by Calculated Risk on 7/18/2008 09:08:00 AM

From MarketWatch: Citigroup swings to loss on $7.2 billion write-down

Citigroup ... said on Friday that it lost money for the third consecutive quarter after writing down $7.2 billion of investments related to fixed-income weakness and consumer credit woes.
...
The consumer area showed worse performance than some other businesses on a quarter-to-quarter level, as the $3 billion second-quarter figure was down just a fraction from the $3.1 billion first-quarter figure.

"Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages, and unsecured personal and auto loans. Credit costs also reflected trends in the macro-economic environment, including the housing market downturn," Citi said.

by Calculated Risk on 7/18/2008 12:40:00 AM

From the WSJ: Mortgage Giant Freddie Mac Considers Major Stock Sale

Freddie Mac ... is considering raising capital by selling as much as $10 billion in new shares to investors ...

The main buyers for any new-stock issues are likely to be existing shareholders world-wide, according to one person involved in the discussion, adding that a definitive plan hasn't yet been determined.

In the short term, a sale of new shares might eliminate the need for the Treasury's help, but a government bailout might still be required later.

A little stock rally, and, well ... this seems extremely unlikely to me.

by Calculated Risk on 7/17/2008 09:17:00 PM

From Jon Lansner at the O.C. Register: O.C. office construction plummets 91%

Voit Commercial Brokerage reports that construction of O.C. office buildings plunged 90.8% in the second quarter to 325,276 square feet. Last year in the second quarter, 3.5 million square feet was under construction.
...
All the added space pushed the second quarter office vacancy rate to 14.46%. A year [ago], vacancies were at 8.95%. ... “You have two negatives — a lot of new product without tenants and you have got an economic slowdown,” says [Jerry J. Holdner Jr., Voit vice president of market research].

Take a drive at sunset down the 405 and you will see through a number of new buildings. Nice shiny empty glass towers ...

by Calculated Risk on 7/17/2008 07:00:00 PM

Cartoonist Stu Reese has drawn a series of a real estate related cartoons.

Here is his main site: Stu's Views.

Stu has generously offered to allow CR readers to preview, rate and offer suggestions on his new real estate cartoons.

Here is the preview page (removed) with 18 cartoons. This will only be posted for a short period.

You guys know real estate - and you know funny too - I'm sure he'd appreciate any suggestions.

by Calculated Risk on 7/17/2008 06:00:00 PM

Conference Call: (hat tip Brian) all emphasis added

Comments on the economy:

“While these credit metrics reflect modest credit pressure in the second quarter, there was a more pronounced deterioration in economic indicators. We assume this will translate into additional credit pressure in future quarters causing us to increase our [provisions for losses] in the second quarter. You may recall that we began tightening our under writing in the fourth quarter of 2007. You can see the affects of this tightening in our loan growth in quarter. Managed loans declined $800 million as we have been more selective in originating new loans. We have been focused on those business segments with [stronger profitability]”

Outlook for charges in the card business:

“The managed charge off rate increased in the quarter consistent with the low 6% range of expectations we discussed a quarter ago. The increase in charge off rate resulted mostly from the continuing deterioration of the U.S. economic environment. We expect average offs in the third quarter to remain in the low 6% range and rise to about 7% in the fourth quarter. We expect charge offs to increase as a result of three factors. First, expected seasonal patterns would result in higher charge off levels in the fourth quarter, all else equal. Second, [ we see deterioration] in economic indicators. The impact of economic weakening is likely to be evident in our U.S. charge offs in the fourth quarter and finally the initial impacts of the payments [regulations] that I discussed last quarter are expected to begin in the fourth quarter”

More bad news for the consumers looking for car loans:

“Looking beyond the second quarter our auto finance business continues to face challenges from the season of 2006 and 2007 originations and cyclical headwinds. Auto resale values are falling as a result of declining auto sales and the rapid shift in consumer preferences to more fuel efficient cars as gas prices continue to rise. To address these challenges we took aggressive steps to retrench and reposition our auto business last quarter... We are pulling back on originations and shrinking loans outstanding while improving the credit characteristics of the portfolio. We are leveraging pricing opportunities in the face of shrinking supply and we are reducing operating costs. Originations for the second quarter were $1.5 billion, 38% lower than the first quarter and 49% than a year ago. We expect auto loan originations for the full year of 2008 to be at least 40% lower than 2007 originations The total auto loan portfolio shrank by $1.7B to date.”

by Calculated Risk on 7/17/2008 05:19:00 PM

From the WSJ: Write-Downs Push Merrill Lynch Into Red for 4th Straight Quarter

Merrill Lynch & Co. posted its fourth consecutive quarterly loss on $9.75 billion in additional write-downs on assets tied to the tanking housing market.
...
The negative revenue resulted from $3.5 billion in write-downs on collateralized debt obligations, a $2.9 billion loss related to hedges with financial guarantors, a $1.7 billion write-down on the investment portfolio of Merrill Lynch's U.S. banks, and $1.3 billion write-down related to residential mortgage exposures and a $348 million write-down related to leveraged finance commitments.
...
Moody's Investors Service downgraded Merrill's senior long-term debt after the report one notch to A2 ...

This is far worse than expected. CNBC forecast write downs of $3 billion to $5 billion. Ouch.

by Calculated Risk on 7/17/2008 04:23:00 PM

Update: Here is the Merrill Press Release. (hat tip Dwight)

From MarketWatch: Merrill reports quarterly net loss of $4.65 billion

Merrill Lynch ... reported a $4.65 billion second-quarter net loss late Thursday as the brokerage firm continued to be hit by write-downs on large mortgage-related exposures.

On Capital One: Capital One income falls 40% on drop in U.S. card income

Capital One ... added $37.6 million to its second-quarter provision expenses. The managed charge-off rate for its national lending division increased 0.33 of a point to 5.67% from the first quarter.

The Merrill story (waiting for details) is more mortgage losses. The Capital One story is the spillover into credit card debt.

by Calculated Risk on 7/17/2008 02:47:00 PM

From DataQuick: Bay Area median price dives below $500K; sales near record low

The median price paid for a Bay Area home plunged to $485,000 in June, marking the first time in more than four years that it was below the half-million mark, DataQuick Information Systems reported.

The price barometer fell an unprecedented 27 percent from its record level a year ago as more sellers settled for less, lenders unloaded more aggressively-priced foreclosures and more sales activity shifted to less- expensive areas, mainly inland. Credit remained tightest for potential high- end buyers on the coast, where sales were generally anemic and prices showed signs of increased erosion, the real estate information service reported.

June's $485,000 median was 6.2 percent below May's $517,000 and 27.1 percent lower than the peak $665,000 median reached in June and July of 2007. Last month's median was the lowest since it was $469,500 in March 2004. The median first surpassed $500,000 in May 2004.

The median has fallen on a year-over-year basis for seven consecutive months, the result of both widespread depreciation, most pronounced inland, and a shift of sales towards lower-priced markets.
...
A total of 7,178 new and resale houses and condos sold across the nine- county Bay Area in June. That was up 15.5 percent from 6,216 in May but down 9.9 percent from 7,964 for June 2007.

Although last month's sales were the highest since last August, it was still the second-lowest June in DataQuick's statistics, which go back to 1988. The last time June sales were lower was in 1993, when 7,118 homes sold.
...
Last month foreclosure resales made up 28.7 percent of all Bay Area resales, up from 27.6 percent in May and 3.5 percent a year ago. They ranged from as little as 3 percent of resales in San Francisco to as much as 57.7 percent in Solano County.
...
Foreclosure activity is at record levels ...

