by Calculated Risk on 5/10/2013 02:45:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in April. 

Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in some areas. 

Also there has been a decline in foreclosure sales in all of these cities.  Also there has been a shift from foreclosures to short sales. In all of these areas - except Minneapolis- short sales now out number foreclosures.

Tom Lawler writes:

Note that in Vegas the foreclosure sales share last month way down from a year, and the total “distressed” sales share in down a lot as well, but the all-cash share of sales was higher, which appears to imply sharply higher purchases of non-foreclosure and even non-distressed homes by institutional and other investors. While the “all-cash” share of sales last month was down a bit from a year ago in Phoenix, the drop was significantly lower than the decline in distressed sales – again apparently reflecting sharply higher non-foreclosure and non-distressed home purchases by institutional and other investors.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	13-Apr	12-Apr	13-Apr	12-Apr	13-Apr	12-Apr	13-Apr	12-Apr
Las Vegas	32.5%	29.9%	10.0%	36.9%	42.5%	66.8%	59.3%	54.9%
Reno	33.0%	32.0%	8.0%	26.0%	41.0%	58.0%
Phoenix	12.7%	25.2%	11.3%	18.8%	24.1%	44.0%	42.0%	47.6%
Minneapolis	7.4%	10.7%	24.2%	32.0%	31.6%	42.7%
Mid-Atlantic (MRIS)	9.9%	12.2%	8.6%	11.0%	18.5%	23.2%	19.4%	19.4%
Memphis*			24.8%	34.9%
*share of existing home sales, based on property records

by Calculated Risk on 5/10/2013 10:53:00 AM

From HotelNewsNow.com: Hoteliers gear up for busy summer

If early indications ring true, it’s going to be a busy summer for hotels across the U.S. as both families and business travelers are expected to hit the road in droves.

Several hoteliers reported to HotelNewsNow.com that advanced bookings are up dramatically year over year, backing up a new forecast by STR that predicts strong performance metrics for June, July and August. STR is the parent company of HotelNewsNow.com.

Not only is demand up, but most hoteliers said pricing power has returned and they are finally able to push rate without experiencing consequential declines in occupancy.

According to STR, average occupancy at U.S. hotels for June, July and August combined is expected to be 70%, up 1% from last year. Average daily rate is expected to be $112.21, up 4.4% from 2012, and revenue per available room is expected to be $78.50, up 5.4% from 2012.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2013, yellow is for 2012, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

Through the beginning of May, the 4-week average of the occupancy rate has improved from the same period last year and is tracking the pre-recession levels. The occupancy rate will probably move sideways for several more weeks until the summer vacation travel starts.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 5/10/2013 09:47:00 AM

From Fed Chairman Ben Bernanke: Monitoring the Financial System

Ongoing monitoring of the financial system is vital to the macroprudential approach to regulation. Systemic risks can only be defused if they are first identified. That said, it is reasonable to ask whether systemic risks can in fact be reliably identified in advance; after all, neither the Federal Reserve nor economists in general predicted the past crisis. To respond to this point, I will distinguish, as I have elsewhere, between triggers and vulnerabilities. The triggers of any crisis are the particular events that touch off the crisis--the proximate causes, if you will. For the 2007-09 crisis, a prominent trigger was the losses suffered by holders of subprime mortgages. In contrast, the vulnerabilities associated with a crisis are preexisting features of the financial system that amplify and propagate the initial shocks. Examples of vulnerabilities include high levels of leverage, maturity transformation, interconnectedness, and complexity, all of which have the potential to magnify shocks to the financial system. Absent vulnerabilities, triggers might produce sizable losses to certain firms, investors, or asset classes but would generally not lead to full-blown financial crises; the collapse of the relatively small market for subprime mortgages, for example, would not have been nearly as consequential without preexisting fragilities in securitization practices and short-term funding markets which greatly increased its impact. Of course, monitoring can and does attempt to identify potential triggers--indications of an asset bubble, for example--but shocks of one kind or another are inevitable, so identifying and addressing vulnerabilities is key to ensuring that the financial system overall is robust. Moreover, attempts to address specific vulnerabilities can be supplemented by broader measures--such as requiring banks to hold more capital and liquidity--that make the system more resilient to a range of shocks.

Two other related points motivate our increased monitoring. The first is that the financial system is dynamic and evolving not only because of innovation and the changing needs of the economy, but also because financial activities tend to migrate from more-regulated to less-regulated sectors. ...

