by Calculated Risk on 11/20/2009 01:43:00 PM

Here is some national data on home buyer financing in October. This is from a survey by Campbell Communications (excerpted with permission) released today.

Source: October Trends in Existing Home Sales, a presentation from Campbell/Inside Mortgage Finance Monthly Survey on Real Estate Market Conditions.

Thomas Popik, Campbell Surveys Research Director, highlighted several key trends from the survey in October:

Investor Purchases of REO Are Declining

First-Time Homebuyers Largely Support the Market

First-Time Homebuyers Dependent on FHA Financing

If FHA Guidelines Get Tougher, Look for Large Impact

Short Sale Inventory and Transactions Are Booming

First-Time Homebuyer Traffic Is Starting to Ease

Click on graph for larger image in new window.

The first chart shows the type of financing used in October.

The cash buyers were mostly investors (frequently buying damaged REOs), and the FHA buyers were mostly first time homebuyers.

The second graph shows the financing breakdown by buyer type.

According to the survey investors bought 15% of homes in October. About 72% of these purchases were cash.

Current homeowners bought 38% of homes sold in October and used a mix of financing.

First-time homebuyers accounted for 47% of purchases and were mostly buying using FHA insured loans.

by Calculated Risk on 11/20/2009 12:30:00 PM

From Paul Krugman writing in the NY Times: The Big Squander

During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad.

... by the time A.I.G.’s hollowness became apparent, the world financial system was on the edge of collapse and officials judged — probably correctly — that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.

... it seemed only fair for [the financial companies] to bear part of the cost of the bailout, which they could have done by accepting a “haircut” on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no — and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar.

Krugman argues that government officials have squandered the trust of the American people by treating the financial industry with kid gloves. He argues that this make it more difficult to pass another stimulus packaged focused on job creation.

by Calculated Risk on 11/20/2009 10:00:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Twenty-nine states and the District of Columbia recorded over-the-month unemployment rate increases, 13 states registered rate decreases, and 8 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50 states and the District of Columbia.
...
Michigan again recorded the highest unemployment rate among the states, 15.1 percent, in October. The states with the next highest rates were Nevada, 13.0 percent; Rhode Island, 12.9 percent; California, 12.5 percent; and South Carolina, 12.1 percent. The rate in California set a new series high, as did the rates in Delaware (8.7 percent) and Florida (11.2 percent). The District of Columbia also set a series high, 11.9 percent.
emphasis added

Click on graph for larger image in new window.

This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

Fourteen states and D.C. now have double digit unemployment rates. New Jersey, Indiana, and Mississippi are all close.

Three states are at record unemployment rates: California, Delaware and Rhode Island. Several others are close.

by Calculated Risk on 11/20/2009 08:55:00 AM

From housing consultant Ivy Zelman commenting on the MBA Delinquency report in the NY Times U.S. Mortgage Delinquencies Reach a Record High

"I’ve been pretty bearish on this big ugly pig stuck in the python and this cements my view that home prices are going back down."

From Bloomberg: Housing Recovery in U.S. Set Back to 2010 as Market Wanes

“I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.”

From Goldman Sachs chief economist Jan Hatzius in a note to clients: A Renewed Sag in the Housing Market (no link)

"Our current working assumption is a 5%-10% drop in home prices through the middle of 2010. ... house prices and credit quality ... to weigh on the US financial system, the availability of bank credit, and ultimately the pace of the economic recovery."

My view is that house prices might have bottomed in some non-bubble areas, and also in some low end bubble areas with high foreclosure rates, however I expect further price decline in many mid-to-high end bubble areas.

by Calculated Risk on 11/19/2009 11:39:00 PM

David Streitfeld at the NY Times adds some color: Easy Loans in Expensive Areas

In January, Mike Rowland was so broke that he had to raid his retirement savings to move [to San Francisco] from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
...
For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. ... The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.

Hopefully this will work out for Mr. Rowland and friends, but now for the chilling quote:

Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”

This will end well ... (sorry for sarcasm)

Note: The MBA National Delinquency Survey showed 15.04% of FHA insured loans were delinquent as of the end of Q3, and another 3.32% were in the foreclosure process. The FHA Early Warning System shows that delinquencies are rising steadily on loans originated over the last two years. Not good.