Median prices are distorted by the mix - so I prefer the Case-Shiller repeat sales index for prices. Just like in SoCal, foreclosure resales are dominating the market in the lower priced areas - and foreclosures are increasing almost everywhere (although only 3% of San Francisco sales).

by Anonymous on 7/17/2008 02:14:00 PM

Mr. Dimon of JP Morgan, via Housing Wire:

“Prime [mortgage book] looks terrible,” he told analysts on the call. “And we’re sorry, and there’s nothing else we can say."

by Calculated Risk on 7/17/2008 01:29:00 PM

First, the reason overall starts were higher in June was because a pending change in the building code in New York temporarily boosted multi-family starts. See: New York Anomaly Lifts Housing Starts

“All the increase in headline starts and permits reflects a rush to begin multi-family construction projects ahead of a change in the N.Y.C. building code.”
Ian Shepherdson, an economist at High Frequency Economics

Next month multi-family starts will probably decline. As I noted this morning, single family starts are at the lowest level since 1991.

Also important is that single family completions will probably decline another 20% over the next 6 months.

Click on graph for larger image in new window.

This graph compares single family housing starts (shifted 6 months into the future) with single family completions. This suggests that unless housing starts rebound quickly (like in '91), completions will probably fall to under 700 thousand by the end of 2008.

This decline in completions will impact residential construction employment and suggests a further significant decline in residential investment.

So will starts rebound? The answer is probably in the home builder confidence index.

This is the builder confidence index from the NAHB. In 1991, the housing bottom looked like a "V" for both housing starts and builder confidence.

This time builder confidence is staying at record lows suggesting there will be no rebound this year - and completions, residential investment and residential construction employment will continue to decline sharply.

This is exactly what we expect based on supply and demand too. There is too much supply of existing homes, especially distressed supply like foreclosures and short sales,and too little demand with tighter lending standards, for any rebound in new home sales and single family starts this year.

by Calculated Risk on 7/17/2008 10:16:00 AM

Here is the Philadelphia Fed Index for July activity released today: Business Outlook Survey.

Here are a couple key point:

Manufacturing is contracting, but not getting crushed like in previous recessions. This is helping to keep the unemployment rate from rising too quickly.

Prices are rising. "The prices paid index increased six points, to 75.6, its highest reading since March 1980."

Click on graph for larger image in new window.

This graph shows the Philly index vs. recessions for the last 40 years. There were a times the index was this low without a recession - so the reading today doesn't mean the economy is in recession. However it is very likely that the economy is already in recession.

From the release, weaker conditions and higher prices :

Indicators Reflect Continued Weakening

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged slightly higher, from -17.1 in June to -16.3 this month. The index has now been negative for eight consecutive months. Other broad indicators remained negative and little changed. The survey’s new orders index was essentially unchanged at -12.1, and the current shipments index decreased one point, from -6.7 in June to -8.0 this month. Indexes for unfilled orders and delivery times, already negative, declined six points and three points, respectively.

Indicators for employment and hours worked were consistent with negative readings in other broad indicators. The current employment index declined from -6.9 in June to -7.3, its sixth negative reading in seven months. The percentage of firms reporting a decrease in employment (24 percent) exceeded the percentage reporting an increase (17 percent). The average workweek index fell four points; it has now been negative for seven consecutive months.

Manufacturers Continue To Report Price Pressures

A larger share of firms — 77 percent, up from 72 percent in June — reported higher input prices this month. The prices paid index increased six points, to 75.6, its highest reading since March 1980.

by Anonymous on 7/17/2008 08:43:00 AM

We had so much fun--I use this word advisedly--with IndyMac and moral hazard yesterday that I have to return to the well. It's a nice deep one.

From Bloomberg this morning:

July 17 (Bloomberg) -- IndyMac Bancorp Inc.'s collapse may spur withdrawals from banks ranging from First BanCorp in Puerto Rico to Los Angeles-based Nara Bancorp Inc. as customers trim accounts below the $100,000 limit on deposit insurance, according to Sandler O'Neill & Partners LP.

