by Calculated Risk on 11/24/2009 12:43:00 AM

From the WSJ: 1 in 4 Borrowers Under Water

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23% ...

Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value ...

[N]egative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job."

The report should be available online soon.

by Calculated Risk on 11/23/2009 10:23:00 PM

Update on the Chicago Fed Index post: According to the Chicago Fed, the "CFNAI-MA3 moves significantly into positive territory a few months after the official NBER date of the trough". Earlier I was excerpting from the entering recession section. This suggests - using this index - it is still too early to call the end of the recession.

From Jerry Hirsch at the LA Times: Restaurants brace for dreary season as consumers lose appetite for dining out

The number of people visiting restaurants has plunged for four consecutive quarters, according to NPD Group, a market research firm. ... chains such as McCormick & Schmick's, the seafood house, and Morton's, the steak purveyor, saw same-store sales, or sales at restaurants open at least a year, fall 18.8% and 16.8%, respectively ... according to Bellwether Food Group, a food industry consulting firm.

Bellwether doesn't project an industry rebound to pre-recession levels until 2012.
...
Research firm NPD doesn't expect an industry turnaround any time soon. ... In 33 years of tracking restaurant traffic, NPD "has never seen this type of a weakness for this long of a period," [Bonnie Riggs, a restaurant industry analyst with NPD in Chicago] said ...

And from Joe Sharkey at the NY Times: For the Hotel Industry, Recovery is a Long Way Off

Bjorn Hanson, a clinical associate professor at the Tisch Center, said that average domestic hotel occupancy this year would be about 55 percent.

Average national occupancy has dipped below 60 percent only twice before since the 1920s, he said, during the Great Depression, and in the aftermath of the 2001 terrorist attacks.

The occupancy dip following the 9/11 attacks was barely below 60%, so, according to Hanson's comments, the current hotel recession is the worst since the Great Depression.

by Calculated Risk on 11/23/2009 08:11:00 PM

From Bloomberg: Fed Said to Ask Banks to Submit Plans to Repay TARP (ht MrM)

The central bank this month asked Bank of America Corp. and eight other banks to [submit repayment plans with a timetable]. ... Together the nine banks have received about $142 billion in TARP funds ... The banks in the stress test that have yet to repay TARP are Bank of America, PNC, Citigroup Inc., Fifth Third Bancorp, GMAC Inc., KeyCorp, Regions Financial Corp., SunTrust Banks Inc. and Wells Fargo & Co.

I'd like to see the plans made public. I'd especially like to see Citi's, BofA's, and GMAC's plans.

The Fed conducted the stress tests, but didn't the Treasury loan the money? Shouldn't the Treasury be asking for the repayment plans? Just asking ...

by Calculated Risk on 11/23/2009 05:32:00 PM

From Bloomberg: Late Card Payments Rose in October, Moody’s Reports

Loans at least 30 days overdue, a signal of future defaults, rose to 6.12 percent in October from 5.97 percent in September, Moody’s said ... defaults fell last month to 10.04 percent from 10.72 percent in September, reflecting lower delinquency rates earlier in the year.
...
Write-offs may peak at 12 percent to 13 percent in 2010, Moody’s analysts Will Black and Jeffrey Hibbs said in the report.

This is the highest delinquency rate since February. At noted in the article, credit card defaults tend to track unemployment, so the default rate will probably continue to rise.

by Calculated Risk on 11/23/2009 01:45:00 PM

After the expected spike in existing home sales last month, I quoted legendary basketball coach John Wooden:

"Never mistake activity for achievement."

It is worth repeating this month.

First, it is important to remember that existing home sales are largely irrelevant for the economy. What matters for the economy are new home sales, housing starts and residential investment. And there has been little improvement in these key indicators.

This really shows up on the following graph:

Click on graph for larger image in new window.

This graph shows existing home sales (left axis) through October, and new home sales (right axis) through September.

The initial gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The recent spike in existing home sales was due primarily to the first time homebuyer tax credit.

But what matters for the economy - and jobs - is new home sales, and new home sales are still very low because of huge overhang of existing home inventory and rental properties.

Second, normally a decline in inventory and the months-of-supply would be considered a positive for the existing home market, however much of the apparent recent improvement in months-of-supply is related to the artificial - and likely short lived - boost in activity.

It is not all bad news. The second graph shows the year-over-year change in existing home inventory.

This inventory has been declining for some time, and is off almost 15% compared to last year. However the level of inventory is still high, and much of the recent inventory "improvement" has come at the expense of vacant rental units; the rental vacancy rate is now at a record 11.1%.

The key to reducing the overall inventory is new household formation, and the key to new household formation is jobs. Encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory, and leads some analysts to mistake activity for achievement.