The second motivation for more intensive monitoring is the apparent tendency for financial market participants to take greater risks when macro conditions are relatively stable. Indeed, it may be that prolonged economic stability is a double-edged sword. To be sure, a favorable overall environment reduces credit risk and strengthens balance sheets, all else being equal, but it could also reduce the incentives for market participants to take reasonable precautions, which may lead in turn to a buildup of financial vulnerabilities. Probably our best defense against complacency during extended periods of calm is careful monitoring for signs of emerging vulnerabilities and, where appropriate, the development of macroprudential and other policy tools that can be used to address them.
emphasis added

And on current activities:

So, what specifically does the Federal Reserve monitor? In the remainder of my remarks, I'll highlight and discuss four components of the financial system that are among those we follow most closely: systemically important financial institutions (SIFIs), shadow banking, asset markets, and the nonfinancial sector.

For details on each of the four components, see Bernanke's speech.

As Bernanke notes - and economist Hyman Minsky pointed out years ago - long periods of stability lead to increased speculation and eventually a financial crisis. Currently regulators are vigilant, but unfortunately over time policymakers and regulators will become less cautious.

by Calculated Risk on 5/09/2013 08:41:00 PM

This has been a very light week for economic data. On Friday at 9:30 AM ET, Fed Chairman Ben Bernanke will speak, "Monitoring Finance", At the 49th Annual Conference on Bank Structure and Competition, Chicago, Illinois

And on the deficit from the WSJ: Falling Deficit Alters Debate

Rising government revenue from tax collections and bailout paybacks are shrinking the federal deficit faster than expected, delaying the point when the government will reach the so-called debt ceiling and altering the budget debate in Washington.
...
The debt ceiling is estimated to be reached May 19—though the Treasury Department likely would have been able to take emergency steps to continue paying bills until July or August. Now, thanks to the improved fiscal picture, analysts at Goldman Sachs Group Inc. GS and other firms believe the Treasury Department can maneuver until September or October without congressional help. The Treasury Department so far has declined to provide its own forecast.

The "debt ceiling" is really about paying the bills and will be raised.  That is a given (although some politicians apparently missed the memo).

by Calculated Risk on 5/09/2013 02:01:00 PM

This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008, so the readings have been very low.

From the NAHB: Builder Confidence in the 55+ Housing Market Shows Strong Growth in First Quarter

In the first quarter of 2013, the National Association of Home Builders’ (NAHB) 55+ single-family Housing Market Index (HMI) increased 19 points on a year over year basis to 46, which is the highest first-quarter number recorded since the inception of the index in 2008 and sixth consecutive quarter of year over year improvements.
...
All of the components of the 55+ single-family HMI showed significant growth from a year ago: present sales climbed 19 points to 46, expected sales for the next six months increased 21 points to 53 and traffic of prospective buyers rose 15 points to 41.

The 55+ multifamily condo HMI posted a substantial gain of 23 points to 38, which is the highest first-quarter reading since the inception of the index. All 55+ multifamily condo HMI components increased compared to a year ago as present sales rose 23 points to 37, expected sales for the next six months climbed 23 points to 43 and traffic of prospective buyers rose 23 points to 38.
...
The strong year over year increase in confidence reported by builders for the 55+ market is consistent with year over year increases in other segments of the home building industry,” said NAHB Chief Economist David Crowe. “While demand for new 55+ housing has improved due to a reduced inventory of homes on the market and low interest rates, builders’ ability to respond to the demand is being limited by a shortage of labor with basic construction skills and rising prices for some building materials.”

Click on graph for larger image.

This graph shows the NAHB 55+ HMI through Q1 2013. All of the readings have been low for this index, but the trend is up. Still, any reading below 50 "indicates that more builders view conditions as poor than good."

This is going to be a key demographic for household formation over the next couple of decades, but only if the baby boomers can sell their current homes.

There are two key drivers: 1) there is a large cohort moving into the 55+ group, and 2) the homeownership rate typically increases for people in the 55 to 70 year old age group.

The second graph shows the homeownership rate by age for 1990, 2000, and 2010. This shows that the homeownership rate usually increases until 70 years old or so.

So demographics should be favorable for the 55+ market.

by Calculated Risk on 5/09/2013 11:17:00 AM

From the MBA: Mortgage Delinquency Rates Increase, But Foreclosure Inventory Rate Down Sharply

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.25 percent of all loans outstanding at the end of the first quarter of 2013, an increase of 16 basis points from the previous quarter, but down 15 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.
...
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans on which foreclosure actions were started during the first quarter was unchanged at 0.70 percent, the lowest level since the second quarter of 2007, and was down 26 basis points from one year ago. The percentage of loans in the foreclosure process at the end of the first quarter was 3.55 percent, the lowest level since 2008, down 19 basis points from the fourth quarter and 84 basis points lower than one year ago.

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 6.39 percent, a decrease of 39 basis points from last quarter, and a decrease of 105 basis points from the first quarter of last year.

