by Calculated Risk on 12/31/2007 02:23:00 PM

From Stephanie Simon at the LA Times: Mortgage crisis takes a bite out of states and cities First, kudos to Ms. Simon for calling it a "mortgage crisis" and not falling into the subprime reporting trap!

Dozens of states, counties and cities across the nation will enter the new year facing deep and unexpected budget holes as the widening mortgage crisis cuts sharply into tax revenue.
...
The mortgage crisis cuts into tax revenue in several ways.

The most obvious victim is property tax collection. Homeowners in foreclosure don't pay taxes on time. And as foreclosures spread, property values drop -- dragging down assessments and collections.
...
Even more distressing to budget planners is the decline in sales tax revenue. If people aren't buying homes, they're not buying refrigerators and washing machines to furnish them.

There are many details in the article. And imagine what will happen if the economy slides into recession?

Also, the LA Times has an article on a mortgage fraud ring in Los Angeles hat apparently obtained $142 million in fraudulent loans: How a bank fell victim to loan fraud. An amazing story.

by Calculated Risk on 12/31/2007 12:52:00 PM

For more existing home sales graphs, please see the earlier post: November Existing Home Sales

Occasionally during the housing bust, we have seen months with flat or even rising sales compared to the previous month. This brings out the bottom callers. As an example, from NAR today:

Lawrence Yun, NAR chief economist, said the market appears to be stabilizing. “Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that’s good news because it’ll be a further sign that the housing market is stabilizing.”

Click on graph for larger image.

This graph shows the seasonally adjusted annual rate of reported new and existing home sales since 1994. Since sales peaked in the summer of 2005, both new and existing home sales have fallen sharply.

Ignoring the occasional month to month increases, it is clear that sales of both new and existing homes are in free fall.

The second graph shows the annual sales and year end inventory since 1982 (sales since 1969), normalized by the number of owner occupied units. This shows the annual variability in the turnover of existing homes, with a median of 6% of owner occupied units selling per year.

Currently 6% of owner occupied units would be about 4.6 million existing home sales per year. This indicates that the turnover of existing homes - November sales were at a 5.0 million Seasonally Adjusted Annual Rate (SAAR) - is still above the historical median.

This suggests sales will fall much further in 2008.

On inventory: the normal seasonal pattern is for inventory of existing homes to peak in the summer, remain fairly flat through the Fall, and then decline significantly (usually around 15%) in December. Many potential home sellers take their homes off the market during the holidays.

Then usually inventory starts increasing again in the new year. If inventory follows the normal pattern, we will probably see a decline to 3.7 million units or so in December (from 4.273 million units in November). This will bring out even more bottom callers, but it is just the normal seasonal pattern.

by Calculated Risk on 12/31/2007 10:00:00 AM

The NAR reports that Existing Home sales were at 5 million (SAAR) unit rate in November.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 0.4 percent to a seasonally adjusted annual rate1 of 5.00 million units in November from an upwardly revised pace of 4.98 million in October, but are 20.0 percent below the 6.25 million-unit level in November 2006.

Click on graph for larger image.

The first graph shows the Not Seasonally Adjusted (NSA) sales per month for the last 3 years. Note that on an NSA basis, November sales were slightly below October.

The impact of the credit crunch is obvious as sales in September, October and November declined sharply from earlier in the year.

For existing homes, sales are reported at the close of escrow. So November sales were for contracts signed in September and October.

The second graph shows nationwide inventory for existing homes. According to NAR, inventory was down slightly at 4.273 million homes for sale in November.

Total housing inventory declined 3.6 percent at the end of November to 4.27 million existing homes available for sale, which represents a 10.3-month supply at the current sales pace, down from a 10.7-month supply in October.

This is a slight decrease in the inventory level from the last few months, and the months of supply also decreased slightly to 10.3.

This is the normal historical pattern for inventory - inventory peaks at the end of summer and then stay fairly flat until the holidays (it then usually declines somewhat). This says nothing about the increasing anxiety of sellers and the rising foreclosure sales.


This wasn't true in 2005 - as inventory continued to increase throughout the year - and that was one of the indicators that the housing boom had ended.

The third graph shows the 'months of supply' metric for the last six years.

Even if inventory levels stabilize, the months of supply could continue to rise - and possibly rise significantly - if sales continue to decline.

The fourth graph shows monthly sales (SAAR) since 1993.

This shows sales have now fallen to the level of December 2000.

More later today on existing home sales.

by Anonymous on 12/31/2007 07:01:00 AM

It's shocking. Via naked capitalism, this jewel from the WSJ on subprime lender-sponsored lobbying efforts against predatory lending regulation:

Washington lobbyist Wright Andrews and his wife, Lisa, coordinated much of the industry's lobbying. Mr. Andrews's firm, Butera & Andrews, collected at least $4 million in fees from the subprime industry from 2002 through 2006, congressional lobbying reports indicate. Mr. Andrews didn't represent Ameriquest directly. He ran three different subprime-industry trade groups: the National Home Equity Mortgage Association, of which Ameriquest was a member; the Coalition for Fair and Affordable Lending, which spent $6.3 million lobbying against state laws before it dissolved earlier this year, according to federal filings; and the Responsible Mortgage Lending Coalition.

In 2003, Lisa Andrews was appointed senior vice president for government affairs at Ameriquest. Her public-relations firm, Washington Communications Group Inc., claims credit on its Web site for coordinating the industry's victory in New Jersey, as well as its overall strategy at the state level. Ms. Andrews left Ameriquest in 2005 and returned to her firm. . . .

In the wake of the collapse of the subprime market, Mr. Andrews's subprime lobbying business has withered. The three trade groups he ran are gone, and most of his subprime clients have stopped lobbying.

"I certainly was not aware of the degree to which many in the industry clearly failed to follow proper underwriting standards -- the standards which they represented they were following to those of us who were lobbying," Mr. Andrews says.

Here's a hint, Mr. Andrews. When a regulation is proposed that says lenders should adopt a certain underwriting standard, and the industry responds by saying "we already do it that way," and then pays you $4 million to stop that regulation from being enacted, you actually have some reason to believe they're pulling your leg. No, really.

by Calculated Risk on 12/30/2007 08:13:00 PM

From The Times: Top economist says America could plunge into recession

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”

We have to distinguish between various measures of house prices. Shiller is using the Case-Shiller National index to derive the $1 trillion in lost real estate values. Total household real estate assets were over $20 trillion at the peak, so a decline of $1 trillion is about 5%. (The S&P Case-Shiller national index showed a decline of 5% from the peak through Q3).

Click on graph for larger image.

This graph, from an earlier post, compares the S&P/Case-Shiller index with the OFHEO index.

The Fed Flow of Funds report is more closely tied to the OFHEO index. The most recent Fed report showed a decline of $67.2B in existing household real estate assets in Q3.

We also have to distinguish between lender / investor mortgage related losses (see the previous post on Merrill) and household real estate value losses. The former impacts the credit crunch directly, the later will probably impact consumer spending and the ability of homeowners to withdraw equity from their homes.

As Shiller notes, we could easily be talking about several trillion in lost real estate values. A 15% average decline in prices, would mean $3 trillion in losses. A 30% price decline would mean a decline of around $6 trillion in U.S. household real estate assets.