``IndyMac's failure has people worried about others,'' Mark Fitzgibbon, a principal at Sandler O'Neill, said in an interview. Fitzgibbon told clients in a report this week that signs of weakness may prompt customers ``to more actively move deposits to banks that are perceived to be healthier.''

The result could be a liquidity squeeze at banks that rely on ``jumbo'' deposits, Fitzgibbon said. His report, published July 15, included more than 50 companies with jumbo time accounts, typically certificates of deposit, that exceeded 25 percent of first-quarter deposits.

Topping the list was First BanCorp at 72 percent. Puerto Rico-based Doral Financial Corp. had 60 percent and Nara Bancorp had 53 percent, according to Sandler. Bank of America Corp., the biggest U.S. consumer bank, stood at 12 percent at the end of 2007; the report didn't have more recent data.

If any of you would like my personal opinion, for what it is worth, I wouldn't put $12.72 in a bank with 72% jumbo deposits. Certainly not after this:

Alan Cohen, senior vice president of marketing at First BanCorp, said in an interview that Fitzgibbon's report contained ``grave inaccuracies.'' In an e-mailed statement, the company said Sandler should have excluded brokered CDs, ``a stable source of funding.'' Without those, jumbo time deposits equal about 8 percent of total deposits, the bank said.

Whoa, Nellie.

Really, the issue with "jumbo" deposits is, precisely, the extent to which such large deposits are "brokered" versus "core." A bank's "core deposits" are those made by individuals and businesses in the bank's local market areas who have some retail relationship with the bank--checking accounts, loans, what have you. Brokered deposits are also frequently referred to as "hot money," and the idea that First BanCorp considers them a "stable source of funding" ought to raise a few eyebrows. Here's the federal regulators' take on the subject:

Deposit brokers have traditionally provided intermediary services for banks and investors. Recent developments in technology provide bankers increased access to a broad range of potential investors who have no relationship with the bank and who actively seek the highest returns offered within the financial industry. In particular, the Internet and other automated service providers are effectively and efficiently matching yield-focused investors with potentially high-yielding deposits. Typically, banks offer certificates of deposit (CDs) tailored to the $100,000 FDIC deposit insurance limit to eliminate credit risk to the investor, but amounts may exceed insurance coverage. Rates paid on these deposits are often higher than those paid for local market area retail CDs, but due to the FDIC insurance coverage, these rates may be lower than for unsecured wholesale market funding.

Customers who focus exclusively on rates are highly rate-sensitive and provide less stable funding than do those with local retail deposit relationships. These rate-sensitive customers have easy access to, and are frequently well informed about, alternative markets and investments, and may have no other relationship with or loyalty to the bank. If market conditions change or more attractive returns become available, these customers may rapidly transfer their funds to new institutions or investments. Rate-sensitive customers with deposits in excess of the insurance limits also may be alert to and sensitive to changes in a bank's financial condition. Accordingly, these rate-sensitive depositors, both under and over the $100,000 FDIC insurance limit, may exhibit characteristics more typical of wholesale investors.

It was, after all, one of Senator Schumer's biggest complaints about IndyMac in his famous letter to the regulators that, as of June 2008, 32% of IndyMac's total deposits were brokered and that the bank was insufficiently capitalized to withstand that risk.

We had a number of folks arguing yesterday that the $100,000 insurance limit should be raised to account for inflation. Atrios suggested that yesterday. Part of my own wariness over that stems from the fact that so many of the "jumbo deposits" of these banks are, indeed, "hot money," not your basic middle-class family with $250,000 in the local bank in nice stable core deposits. At First BanCorp, it appears that only a shade over 10% of jumbo deposits are core deposits.

