family starts - but from a very low level.

Completions (red line) appear to have bottomed. This is probably because builders have rushed some projects to completion because of the strong demand for rental units.

It is important to emphasize that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). But this is a very bright spot for construction.

The previous record low for multi-family completions was 127.1 thousand in 1993. It will be close this year, however total completions will be at a record low - and the U.S. will add the fewest net housing units to the housing stock since the Census Bureau started tracking completions in the '60s.

Below is a table of net housing units added to the housing stock since 1990. Note: Demolitions / scrappage estimated.

This means there will be a record low number of housing units added to the housing stock this year (good news with all the excess inventory), and that the overhang of excess inventory probably declined significantly this year.

Housing Units added to Stock (000s)
	1 to 4 Units	5+ Units	Manufactured Homes	Sub-Total	Demolitions / Scrappage	Total added to Stock
1990	1010.8	297.3	188.3	1496.4	200	1296.4
1991	874.4	216.6	170.9	1261.9	200	1061.9
1992	999.7	158	210.5	1368.2	200	1168.2
1993	1065.7	127.1	254.3	1447.1	200	1247.1
1994	1192.1	154.9	303.9	1650.9	200	1450.9
1995	1100.2	212.4	339.9	1652.5	200	1452.5
1996	1161.6	251.3	363.3	1776.2	200	1576.2
1997	1153.4	247.1	353.7	1754.2	200	1554.2
1998	1200.3	273.9	373.1	1847.3	200	1647.3
1999	1305.6	299.3	348.1	1953	200	1753
2000	1269.1	304.7	250.4	1824.2	200	1624.2
2001	1289.8	281	193.1	1763.9	200	1563.9
2002	1360.1	288.2	168.5	1816.8	200	1616.8
2003	1417.8	260.8	130.8	1809.4	200	1609.4
2004	1555	286.9	130.7	1972.6	200	1772.6
2005	1673.4	258	146.8	2078.2	200	1878.2
2006	1695.3	284.2	117.3	2096.8	200	1896.8
2007	1249.8	253	95.7	1598.5	200	1398.5
2008	842.5	277.2	81.9	1201.6	200	1001.6
2009	534.6	259.8	49.8	844.2	150	694.2
2010	505.2	146.5	50	701.7	150	551.7
2011 (est)	430	126	46	602	150	452

Earlier:
• Housing Starts increase in November

by Calculated Risk on 12/20/2011 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 685,000. This is 9.3 percent (±13 1%)* above the revised October estimate of 627,000 and is 24.3 percent (±20.1%) above the November 2010 rate of 551,000.

Single-family housing starts in November were at a rate of 447,000; this is 2.3 percent (±8.0%)* above the revised October figure of 437,000. The November rate for units in buildings with five units or more was 230,000.

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 681,000. This is 5.7 percent (±1.6%) above the revised October rate of 644,000 and is 20.7 percent (±1.8%) above the November 2010 estimate of 564,000.

Single-family authorizations in November were at a rate of 435,000; this is 1.6 percent (±1.6%) above the revised October figure of 428,000. Authorizations of units in buildings with five units or more were at a rate of 224,000 in November.

Click on graph for larger image.

Total housing starts were at 685 thousand (SAAR) in November, up 9.3% from the revised October rate of 627 thousand (SAAR). Most of the increase this year has been for multi-family starts, but single family starts are increasing a little recently too.

Single-family starts increased 2.3% to 447 thousand in November.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have been mostly moving sideways for about two years and a half years - with slight ups and downs due to the home buyer tax credit.

Multi-family starts are increasing in 2011 - although from a very low level. This was well above expectations of 630 thousand starts in November.

Single family starts are still mostly "moving sideways".
All Housing Investment and Construction Graphs

by Calculated Risk on 12/19/2011 07:40:00 PM

There are several possible channels of contagion from the European financial crisis.

The most obvious is the trade channel. A recession in Europe will negatively impact U.S. exports. Although Europe is a major U.S. trading partner, exports only make up a small portion of U.S. GDP. Also some of the impact from trade would probably be offset by lower oil prices – and of course lower interest rates as investors seek safety (the European crisis is a key reason the U.S. 10 year bond yield is at 1.81%).

A more significant channel would be tightening of U.S. credit conditions in response to the European crisis. That is why I looked so closely at the Fed’s October Senior Loan Officer Opinion Survey on Bank Lending Practices that was released in November. The survey showed “considerable” tightening on lending to European banks, and some tightening to European firms, but the survey showed no tightening in the U.S. (although lending standards are already pretty tight).

There are other possible channels of contagion, such as less European lending to emerging markets and a slowdown in those economies – and then fewer exports from the U.S. to those emerging markets. But the most significant channel will probably be credit stress. Here are a few indicators of credit stress:

• The three month LIBOR has increased:

Data from the British Bankers' Association showed the three-month dollar London Interbank Offered Rate, or Libor, was higher at 0.56695% from 0.56315% Friday. ... The spread between the three-month dollar Libor and overnight index swaps, a barometer of market stress, widened to 48.1 basis points from 47.5 basis points Friday.

The three-month LIBOR rate peaked during the crisis at 4.81875% on Oct 10, 2008. This is rising again, but still low.

• The TED spread is at 0.57, and has been rising recently. the TED spread is the difference between the three month T-bill and the LIBOR interest rate. The 5 year graph shows that recent increase in comparison to the U.S. financial crisis in 2008.

Here is a screen shot of the TED spread from Bloomberg.

Click on graph for larger image.

The peak was 4.63 on Oct 10th. A normal spread is around 0.5.

• The A2P2 spread as at 0.47. This spread has increased recently, but is far below the peak of the financial crisis of 5.86.

This is the spread between high and low quality 30 day nonfinancial commercial paper. Right now high quality 30 day nonfinancial paper is yielding close to zero.

• The two year swap spread screen shot from Bloomberg. This spread is just under 50.

This spread peaked at near 165 in early October 2008.

As the ECB noted today, there are signs of severe credit stress in Europe, but there hasn't been much spillover to the U.S. yet.