“On a seasonally adjusted basis, the overall delinquency rate increased this quarter, driven by a slight increase in the 30-day delinquency rate. Normal seasonal patterns are beginning to re-emerge, but as has been true post-crisis, it is still difficult to parse typical seasonal swings from true changes in performance. It is also important to note the decline relative to last year at this time. Regardless, we remain in a period of slow and uneven economic and job growth in the US and there are still many borrowers without stable, full time employment, or that are still unemployed. On a seasonally adjusted basis the largest increases in delinquency were in the subprime fixed and ARM categories, typically sensitive to income and payment shocks, and likely even more so in the current economic environment,” said Michael Fratantoni, MBA’s VP of Research and Economics.

Click on graph for larger image.

This graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent increased to 3.21% from 3.04% in Q4. This is just above the long term average.  This is seasonally adjusted, and as Fratantoni noted the seasonal adjustment is difficult right now.  Not Seasonally Adjusted basis (NSA) the 30 day delinquency rate declined in Q1 to 2.86% from 3.21%.

Delinquent loans in the 60 day bucket increased slightly to 1.17% in Q1, from 1.16% in Q4.  (NSA was also down significantly for the 60 day bucket).

The 90 day bucket decreased slightly to 2.88% from 2.89%. This is still way above normal (around 0.8% would be normal according to the MBA).

The percent of loans in the foreclosure process decreased to 3.55% from 4.74% and is now at the lowest level since 2008.

This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission.

The top states are Florida (11.43% in foreclosure down from 12.15% in Q4), New Jersey (9.00% up from 8.85%), New York (6.18% down from 6.34%), and Illinois (5.89% down from 6.33%).  Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures.

California (1.76% down from 2.06%) and Arizona (1.77% down from 2.02%) are now well below the national average by every measure.

For judicial foreclosure states, it appears foreclosure inventory peaked in Q2 2012 (foreclosure inventory is the number of mortgages in the foreclosure process).  Foreclosure inventory in the judicial states has declined for three consecutive quarters.  This was three years after the peak in foreclosure inventories for non-judicial states.

As Fratantoni noted, delinquency rates typically decline (NSA) from the end of Q4 to the end of Q1, and that happened this year. The seasonal adjustment might be a little off (so NSA short term delinquency increased slightly), and I expect the delinquency and foreclosure rates to continue to decline.

by Calculated Risk on 5/09/2013 10:02:00 AM

From Fannie Mae: Fannie Mae Reports Pre-Tax Income of $8.1 Billion for First Quarter 2013

Fannie Mae reported pre-tax income of $8.1 billion for the first quarter of 2013, compared with pre-tax income of $2.7 billion in the first quarter of 2012 and pre-tax income of $7.6 billion in the fourth quarter of 2012. Fannie Mae’s pre-tax income for the first quarter of 2013 was the largest quarterly pre-tax income in the company’s history. The improvement in the company’s results in the first quarter of 2013 compared with the first quarter of 2012 was due primarily to strong credit results driven by an increase in home prices, including higher average sales prices on Fannie Mae-owned properties, a decline in the number of delinquent loans, and the company’s resolution agreement with Bank of America. Including Fannie Mae’s release of the valuation allowance on its deferred tax assets, the company reported quarterly net income of $58.7 billion for the first quarter of 2013. Fannie Mae reported comprehensive income of $59.3 billion in the first quarter of 2013, compared with comprehensive income of $3.1 billion for the first quarter of 2012.

From Nick Timiraos at the WSJ: Fannie Mae to Send $59.4 Billion to U.S. Treasury

Fannie recognized $50.6 billion in tax benefits during the first quarter, in addition to pre-tax income of $8.1 billion during the period. ... The tax boost stemmed from reversing write-downs of its deferred-tax assets, which are unused tax credits and deductions that can offset future tax bills but which are worthless if a company isn't expected to turn a profit and have taxable income.

The mortgage-finance company began writing down the tax benefits in 2008 as rising mortgage defaults threatened to wipe out thin capital reserves. ... Fannie reclaimed the deferred-tax assets during the first quarter because the company concluded it is likely to be profitable for the foreseeable future.

Fannie's expected payment of $59.4 billion to the U.S. Treasury will bring to $95 billion the amount of dividends it has paid to the Treasury. It has received $116.1 billion in aid, leaving the net cost of its bailout at around $21.1 billion.

This bailout will probably be positive soon - and the U.S. still owns all the preferred shares!

On REO (Real Estate Owned), Fannie Mae reported that REO declined to 101,449 houses, down from 105,666 at the end of Q4 2012. This is the lowest level of REO since 2009.

