by Calculated Risk on 7/17/2009 08:30:00 AM

Click on graph for larger image in new window.

Total housing starts were at 582 thousand (SAAR) in June, up sharply over the last two months from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 470 thousand (SAAR) in June; 31 percent above the record low in January and February (357 thousand).

Permits for single-family units were 430 thousand in May, suggesting single-family starts might decline some in July.

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

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 563,000. This is 8.7 percent (±3.0%) above the revised May rate of 518,000, but is 52.0 percent (±3.6%) below the June 2008 estimate of 1,174,000.

Single-family authorizations in June were at a rate of 430,000; this is 5.9 percent (±1.4%) above the revised May figure of 406,000. Authorizations of units in buildings with five units or more were at a rate of 109,000 in June.

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 582,000. This is 3.6 percent (±11.3%)* above the revised May estimate of 562,000, but is 46.0 percent (±4.3%) below the June 2008 rate of 1,078,000.

Single-family housing starts in June were at a rate of 470,000; this is 14.4 percent (±11.8%) above the revised May figure of 411,000. The June rate for units in buildings with five units or more was 101,000.

Housing Completions:
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 818,000. This is 0.4 percent (±15.7%)* below the revised May estimate of 821,000 and is 27.7 percent (±9.0%) below the June 2008 rate of 1,131,000.

Single-family housing completions in June were at a rate of 538,000; this is 8.9 percent (±14.7%)* above the revised May figure of 494,000. The June rate for units in buildings with five units or more was 271,000.

Note that single-family completions of 538 thousand are still significantly higher than single-family starts (401 thousand).

It now appears that single family starts might have bottomed in January. However I expect starts to remain at fairly low levels for some time as the excess inventory is worked off.

by Calculated Risk on 7/17/2009 01:00:00 AM

Just a little preview for BFF ...

From Bloomberg: Corus Bankshares May Be Seized as FDIC Weighs Potential Bidders

U.S. regulators are poised to seize Corus Bankshares Inc., the Chicago lender crippled by loans for condominium construction, and are preparing to auction the entire company or its assets, people briefed on the matter said.
...
Corus’s fate has shifted into the hands of the FDIC because the lender and its financial adviser, Bank of America Corp., haven’t found a buyer willing to complete a deal in the absence of government assistance.

Note: Corus had $7.7 billion in assets at the end of Q1.

Guaranty Financial (another candidate for BFF) had $15.4 billion in assets at the end of Q3 2008. They have been filing NT forms since Q3 (Notification of inability to timely file).

by Calculated Risk on 7/16/2009 10:51:00 PM

If video doesn't load, here is the link.

by Calculated Risk on 7/16/2009 09:41:00 PM

Earlier today, DataQuick reported that home sales increased in the California Bay Area. The report mentioned "a perception among potential buyers that prices have bottomed out."

First, a little history: When the housing bubble was inflating, the demand for housing surged with the widespread use of non-traditional mortgage products. Looking at a supply-demand diagram, this surge in demand pushed the curve to the right.

At the same time speculators were buying up properties, reducing the supply with the intention of selling later at a higher price. This activity shifted the supply curve to the left (this activity was classic storage).

So with the surge in demand, combined with speculators removing supply from the market, prices skyrocketed.

This is exactly what I described in April 2005: Housing: Speculation is the Key

Of course, once the bubble burst, the supply curve shifted back to the right with speculators unloading properties and all the distressed sales. At the same time, demand declined sharply as speculators disappeared and lenders tightened standards.

If housing was a perfect market, prices would have fallen rapidly to the market clearing price. However housing prices are sticky downward - as I described in 2005 post: "[R]eal estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices.

This means real estate markets do not clear immediately, and what we usually observe is a drop in transaction volumes."

This doesn't mean prices are stuck - just sticky. Prices have been falling in most areas for three years, and will probably fall further.

And this brings us back to the DataQuick article. Just because demand is picking up a little, doesn't mean prices have bottomed. Note: Ignore the median price in the article - that is rising because of the change in mix.

Assume the following diagram shows the current housing market supply and demand. With the current supply and demand curves, and a perfect market, prices would be at P₀ and quantity Q₀. However prices were actually at P₁.

Note that demand doesn't fall to zero just because the price is above the market clearing price.

Now prices have fallen from P₁ to P₂.

Click on graph for larger image in new window.

This has increased the demand from Q₁ to Q₂.

I've drawn the diagram to show P₂ is still above P₀ (typo fixed). Naturally the current buyers think "prices have bottomed out", but they haven't for the market shown.

There are clues in the DataQuick report that prices are still too high. The volume of sales is still below normal, foreclosure resales are 37.3 percent of the resale market (a very high percentage) - and foreclosure activity "remains near record levels". And the foreclosure resale statistic don't include short sales, and the recent data from Sacramento suggest short sale activity is fairly strong.

There are other reasons to believe prices will fall further, but I just want to point out that the small pickup in demand doesn't suggest a price bottom.

by Calculated Risk on 7/16/2009 08:56:00 PM

From Forbes: Bank Earnings: Beauty Is Skin-Deep (ht Brett)

The banking industry is bracing for continued losses from consumer loans, considering the rising unemployment rate, and an expected wave of commercial real-estate losses. At a Senate Banking Committee hearing in Washington on Thursday, Sen. Jim Bunning, R-Ky., related a comment to him by Federal Deposit Insurance Corp. Chairman Sheila Bair that another 500 banks could fail "unless something dramatic happens."

Note that this is Bunning's recollection of a discussion with FDIC Chairman Sheila Bair - so this might not be exactly what Bair said.

UPDATE: FDIC spokesman, Andrew Gray, disputed Bunning’s recollection (ht we will not monetize):

“In both public and private settings, the chairman and the FDIC is always careful to not make predictions on the number of upcoming bank failures,” Gray said in an e-mail. “No estimate” was given during the meeting, which took place last week, Gray said.

“We would regret any miscommunication, but she did not say that,” Gray added.