by Calculated Risk on 7/28/2009 09:00:00 AM

Important Note: Case-Shiller hasn't released the Seasonally Adjusted data yet for May. There is a strong seasonal pattern for prices and this is the NSA data.

S&P/Case-Shiller released their monthly Home Price Indices for May this morning.

This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national index.

Click on graph for larger image in new window.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 33.3% from the peak, and up slightly in May.

The Composite 20 index is off 32.3% from the peak, and up slightly in May.

NOTE: This is the NSA data, prices probably fell using the SA data.

The second graph shows the Year over year change in both indices.

The Composite 10 is off 16.8% over the last year.

The Composite 20 is off 17.1% over the last year.

This is still a very strong YoY decline.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (NSA) in 14 of the 20 Case-Shiller cities in May. In Phoenix, house prices have declined 54.5% from the peak. At the other end of the spectrum, prices in Dallas are only off about 8% from the peak. Prices have declined by double digits almost everywhere.

I'll compare house prices to the stress test scenarios soon.

by Calculated Risk on 7/27/2009 11:57:00 PM

Note: I covered this research a few weeks ago: Researchers: "Few Preventable Foreclosures", but this is worth repeating ...

From the WaPo: Foreclosures Are Often In Lenders' Best Interest

Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded.

Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.

If the option is foreclosure or modification - and the modification will work, then the economics favor foreclosure.

The problem is it is hard to tell if the borrowers will self-cure or redefault.

Nearly a third of the borrowers who miss two payments are able to self-cure without help from their lender, according to the Boston Fed study. Separately, Moody's Economy.com, a research firm, estimated that about a fifth of those who miss three payments will self-cure.

And on redefault:

Lenders also worry that borrowers may re-default even after receiving a loan modification. This only delays foreclosure, which can be costly to the lender because housing prices are falling throughout the country and the home's condition may deteriorate if the owner isn't maintaining it. In some cases, lenders lose twice as much foreclosing on a home as they did two years ago, said Laurie Goodman, senior managing director at Amherst Securities.

When you compare the losses from foreclosure to the losses from modifications - and include self-cure risk and redefault risk - the researchers argue there are very few preventable foreclosures.

Just something to remember, meanwhile from the WSJ: U.S. Effort to Modify Mortgages Falters

An Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers before they fall behind is failing to help as many people as expected.

Among the problems: Some homeowners are being told they must be behind on their payments to receive help, which runs counter to the aim of the program. In other cases, delays are so long that borrowers who are current on their payments when they ask for a loan modification are delinquent by the time they receive one. There is also confusion about who qualifies.

Administration officials have summoned executives of 25 mortgage-servicing companies to Washington on Tuesday to discuss efforts to help borrowers, both delinquent and at risk.

Should be an interesting discussion.

by Calculated Risk on 7/27/2009 08:22:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Fell 2.4 Percent in June

Click on graph for larger image in new window.

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.4 percent in June. In May, SA tonnage jumped 3.2 percent. June’s decrease, which lowered the SA index to 99.8 (2000=100), wasn’t large enough to completely offset the robust gain in the previous month. ...

Compared with June 2008, tonnage fell 13.6 percent, which surpassed May’s 11 percent year-over-year drop. June’s contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2 percent drop in April.

ATA Chief Economist Bob Costello said truck tonnage is likely to be choppy in the months ahead. “While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently,” Costello said. “The consumer is still facing too many headwinds, including employment losses, tight credit, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term.” He also noted that inventories, relative to sales, are still too high in much of the supply chain, especially in the manufacturing and wholesale industries. “As a result, this is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession. Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”

Trucking serves as a barometer of the U.S. economy, representing nearly 69 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 10.2 billion tons of freight in 2008. Motor carriers collected $660.3 billion, or 83.1 percent of total revenue earned by all transport modes.

Some interesting comments from Costello. Maybe the cliff diving is over, but the sideways motion is "choppy". Not exactly little green shoots ...

by Calculated Risk on 7/27/2009 05:58:00 PM

From the Chicago Tribune: Luxury prices keep falling (ht Ann)

Real estate agents say they have never seen prices drop so precipitously when dealing with opulent, often empty high-end homes along the North Shore ... "It is a phenomenon we've never seen in our lifetime," said real estate agent Jason Hartong with Rubloff Residential Properties, who has seen some multimillion-dollar price tags cut nearly in half.
...
Developers, many now in bankruptcy, were caught by surprise, as well. Vacant and unfinished homes dot the Chicago suburbs, with for sale signs that tout the "New Price."

For instance, a custom-built stone home at 750 Sheridan Rd. in Winnetka priced at $5.5 million in November 2007 is going for $3.3 million.

The problems are movin' on up the value chain.

by Calculated Risk on 7/27/2009 04:04:00 PM

The good news, according to a Barclays Capital report, is not as many Option ARMs will recast in 2011 as forecast earlier by Credit Suisse.

The bad news is borrowers are defaulting en masse before the recast.

From Bloomberg: Option ARM Defaults Shrink Size of Recast Wave, Barclays Says (ht Brian)

The wave of “option” adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller “than feared” because many borrowers will default before their bills change, Barclays Capital analysts said.
...
About 40 percent of borrowers with option ARMs are already delinquent, and “many” of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. ...

“The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,” the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote.
...
More than $750 billion of option ARMs were originated between 2004 and 2008 ...

Also some of the loans (mostly Wells Fargo) will probably recast later than the Credit Suisse chart.

Also on Option ARMs from the WSJ a couple weeks ago: Pick-a-Pay Loans: Worse Than Subprime

This suggests the recast related problems will happen sooner than the Credit Suisse chart suggests. That is good news in that the problems might not linger as long, and also suggests further price pressure in the short term for the mid-to-high end areas with significant Option ARM activity.

UPDATE on Wells Fargo Option ARM portfolio, from Q2 recorded comments (ht HealdsburgBubble):

The Pick-a-Pay portfolio also performed as expected as we continued to de-risk the portfolio. I want to highlight some key points that are important for every investor to understand about this portfolio:

First, not all option ARM portfolios are alike and we believe we have the best portfolio in the industry. While recently reported industry data, as of April 2009, indicates 37 percent of all industry option ARM loans are at least 60 days past due, our portfolio is performing significantly better with only 18 percent 60 days or more past due as of June 30. Not surprisingly, our non-impaired portfolio is performing significantly better than our impaired portfolio with only 4.7 percent 60 days or more past due. In fact, 92 percent of the non-impaired portfolio is current, compared with 62 percent of the impaired portfolio. In addition, while many other option ARM loans have recast periods as short as five years, our Pick-a-Pay loans generally have ten-year contractual recasts. As a result, we have virtually no loans where the terms recast over the next three years, allowing us more time to work with borrowers as they weather the current economic downturn.
emphasis added