by Calculated Risk on 6/23/2009 10:52:00 PM

From the SF Gate: Housing, unemployment woes leave movers shaken

Sinking home prices and a weak job market have forced normally restless Americans to stay put in an uncharacteristic shift that has, among other things, clobbered the moving industry.

"Property values have dropped so much people can't pick up and move the way they used to," said Michael Hicks, a demographer at Ball State University in Indiana who has tracked the nationwide slowdown using data from several sources, including moving companies.

That industry data mirrors a Census Bureau report that looked at moves in 2008, said William Frey, a demographer at the Brookings Institution in Washington, D.C.

"The annual migration rate has gone way down to historic low levels," Frey said. "This includes long distance moves and moving across town."

During the 1950s and 1960s, Frey said, as many as 20 percent of Americans moved in any given year. Mobility rates slowed to 15 percent to 16 percent during the 1990s. But in 2008, only 11.9 percent of Americans moved, he said.

A few previous mobility posts: Housing Bust Impacts Worker Mobility April 2008, Housing Bust Impacting Labor Mobility, Dec 2008, Housing Bust and Geographical Mobility, April 2009

by Calculated Risk on 6/23/2009 08:19:00 PM

From Martin Wolf in the Financial Times: Reform of regulation has to start by altering incentives

Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama’s administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector’s weaknesses. It is unlikely that envisaged reforms will offset this danger.

At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayers’ money. The mystery is that crises erupt so rarely.

Wolf discusses how it is rational for management and shareholders to gamble when the risks are asymmetrical (huge potential winnings, limited losses). And he argues that "creditors ... appear to have lent to a bank. In reality, they have lent to the state." He also discusses how tighter regulation isn't enough because the banks will find a way round the new regulations.

Wolf concludes:

Such a crisis is not only the result of a rational response to incentives. Folly and ignorance play a part. Nor do I believe that bubbles and crises can be eliminated from capitalism. Yet it is hard to believe that the risks being run by huge institutions had nothing to do with incentives. The unpleasant truth is that, today, the incentive to behave in this risky way is, if anything, even bigger than it was before the crisis.

Regulatory reform cannot end with incentives. But it has to start from incentives. A business that is too big to fail cannot be run in the interests of shareholders, since it is no longer part of the market. Either it must be possible to close it down or it has to be run in a different way. It is as simple – and brutal – as that.

Talk about pessimism.

Another financial crisis is unfortunately inevitable - all we hope to do with reform is to put it off for a couple of decades or more.

by Calculated Risk on 6/23/2009 04:50:00 PM

From the WSJ: Red Roof Inn Defaults on Mortgage Debt (hat tips to all in the comments!)

Red Roof Inn Inc. ... defaulted on $332 million of mortgage debt ... Red Roof confirmed the defaults Tuesday.

All told, Red Roof's properties carry at least $1 billion in debt, including mortgages, mezzanine loans and other notes.

"As a result of the extraordinary stress in the hospitality industry and the economy overall, we have entered into some restructuring discussions with our lenders," said Andrew Alexander, an executive vice president of Red Roof.
...
Occupancy at Red Roof's properties, which averaged 62% when the mortgages were originated in 2007, sank to 50.7% in the first four months of this year.

The drop in occupancy rates are similar to the overall industry decline. And not only are occupancy rates off sharply, but so are room rates. Smith Travel Research reported last week that revenue per available room (RevPAR) was off 18.6 percent for the comparable week last year. I think this is just the beginning for the hotel related defaults.

by Calculated Risk on 6/23/2009 02:31:00 PM

From FHFA Director James B. Lockhart, June 23, 2009:

“Although monthly data are volatile, we may be starting to see signs of stabilization in prices for houses funded by conventional conforming loans, as the HPI is only down 0.3 percent for the first four months of the year.”

From the National Association of Realtors, June 23, 2009:

The national median existing-home price for all housing types was $173,000 in May, down 16.8 percent from a year earlier. Distressed properties, which declined to 33 percent of all sales in May from 45 percent in April, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes.

Which is it? The answer is both are flawed.

James Hagerty at the WSJ has a good analysis: FHFA Data May Signal False Bottom in Housing

The Realtors’ data cover a broader range of the market than does the FHFA index. ... But the Realtors’ median price is skewed by changes in the mix of homes sold each month. ...

The FHFA index, like the S&P Case-Shiller index, is based on repeat sales of the same homes and so avoids the distortions of a shifting mix in sales. But the Case-Shiller index includes more foreclosure-related transactions and gives more weight to higher-priced homes than to lower-priced ones. Thus, when sales of higher-end homes increase, the Case-Shiller index is likely to look much worse, even as the Realtors’ median price will look better.

As the sales of mid-to-high end houses pick up (sales at the high end have slowed to a trickle in many areas), the median price might rise even as prices continue to fall because of change in the mix - and this will confuse some observers.

And the FHFA index is based on GSE loans, and as the most recent data showed, a higher percentage of the problem loans were non-GSE private label loans. Also, the FHFA misses many larger loans in general, and high end prices have held up better so far - but that will change when people realize there are few move-up buyers!

The following graphic (repeat) is from the Harvard Report on Housing 2009. Note: this data is informative, but use caution when using the Harvard analysis (see: Harvard on Housing 2005)

Click on image for larger graph in new window.

This shows that the worst mortgages were the private label securities (as an example mortgages originated by New Century, and securitized by Bear Stearns).

The Freddie and Fannie portfolios accounted for 56% of all mortgages in Dec 2008, but only 20% of the seriously delinquent loans. So the FHFA index is based on some of the better performing loans. Case-Shiller (to be released next Tuesday) includes these other loans.

by Calculated Risk on 6/23/2009 01:56:00 PM

From MarketWatch: S&P downgrades prime jumbo mortgage securities

S&P said it lowered ratings on 102 classes from 33 U.S. prime jumbo residential mortgage-backed securities that were issued from 1998 to 2004. The rating agency also affirmed ratings on 669 classes from 32 of the downgraded deals, as well as 34 other deals.

"The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," S&P said in a statement.

From 1998?