Of course, it's hard to say how stable core depositors are, these days. The trouble with trying to assess the risk of bank runs or deposit destabilization is that people are, well, people, and they can respond very differently to the same situation. From Bloomberg:

Martha Duran made the 75-mile drive from Running Springs, California, to close her CDs. She waited from 8:30 a.m. to 4 p.m. on July 14, ending up with sunburn on her neck and an appointment for noon on July 15.

``This is a scare of a lifetime,'' said Duran, a 70-year-old retired office administrator. ``I worked hard for my money. I may not be a millionaire, but every little bit counts.''

Not everyone visiting the bank was there for withdrawals. Sanford Mazel, a 74-year-old retired U.S. Postal Service employee from Altadena, California, came to make a deposit, saying he was reassured by the government protection.

``It's FDIC, so who gives a damn?'' Mazel said. ``Let the world go to hell. The money will be there.''

I think it would be hard to write any banking policy that would discourage Martha from being part of a bank run or encourage Sanford to panic.

by Calculated Risk on 7/17/2008 08:42:00 AM

From the WSJ: J.P. Morgan's Net Falls 53%. A few excerpts:

Chief Executive Jamie Dimon said he expects "the economic environment to continue to be weak -- and to likely get weaker -- and for the capital markets to remain under stress." He added that "since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer."
...
[C]redit-loss provisions more than doubled to $3.45 billion but fell 22% from the first quarter. Home-equity charge-offs surged to 2.16% from 0.44%, while subprime-mortgage charge-offs quadrupled. Charge-offs for prime mortgages surged to 0.91% from 0.05%.
...
The [credit card] charge-off rate surged to 4.98% from 3.62% a year earlier and 4.37% in the first quarter.

From the conference call (hat tip Brian):

Analyst Mike Mayo: Can you elaborate more, you mentioned home equity might be a little bit better than you expected. But prime mortgage going from 48 basis points up to 91 base business points linked quarter, can you just elaborate more on what you're seeing there and why?

JPM: Mike, it's exactly the same risk factors and all the other things. It's high LTV, it's stated income, it's California , Florida , Arizona . I you agree with you they're track staggering numbers. It's just really hard for us to tell. Our current expectations of those losses can triple from here. We're prepared for that and we will reserve for that appropriately going forward.

Mayo: Prime mortgage losses could go from 91 basis points to 270 basis points?

JPM: Yes. We had 100 million a quarter and we could go to 300 million a quarter. Not next quarter. But if you look at current trends, maybe we're being overly conservative, that could be 300 million a quarter sometime in '09.

We are all subprime now!

by Calculated Risk on 7/17/2008 08:35:00 AM

The key number in the release was that single-family starts were at 647 thousand in June; the lowest level since 1991. Single-family permits were at 613 thousand in June, suggesting starts will fall even further next month.

Multi-family starts is volatile month-to-month, so the headline number for starts increased.

Also employment (in residential construction) tends to follow completions. Completions will follow starts lower over the next few months. Single-family completions are still at 847 thousand - well above the level of single-family starts.

Click on graph for larger image in new window.

The graph shows total housing starts vs. single family housing starts.

Single family starts are at the lowest level since 1991.

Note that the current recession on the graph is not official.

Here is the Census Bureau reports on housing Permits, Starts and Completions.

Building permits decreased:

Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,091,000. This is 11.6 percent above the revised May rate of 978,000, but is 23.9 percent below the revised June 2007 estimate of 1,433,000.

Single-family authorizations in June were at a rate of 613,000; this is 3.5 percent below the May figure of 635,000.

The declines in single family permits suggest further declines in starts next month.

On housing starts:

Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,066,000. This is 9.1 percent above the revised May estimate of 977,000, but is 26.9 percent below the revised June 2007 rate of1,458,000.

Single-family housing starts in June were at a rate of 647,000; this is 5.3 percent below the May figure of 683,000.

And on completions:

Privately-owned housing completions in June were at a seasonally adjusted annual rate of 1,167,000. This is 1.2 percent above the revised May estimate of 1,153,000, but is 21.7 percent below the revised June 2007 rate of 1,491,000.

