by Calculated Risk on 8/20/2009 07:36:00 PM

The American Institute of Architects (AIA) releases the Architecture Billings Index (ABI) monthly, and the AIA chief economist Kermit Baker frequently mentions there is an "approximate nine to twelve month lag time between architecture billings and construction spending."

Click on graph for larger image in new window.

This graph compares the ABI with the quarterly data on nonresidential construction investment from the Bureau of Economic Analysis.

Although there is only data back to 1996, it appears that after the ABI falls consistently below 50 (contraction of billings on mostly commercial projects), then nonresidential structure investment declines on a YoY basis about one year later.

And YoY investment increases about one year after the ABI surpasses 50.

This suggests that nonresidential structure investment will decline through most of 2010, with no bottom in sight (since the ABI is still well below 50).

Right now I'm expecting another major slump in nonresidential structure investment towards the end of this year (following the ABI slump at the end of 2008), and for nonresidential structure investment to decline throughout 2010.

by Calculated Risk on 8/20/2009 04:12:00 PM

A little more information from the MBA Q2 delinquency report (and market graph below):

Click on graph for larger image in new window.

This graph shows the U.S. mortgage market by type. There are about 45 million loans included in the MBA survey, and that is about 85% of the U.S. market.

This is a general breakdown, and apparently Alt-A is included in Prime (it would be helpful to break that out).

The second graph shows the breakdown by type for loans that are either seriously delinquent (90+ days delinquent) or in the foreclosure process. There are about 3.6 million loans in this category.

Clearly subprime is disproportionately represented (much higher delinquency rate), but now over half the loans in this category are Prime - and the delinquency rate is growing faster for Prime. This is now a Prime foreclosure crisis.

For more, please see earlier posts:
MBA Forecasts Foreclosures to Peak at End of 2010 (several graphs)
MBA: Record 13.2 Percent of Mortgage Loans in Foreclosure or Delinquent in Q2


Instead of comparing the markets from the peak (See: the Four Bad Bears), Doug Short matched up the market bottoms for four crashes (with an interim bottom for the Great Depression).

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 8/20/2009 02:46:00 PM

From HotelNewsNow.com: STR reports US performance for week ending 15 August 2009

In year-over-year measurements, the industry’s occupancy fell 6.9 percent to end the week at 63.9 percent. Average daily rate dropped 9.9 percent to finish the week at US$96.70. Revenue per available room for the week decreased 16.2 percent to finish at US$61.80.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 7.0% from the same period in 2008.

The average daily rate is down 9.9%, and RevPAR is off 16.2% from the same week last year.

Note: This is a multi-year slump. Although the occupancy rate was off 6.9 percent compared to last year, the occupancy rate is off about 11 percent compared to the same week in 2007.

As previously mentioned, the end of July and beginning of August is the peak leisure travel period. The peak occupancy rate for 2009 was probably four weeks ago at 67%. Also, business travel was off much more than leisure travel earlier this year, so the summer months are not as weak as other times of the year. September will be the real test for business travel.

by Calculated Risk on 8/20/2009 01:32:00 PM

First there has been some discussion of the status of the Deposit Insurance Fund (DIF).

Bloomberg has some details: FDIC May Add to Special Fees as Mounting Failures Drain Reserve

... The fund had $13 billion on March 31, the lowest since 1992 when it was $178.4 million, the FDIC said. The 56 bank collapses since March 31 cost an estimated $16 billion.

... the Federal Deposit Insurance Corp. to impose a special fee as soon as next month to boost reserves by $5.6 billion. ...

If the fund is drained, the FDIC also has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

This special assessment is on top of the Q2 "emergency fee of 5 cents for every $100 of assets". So the FDIC still has resources to pay all insurance claims.

And from the WSJ: FDIC to Soften Private-Equity Curbs

... The FDIC is expected to retreat from its July proposal that private-equity firms have a Tier 1 capital ratio of at least 15% in order to bid on failed banks, and instead require such investors to maintain ratios of at least 10% ...

The FDIC also is expected to ease parts of its proposal that would have required buyout firms to guarantee that they'd provide financial support to any of their banking subsidiaries. ... Buyout firms are still expected to complain about mandates that they hold on to bank charters for at least three years, which would constrain the firms from turning quick profits on the deals.

by Calculated Risk on 8/20/2009 11:21:00 AM

On the MBA conference call concerning the "Q2 2009 National Delinquency Survey", MBA Chief Economist Jay Brinkmann said this morning:

The problem is moving to prime loans, and fixed rate prime loans. Although the delinquency rate is lower for prime fixed rate than for other loans, these loans make up 65.5% of all loans - so the increase matters.

Brinkmann expects delinquencies to peak in mid-2010.

Brinkmann expects foreclosures to peak at the end of 2010.

Note: The MBA data shows about 5.8 million loans delinquent or in the foreclosure process nationwide. I believe the MBA surveys covers close to 90% of the mortgage market. Many of these loans will cure, but the foreclosure pipeline is still building.

A few graphs ...

Click on graph for larger image in new window.

The first graph shows the delinquency and in foreclosure rates for all prime loans.

Prime loans account for all 78% of all loans.

"We're all subprime now!" NOTE: Tanta first wrote this saying in 2007 in response to the 'contained to subprime' statements.

The second graph shows just fixed rate prime loans (about 65.5% of all loans).

Prime ARMs have a higher delinquency rate than Prime FRMs, but the foreclosure crisis has now spread to Prime fixed rate loans.

Note that even in the best of times (with rapidly rising home prices in 2005), just over 2% of prime FRMs were delinquent or in foreclosure. However the cure rate was much higher back then since a delinquent homeowner could just sell their home.

The third graph shows the delinquency and in foreclosure process rates for subprime loans.

Although the increases have slowed, about 40% of subprime loans are delinquent or in foreclosure.

The fourth graph shows the delinquency and foreclosure rates by state (add: and D.C. and Puerto Rico!).

The 'in foreclosure' rate can vary widely by state, because the process is fairly quick in some states, and very slow in other states (like Florida).

Although most of the delinquencies are in a few states - because of a combination of high delinquency rates and large populations - the crisis is widespread.

And a final comment: historically house prices do not bottom until after foreclosure activity peaks in a certain area. Since the subprime crisis delinquency rates might be peaking, it would not be surprising if prices are near a bottom in the low end areas. But in general I'd expect further declines in house prices - especially in mid-to-high end areas.