by Calculated Risk on 12/23/2009 10:00:00 AM

The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 355 thousand. This is a sharp decrease from the revised rate of 400 thousand in October (revised down from 430 thousand).

Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Note the Red columns for 2009. In November 2009, a record low 25 thousand new homes were sold (NSA); the previous record low was 26 thousand in November 1966.

Sales in November 2009 were below November 2008 (27 thousand).

The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales fell off a cliff, but after increasing slightly, are now only 8% above the low in January.

Sales of new one-family houses in November 2009 were at a seasonally adjusted annual rate of 355,000 ... This is 11.3 percent (±11.0%) below the revised October rate of 400,000 and is 9.0 percent (±15.3%)* below the November 2008 estimate of 390,000.

And another long term graph - this one for New Home Months of Supply.

There were 7.9 months of supply in November - significantly below the all time record of 12.4 months of supply set in January.

The seasonally adjusted estimate of new houses for sale at the end of November was 235,000. This represents a supply of 7.9 months at the current sales rate.

The final graph shows new home inventory.

Note that new home inventory does not include many condos (especially high rise condos), and areas with significant condo construction will have much higher inventory levels.

Months-of-supply and inventory have both peaked for this cycle, and sales have probably bottomed too. New home sales are far more important for the economy than existing home sales, and new home sales will remain under pressure until the overhang of existing housing inventory declines much further.

Obviously this is a very weak report. I'll have more later ...

by Calculated Risk on 12/23/2009 08:30:00 AM

From the BEA: Personal Income and Outlays, November 2009

Personal income increased $49.7 billion, or 0.4 percent, and disposable personal income (DPI) increased $54.1 billion, or 0.5 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $47.9 billion, or 0.5 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in November, compared with an increase of 0.4 percent in October.
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Personal saving -- DPI less personal outlays -- was $525.1 billion in November, compared with $516.7 billion in October. Personal saving as a percentage of disposable personal income was 4.7 percent in November, the same as in October.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the November Personal Income report. The saving rate was 4.7% in November.

I expect the saving rate to continue to rise - possibly to 8% or more - slowing the growth in PCE.

The following graph shows real Personal Consumption Expenditures (PCE) through November (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

Using the two-month method for estimating Q4 PCE growth gives an estimate of just under 1%. However - note that PCE in August was distorted by the cash-for-clunkers program. So my guess is PCE growth in Q4 will be around 1.7%.

by Calculated Risk on 12/23/2009 07:24:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume decreased 10.7 percent on a seasonally adjusted basis from one week earlier. ...

The Refinance Index decreased 10.1 percent from the previous week and the seasonally adjusted Purchase Index decreased 11.6 percent from one week earlier.
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The average contract interest rate for 30-year fixed-rate mortgages remained flat at 4.92 percent, with points increasing to 1.23 from 1.08 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Rates are probably back above 5% now.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Note: In the past the MBA index was somewhat predictive of future sales - and was a favorite indicator of Alan Greenspan, but it has been questionable for some time. The increase in 2007 was due to the method used to construct the index: a combination of lender failures, and borrowers filing multiple applications pushed up the index in 2007 even though activity was actually declining. Recently there has been a substantial number of cash buyers, so the MBA index missed the strength of the recent existing home sales increase.

However it is hard to ignore the sharp decline in purchase applications over the last couple of months.

by Calculated Risk on 12/22/2009 11:28:00 PM

Two modification-renter related quotes: the first on modifications essentially turning homeowners into renters, and the second, a proposal from Dean Baker on making the renter-landlord relationship more formal.

From an article by Carolyn Said in the San Francisco Chronicle: 2009's mortgage modifications pretty minor

"The problem with affordability-only modification is that it essentially makes homeowners renters for the foreseeable future and locks them into their homes so they can't move elsewhere for better jobs." [said] Paul Leonard, director of the California office at the Center for Responsible Lending in Oakland.

Exactly. Any modification that leaves a homeowner deep underwater is really converting the homeowner into a renter. And eventually most of those modifications will fail.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, suggest giving former homeowners the right to rent their home after foreclosure.
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"If you give people the right to rent, it changes the logic from the lender's standpoint and makes foreclosure less attractive," he said. "Many lenders of their own volition will decide to work on loan modifications - otherwise they could be stuck with a renter for five to 10 years. It would shift the balance of power hugely in favor of the homeowner."

There is no good solution, but at least we are acknowledging that many "homeowners" are really renters.

by Calculated Risk on 12/22/2009 07:40:00 PM

From Tom Petruno: Financial-meltdown commission sets first hearings

The panel set up by Congress to tell us why the financial-system meltdown happened -- i.e., who and what to blame -- will hold its first hearings Jan. 13 and 14 in Washington.
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Congress is expecting a final report from the 10-member, bipartisan commission by Dec. 15, 2010.

Maybe they will take suggestions and questions.

My first suggestion is they start by interviewing - in private - the field examiners at the Fed, FDIC, OCC and OTS. There is no need to publicly embarrass any examiner. The various Inspector General reports on bank failures would provide a starting point (see Eric Dash's article in the NY Times: Post-Mortems Reveal Obvious Risk at Banks).

Ask the examiners what they saw and when - according to the Inspector General's reports, the field examiners were warning about lending problems in 2002 and 2003.

Follow the trail. Did this information generate warnings inside the organizations? If so, why wasn't action taken? Was the action blocked by political appointees? And how would the proposed regulatory reform lead to a better outcome?

And a quote from Eric Dash's article:

“Hindsight is a wonderful thing,” said Timothy W. Long, the chief bank examiner for the Office of the Comptroller of the Currency. “At the height of the economic boom, to take an aggressive supervisory approach and tell people to stop lending is hard to do.”

If the lending was risky, telling them to stop was the regulators job. How does reform fix this?

The good news is Brooksley Born is on the commission, and I think she will do an excellent job.

Here is their website (under construction):