Single-family housing completions in June were at a rate of 859,000; this is 2.9 percent below the May figure of 885,000.

Notice that single-family completions are still significantly higher than single-family starts. More on starts and completions later.

by Calculated Risk on 7/16/2008 11:13:00 PM

Form Bloomberg: China's Economic Growth Cools to Slowest Since 2005

China's economic expansion cooled to the slowest pace since 2005, handing more ammunition to Chinese officials calling for reduced gains by the yuan as the outlook for exports dims.

Gross domestic product grew 10.1 percent in the second quarter from a year earlier, down from 10.6 percent in the first ...

This isn't much of a slowdown, but growth in the Chinese economy will probably continue to slow in the 2nd half of 2008 as demand from the U.S. and Europe slows.

by Calculated Risk on 7/16/2008 05:27:00 PM

Reading the Fed minutes today, it appears that as of the last FOMC meeting in June, most FOMC members were once again missing the downside risks to the economy. Chairman Bernanke somewhat corrected that mistake in his testimony over the last two days as he acknowledged the "significant downside risks to the outlook for growth".

As of yesterday - before the stock market rally today - market participants were expecting the Fed to hold rates steady at 2.0% through September, and a rate cut is now more likely (in their view) than a rate hike by the September meeting.

Click on graph for larger image in new window.

This graph from the Cleveland Fed shows the implied probability of what Fed Funds futures market participants expect the most likely outcome to be at the Fed meeting in September.

I also think the Fed will hold rates steady - probably through the end of the year.

by Calculated Risk on 7/16/2008 02:32:00 PM

Note that foreclosure resales were 41.1% of all resales in June!

From DataQuick: Southland home sales drag along bottom

Home sales in Southern California continued at their slowest pace in more than two decades last month ... A total of 17,424 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 3.0 percent from 16,917 the previous month and down 13.6 percent from 20,166 for June a year ago, according to DataQuick Information Systems.

While last month's sales were the highest in ten months, it was still the slowest June in DataQuick's statistics, which go back to 1988. The June average is 28,488 sales, the peak was reached in 2005 when 40,156 homes sold.
...
The median price paid for a Southland home was $355,000 last month, down 4.1 percent from $370,000 in May and down 29.3 percent from $502,000 for June 2007. The peak of $505,000 was reached in March, April, May and July of last year.

The median has fallen because of depreciation, especially in inland markets, and because of the steep dropoff in home financing in the so-called jumbo category, which until recently was defined as loans above $417,000.
...
Foreclosure resales continue to be a dominant factor in today's Southern California market accounting for 41.1 percent of all resales. That was up from 39.2 percent in May, and up from 7.3 percent in June a year ago. Foreclosure resales ranged from 18.9 percent in Orange County last month to 62.3 percent in Riverside County.
...
Foreclosure activity is at record levels ...

by Calculated Risk on 7/16/2008 01:44:00 PM

M&I reported this morning. From MarketWatch: Marshall & Ilsley posts second-quarter loss of $394 million

Here are some comments from the conference call:

As we discussed earlier this month, M&I, like other banks, has experienced continued deterioration in the national residential real-estate markets during the second quarter. In addition, we have noted some stress among our consumers with conventional non accruals picking up but with home equity remaining stronger. Our commercial lending portfolio has maintained its strong credit profile

We have already realized partial charge-offs of $386 million against our nonperforming loans, representing a 27% haircut, which is up from 18% last quarter. Within our loan portfolios, we continue to focus on our residential related construction and development categories. These loans are in both our commercial real estate and residential real estate portfolios depending on the underlying collateral. As of quarter end we had had $661 million in construction and development loans on nonperforming status representing 63% of our total nonperforming loans. ... [O]f these nonperforming construction and development loans, two-thirds are in the Arizona , west coast of Florida , and correspondent businesses.

