by Calculated Risk on 12/28/2007 10:00:00 AM

According to the Census Bureau report, New Home Sales in November were at a seasonally adjusted annual rate of 647 thousand. Sales for October were revised down to 711 thousand, from 728 thousand. Numbers for August and September were also revised down.

	Click on Graph for larger image. Sales of new one-family houses in November 2007 were at a seasonally adjusted annual rate of 647,000 ... This is 9.0 percent below the revised October rate of 711,000 and is 34.4 percent below the November 2006 estimate of 987,000.
	The Not Seasonally Adjusted monthly rate was 46,000 New Homes sold. There were 71,000 New Homes sold in November 2006. November '07 sales were the lowest November since 1995 (46,000).
	The median and average sales prices are generally declining. Caution should be used when analyzing monthly price changes since prices are heavily revised and do not include builder incentives. The median sales price of new houses sold in November 2007 was $239,100; the average sales price was $293,300.
	The seasonally adjusted estimate of new houses for sale at the end of November was 505,000. The 505,000 units of inventory is slightly below the levels of the last year. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are once again at record levels. Actual New Home inventories are probably much higher than reported - my estimate is about 100K higher.
	This represents a supply of 9.3 months at the current sales rate.

This is another VERY weak report for New Home sales. All revisions continue to be down. This is the fourth report after the start of the credit turmoil, and, as expected, the sales numbers are very poor.

I expect these numbers to be revised down too. More later today on New Home Sales.

by Anonymous on 12/28/2007 08:45:00 AM

A quite decent piece on Option ARMs in the LA Times. I liked this part:

Despite such risks, the initial low payments on option ARMs have kept a lid on serious delinquencies -- 3.7% of all option ARMs, Standard & Poor's analysts said in a report last week. That's higher than before, but still low compared with the 6.3% delinquency rate on loans to good-credit borrowers with so-called hybrid ARMs, which have a low fixed rate for two to 10 years before becoming adjustable-rate loans.

At Calabasas-based Countrywide Financial Corp., which S&P said made about a quarter of all option ARMs last year, 3% of such loans held by the lender as investments were delinquent at least 90 days, up tenfold from 0.3% a year earlier. Delinquency rates were even higher on option ARMs from other lenders, including Pasadena-based IndyMac Bancorp and Seattle's Washington Mutual Inc., S&P said.

Countrywide and other lenders tightened their lending standards last summer to ensure borrowers could afford loans after the interest rates adjusted upward.

Had those guidelines been in effect previously, Countrywide recently said, it would have rejected 89% of the option ARM loans it made in 2006, amounting to $64 billion, and $74 billion, or 83%, of those it made in 2005.

I made an argument a while ago that focussing regulator attention exclusively on disclosure documents can be just a touch beside the point if lenders are no longer offering the product in question. You have to wonder, if we just cut off 80-90% of the OA borrower pool, whether the remaining 10% really need those new and improved disclosures, or can muddle along with the ones already in use. If you take the OA out of the mass market and put it back into the high-net worth, high-income crowd it was originally designed for, you might find that your borrowers are already selected to be people who either read and understand disclosures, or who hire an attorney or financial planner to read them. I can certainly think of better uses for regulators' time and energy than fooling around with disclosure documents that would be clear to borrowers who are now in a rather different kind of trouble than not understanding the teaser rate on their OA.

The other thing to notice is that the obligatory example borrower supplied in the article is having trouble with her first payment increase (the typical 7.5% annual increase in the minimum payment), which is still not enough to cover all the interest due. As that sort of situation increases (as more and more 2005-2006 vintage OAs get to their second or third payment increase), we'll start seeing defaults long before the recast date.

Speaking of which, when I am not making cartoon pigs I have been creating some spreadsheets to show examples of how to project the recast date on Option ARMs. That's total and compleat Nerd territory, but if anyone is interested I'll post them (as spreadsheets or as images thereof). You tell me whether that's more detail than you can stand or not.

by Anonymous on 12/28/2007 08:14:00 AM

Floyd Norris, New York Times, December 28, 2007:

What if it’s not just subprime?

Gee Willikers. If it's not just subprime, there might be enough material in it to, oh, fill a whole blog. Or several dozen of them.

by Calculated Risk on 12/27/2007 02:56:00 PM

Update: from Reuters: Moody's may cut Technical Olympic deeper into junk (hat tip Mike)

From Bloomberg (no link yet, hat tip Brian): TOUSA, Florida Homebuilder, May See Rating Reduction

TOUSA ... will see its debt rating slashed to default status if it fails to make Jan. 1 interest payments on senior notes, Standard & Poor's said today.
...
TOUSA is considering several restructuring options, including a potential Chapter 11 filing, S&P said.

TOUSA was the #13 largest builder in 2006 according to BuilderOnline. I believe the largest home builder to go bankrupt so far was #50 Levitt & Sons. Here is the BuilderOnline top 100.

by Calculated Risk on 12/27/2007 01:02:00 PM

From the Fed weekly report on commercial paper this morning, here is the discount rate spread:

Click on graph for larger image.

According to the Fed, the discount rate spread is 145 bps. This graph was released this morning.

Here is a simple explanation of this chart: This is the spread between high and low quality 30 day nonfinancial commercial paper.

What is commercial paper (CP)? This is short term paper - less than 9 months, but usually much shorter duration like 30 days - that is issued by companies to finance short term needs. Many companies issue CP, and for most of these companies the risk of default is close to zero (think companies like GE or Coke). This is the high quality CP. Here is a good description.

Lower rated companies also issues CP and this is the A2/P2 rating. This doesn't include the Asset Backed CP.

The spread between the A2/P2 and AA paper shows the concern of default for the A2/P2 paper. Right now the spread is indicating that the fear of default is very high. Higher than in August. And higher than after 9/11.