From Fannie's SEC filing:

We recognized a benefit for credit losses of $957 million in the first quarter of 2013 compared with a provision for credit losses of $2.0 billion in the first quarter of 2012. This result was driven by an increase in home prices, including the sales prices of our REO properties in the first quarter of 2013, and lower single-family delinquency rates. Home prices increased in the first quarter of 2013, which decreases the likelihood that loans will default and reduces the amount of credit losses on loans that default. Sales prices on dispositions of our REO properties improved in the first quarter of 2013 as a result of strong demand compared with the prior year. We received net proceeds from our REO sales equal to 65% of the loans’ unpaid principal balance in the first quarter of 2013, compared with 56% in the first quarter of 2012. ...

The number of seriously delinquent loans declined 19% to approximately 528,000 as of March 31, 2013 from approximately 651,000 as of March 31, 2012 and the number of early stage delinquent loans declined 7% to approximately 392,000 as of March 31, 2013 from approximately 419,000 as of March 31, 2012. The reduction in the number of delinquent loans is due, in part, to our efforts since 2009 to improve our underwriting standards and the credit quality of our single-family guaranty book of business, which has resulted in a decrease in the number of loans becoming delinquent. A decline in the number of loans becoming delinquent or seriously delinquent reduces our total loss reserves and provision for credit losses.

So Fannie is taking smaller losses on foreclosed houses (65% of UPB because of rising prices), there are fewer seriously delinquent loans, and there are fewer early stage delinquencies.

by Calculated Risk on 5/09/2013 08:35:00 AM

The DOL reports:

In the week ending May 4, the advance figure for seasonally adjusted initial claims was 323,000, a decrease of 4,000 from the previous week's revised figure of 327,000. The 4-week moving average was 336,750, a decrease of 6,250 from the previous week's revised average of 343,000.

The previous week was revised up from 324,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 336,750.

The 4-week average is at the lowest level since the recession started in December 2007. Claims were below the 335,000 consensus forecast.

by Calculated Risk on 5/08/2013 09:15:00 PM

Earlier I mentioned the improvement in the California budget (a sign that the drag from state and local governments is ending). Of course the Federal budget deficit is falling quickly. Here is the CBO's monthly budget review:

The federal government ran a budget deficit of $489 billion in the first seven months of fiscal year 2013 (that is, from October 2012 through April 2013), according to CBO’s estimates. That amount is $231 billion less than the shortfall recorded during the same period last year, primarily because revenue collections have been much greater than they were at this point in 2012. In contrast, federal spending so far this year has been slightly lower than what it was last year at this time.

I'd argue we should have - and still could spend more to address unemployment.

My view is the deficit is currently falling too quickly and slowing the economy, but that view doesn't seem to be getting any traction among policymakers. At the least there is no reason for further fiscal tightening over the next couple of years - the deficit is already falling fast (there are still longer term issues).

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 335 thousand from 324 thousand last week.

• At 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for March. The consensus is for a 0.4% increase in inventories.

by Calculated Risk on 5/08/2013 06:29:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Local home prices rise again, according to GLVAR report

GLVAR said the total number of existing local homes, condominiums and townhomes sold in April was 3,789. That’s up from 3,642 in March, but down from 3,924 total sales in April 2012. ...
...
Another trend is the decline in foreclosures and short sales – which occur when a lender agrees to sell a home for less than what the borrower owes on the mortgage. In April, 32.5 percent of all existing local home sales were short sales, down from 33.3 percent in March. Another 10.0 percent of all sales were bank-owned properties, down from 11.2 percent of all sales in March. The remaining 57.5 percent of all sales were the traditional type, which was up from 55.5 percent in March.
...
The total number of properties listed for sale on GLVAR’s Multiple Listing Service increased in April, with 13,881 single-family homes listed for sale at the end of the month. That’s up 1.4 percent from 13,693 single-family homes listed for sale at the end of March, but down 22.4 percent from one year ago.

As for available homes listed for sale without any sort of pending or contingent offer by the end of April, GLVAR reported 3,161 single-family homes listed without any sort of offer. That’s up 11.3 percent from 2,839 such homes listed in March, but still down 24.1 percent from one year ago.
...
In April, GLVAR reported that 59.3 percent of all existing local homes sold were purchased with cash. That’s up from 57.5 percent in March and approaching the peak of 59.5 percent in February.
emphasis added

There are several key trends that we've been following:

1) Overall sales are down a little year-over-year, but ...

2) Conventional sales are up sharply.  In April 2012, only 33.2% of all sales were conventional.  This year, in April 2013, 57.5% were conventional.  That is an increase in conventional sales of about 67% (of course this is heavily investor buying, but that is still quite an increase in non-distressed sales).

3) There is a shift from foreclosures to short sales.

4) and probably most interesting right now is that the decline in non-contingent inventory (year-over-year) has slowed sharply.  This suggests inventory is near a bottom.