We have seen further deterioration in the residential land portfolio during the second quarter. ... M&I has $2.3 billion in residential land loans to individuals and developers. $1.5 billion, or 66%, are located in Arizona . The bulk of the Arizona loans, nearly 70%, are in Maricopa County . ... LTVs are approximately 115%. Residential land accounts for $219 million of nonperforming loans of which 55% are based in our Arizona business unit. ...

With regard to conventional mortgages, we have noted deterioration as individuals are feeling increased economic stress. As we've noted before, we maintained our underwriting discipline through the cycle, have never originated subprime loans, and have avoided many of the more risky loan products. Nonetheless, during the quarter, our nonperforming residential loans have increased to $21 million, or 2.1% of the portfolio. Within the residential portfolio, we have seen some deterioration in many of our markets with the Arizona market being most notable. We continue to aggressively monitor and manage this portfolio. To provide further granularity on our Arizona residential portfolio, the average loan is around $300,000, and the average nonperforming loan is slightly higher. The average refreshed FICO score on this portfolio is 716. The average updated LTV is approximately 90%.
emphasis added

Note the large concentration of land loans in Arizona with LTV of 115%. Ouch. During housing busts, land prices usually fall a great percentage than existing home prices. So many of these 115% LTV loans will probably be much higher soon.

Also note that M&I is fairly conservative, and the nonperforming residential loans are NOT subprime.

From the Q&A:

Analyst: Can you give us [the loss severity] number on Construction & Development (C&D)?

M&I: You know, I would rather not put that out there. I would tell you that the C & D haircut is going to be higher than the 27%.

by Calculated Risk on 7/16/2008 01:00:00 PM

The NAHB reports that builder confidence was at 16 in July, down from 18 in June. Usually housing bottoms look like a "V"; this one will probably look more like an "L". (this refers to activity like starts and sales, but will probably also be apparent in the confidence survey).

Current sales activity is at a record low of 16. Traffic of Prospective Buyers
at a record low of 12!

NAHB Press Release: Builder Confidence Declines Further In July (excerpts below graph)

Builder confidence in the market for newly built single-family homes fell for a third consecutive month in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI fell below its previous record low of 18 in June to a new record low of 16 in July, with each of its three component indexes also hitting record lows.

“The worsening housing slump and the near-meltdown in financial markets last week makes it even more urgent for Congress to complete action on the housing bill now, a move that will help stabilize and restore confidence in housing and the U.S. economy,” said NAHB President Sandy Dunn, a home builder from Point Pleasant, W.Va.
...
“Builders are reporting that traffic of prospective buyers has fallen off substantially in recent months,” said NAHB Chief Economist David Seiders. “Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve,” he said.
emphasis added

by Calculated Risk on 7/16/2008 10:57:00 AM

From MarketWatch: Crude falls over $6 as inventories show surprise increase

U.S. crude inventories gained surprisingly in the week ending July 11, up 3 million barrels to 296.9 million, the U.S. Energy Information Administration reported on Wednesday.

As I noted yesterday, the difference between a moderate and severe recession might be what happens with oil prices:

One of the keys to the base case is that oil prices decline in the 2nd half of 2008 (something I've been predicting for some time). This prediction is based on demand destruction, lower subsidies in certain Asian countries, weaker demand growth in China, and a few other reasons. The fundamentals of supply and demand for oil suggests a small decrease in demand could led to a fairly large decrease in price. If this happens, then that will hopefully lead to Kasriel's "sharp deceleration in inflation".

Usually the headline measure of inflation (CPI) and the core inflation measure (CPI less food and energy) track pretty well with just short periods of divergence due primarily to changes in oil prices. But for the last few years oil prices have risen relentlessly, and CPI has been substantially above Core for an extended period as shown on the following graph.

Falling oil prices would move CPI below Core inflation and might keep the economy out of a severe recession (although the period of economic weakness would still linger for some time).