by Calculated Risk on 7/14/2009 10:10:00 AM

The Manufacturing and Trade Inventories and Sales report from the Census Bureau today showed more evidence of declining inventories.

Click on graph for larger image in new window.

The Census Bureau reported:

Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,368.1 billion, down 1.0 percent (±0.1%) from April 2009 and down 8.0 percent (±0.4%) from May 2008.

The above graph shows the 3 month change (annualized) in manufacturers’ and trade inventories. The inventory correction was slow to start in this recession, but inventories are now declining sharply.

However, even with the sharp decline in inventories, the inventory to sales ratio has only declined to 1.42 in May - since sales have fallen sharply too.

There has been a race between declining sales and declining inventory. Even as sales start to stabilize (appears to be happening), inventory levels are still too high compared to the lower sales levels, and further inventory reductions are probably coming.

by Calculated Risk on 7/14/2009 08:30:00 AM

On a monthly basis, retail sales increased 0.6% from May to June (seasonally adjusted), and sales are off 9.6% from June 2008 (retail ex food services decreased 10.3%). Excluding autos and gas, retail sales fell again in June.

The following graph shows the year-over-year change in nominal and real retail sales since 1993.

Click on graph for larger image in new window.

To calculate the real change, the monthly PCE price index from the BEA was used (June PCE prices were estimated as the average increase over the previous 3 months).

The Census Bureau reported that nominal retail sales decreased 10.3% year-over-year (retail and food services decreased 9.6%), and real retail sales declined by 9.7% on a YoY basis.

The second graph shows real retail sales (adjusted with PCE) since 1992. This is monthly retail sales, seasonally adjusted.

NOTE: The graph doesn't start at zero to better show the change.

This shows that retail sales fell off a cliff in late 2008, and may have bottomed - but at a much lower level.

Here is the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $342.1 billion, an increase of 0.6 percent (±0.5%) from the previous month, but 9.0 percent (±0.7%) below June 2008. Total sales for the April through June 2009 period were down 9.6 percent (±0.5%) from the same period a year ago. The April to May 2009 percent change was unrevised from 0.5 percent (±0.3%).

Retail trade sales were up 0.8 percent (±0.7%) from May 2009, but 10.0 percent (±0.7%) below last year. Gasoline stations sales were down 31.6 percent (±1.5%) from June 2008 and motor vehicle and parts dealers sales were down 14.1 percent (±2.5%) from last year.

Maybe the cliff diving is over, but retail sales are still at the bottom of the cliff ...

by Calculated Risk on 7/13/2009 10:54:00 PM

Just a reminder, with BankUnited the stories of private-equity bidders appeared on Tuesday May 19th and BankUnited was seized by the FDIC two days later.

From the WSJ: Starwood Enters Bidding for Corus Assets

Barry Sternlicht's Starwood Capital Group, a private-equity firm specializing in real-estate investments, is bidding on assets of Corus Bankshares Inc ...

"We're bidding on a bank," Mr. Sternlicht said during a conference call with investors in Starwood funds on Monday. Without naming the bank, he said it is heavily concentrated in real-estate lending and has more than 110 construction loans. People with knowledge of the matter identified the bank as Corus.

... Investors don't appear to be interested in buying the entire bank, but instead are looking at buying the bank's assets out of receivership if regulators take over.

Corus faced a June 18th deadline to boost its capital levels ... that wasn't met.

As with BankUnited, the line "buying the bank's assets out of receivership" says it all. Say goodnight, Gracie.

by Calculated Risk on 7/13/2009 08:00:00 PM

There have been quite a few complaints about the new appraisal rules from real estate agents, homebuilders and mortgage brokers.

Last Friday Freddie Mac updated their appraisal guidelines and clarified that the appraiser is not required to use distressed sales (REOs, short sales):

The appraiser’s selection of comparable sales is crucial to providing an accurate opinion of value based on market data. With respect to comparable sales, the appraiser must choose appropriate comparable sales, and certify that the comparable sales chosen are those most similar to the subject property. In underwriting the appraisal, the underwriter must consider whether any adjustments are supported and are reasonable. The amount and number of any adjustments must also be considered. Typically, the higher the amount of the adjustments or the number of adjustments the more likely the comparable sales might not be representative of the subject property. Freddie Mac does not have requirements about what comparable sales the appraiser is to use. For example, we do not require appraisers to use Real Estate Owned (REO), foreclosure or short sales. However, if the appraiser determines that these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use.

My favorite paragraph in the bulletin is:

To determine that a Mortgage is eligible for sale to Freddie Mac, a Seller/Servicer must conclude that the Borrower is creditworthy (acceptable credit reputation and capacity) and the Mortgaged Premises (collateral) are adequate for the transaction. Credit reputation, capacity and collateral are often called the “three Cs” of underwriting; if one of these components is not acceptable or if there is excessive layering of risk across components, the Mortgage is not eligible for sale to Freddie Mac. Sellers must accurately evaluate and determine a Borrower’s ability to repay the Mortgage.

Imagine that.

by Calculated Risk on 7/13/2009 05:55:00 PM

From David Amsden at New York Magazine: The Billyburg Bust (ht Jennifer). A few excerpts:

With sales across Brooklyn down a staggering 57 percent from a year ago, Williamsburg, with its high density of new construction, has taken on an ominous disposition. Walk down virtually any block and you’ll come across an amenity-laden building that sits nearly empty: relics of a moment in history that seems, increasingly, like a fever dream. Some developers with iffy financing have quietly been forced to go rental, others have lowered prices to the point where losses are inevitable, and a handful of projects, including two buildings Maundrell had been selling, have gone into foreclosure.

Most unsettling are the cases of the developers who seem to have vanished, leaving behind so many vacant lots and half-completed buildings—eighteen, to be precise, more than can be found in all of the Bronx—that large swaths of the neighborhood have come to resemble a city after an air raid.

Amsden takes us on a tour and gives several examples like this one:

Later that afternoon, I made my way to a building called Warehouse 11, on the corner of Roebling and North 11th Streets. Marketed by David Maundrell, the building has 120 total units (plus the requisite yoga center, playroom, parking garage, 24-hour concierge, gym, and communal sundeck). While the model apartment seemed an appealing enough place to live, there was something generally off about the building as a whole: Despite having been on the market since early 2008, only 30 percent of the units were in contract, and it was clear that construction wasn’t complete. The list prices, too, were significantly higher than comparable products, as if the developer had not been informed about the current state of the economy. A few weeks later, I noticed the front doors of the lobby had been padlocked shut. The process of foreclosure had begun.

According to Amsden the developer borrowed $50 million from Capital One, and another $12 million from private equity. Apparently bids are coming in close to $30 million ... another half off sale!