by Calculated Risk on 1/07/2010 02:33:00 PM

From Roger Lowenstein in the NY Times Magazine: Walk Away From Your Mortgage!. Although Lowenstein doesn't cover new ground, he does provide a nice summary.

No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.

Strategic defaults (or "ruthless defaults" as they are known in the mortgage industry) are not new. But they used to be pretty rare - and it has always been hard to quantify.

by Calculated Risk on 1/07/2010 12:17:00 PM

A little year end good news for the hotel industry ...

From HotelNewsNow.com: STR: US hotel weekly results end year on positive note

The industry’s occupancy increased 5.9 percent to end the week at 45.5 percent. Average daily rate dropped 4.0 percent to finish the week at US$99.79. RevPAR for the week rose 1.6 percent to finish at US$45.37.

Click on graph for larger image in new window.

This graph shows the weekly occupancy rate starting in 2000 and the 52 week moving average (at a record low since the Great Depression).

This graph shows the clear seasonal pattern for hotel occupancy with a peak in the Summer months due to leisure travel, and a trough at the end of the year.

Next week I'll post the usual graph comparing the current year to each of the previous three years.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com (Note: They have a free daily email too for hotel news)

The end of the year can be a little confusing because of the holidays, and mid-to-late January will be the next key weeks to see if business travel is picking up in 2010.

There is also bad news: HotelNewsNow provides the latest Atlas California Distressed Hotels Survey. Excerpt:

Since the beginning of 2009:
• The number of hotels that were foreclosed on rose 313%, from 15 to 62.
• The number of hotels in default increased 479%, from 53 to 307.
• California has 4,468 rooms that have been foreclosed on, up 792%

by Calculated Risk on 1/07/2010 09:11:00 AM

From Reuters: U.S. apartment vacancy rate hits 30-year high

The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

In the fourth quarter, the U.S. apartment vacancy rate rose 0.10 percentage points from the prior quarter, and 1.3 percentage points for the year. At 8 percent, it was the highest national vacancy rate Reis has recorded in its 30 years of tracking the sector.
...
In the fourth quarter, U.S. asking rents fell by an average of 0.7 percent to $1,026 ... the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years. ... Effective rent fell 0.7 percent in the quarter to $964 ... The 3 percent drop for the year was more than three times the deterioration in 2002. [CR Edit: the article said "square foot", but this is clearly monthly rent]

"Never before have we observed rental properties in so much distress, both on the space and pricing side," Calanog said. ...

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a record 11.1% in Q3 2009. This also fits with the NMHC apartment market survey.

A record high vacancy rate and a record plunge in rents! Anyone surprised?

And more rent declines are coming, from Nick Timiraos at the WSJ: U.S. Now a Renters' Market

Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months.

This is one of the unintended consequences of government policy: rising rental vacancy rates, falling rents, more losses for CMBS investors and local and regional banks, more bank failures, downward pressure on CPI (rent is largest component of CPI) ... and eventually more downward pressure on house prices as the massive government support for house prices slows (because of the price-to-rent ratio). Hoocoodanode?

by Calculated Risk on 1/07/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Jan. 2, the advance figure for seasonally adjusted initial claims was 434,000, an increase of 1,000 from the previous week's revised figure of 433,000. The 4-week moving average was 450,250, a decrease of 10,250 from the previous week's revised average of 460,500.
...
The advance number for seasonally adjusted insured unemployment during the week ending Dec. 26 was 4,802,000, a decrease of 179,000 from the preceding week's unrevised level of 4,981,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 10,250 to 450,250. This is the lowest level since September 2008.

The decline in the 4-week average is good news, although the level is still relatively high and suggests continued job losses, or at best, minimal job gains. Also we have also to be careful because the data can be volatile during the holidays with large seasonal adjustments.

by Calculated Risk on 1/06/2010 09:37:00 PM

Housing economist Tom Lawler emailed the HAMP administrative website to obtain a list of servicers who had signed up for the Second Lien Modification Program. Here is the response he received:

“That program is currently on hold and there is no list of servicers that registered before it was placed on hold.”

The Second Lien program was announced on April 28, 2009 by Treasury:Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability

The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.

And from the HAMP website:

The Second Lien Modification Program is a complementary program to the Home Affordable Modification Program designed for first lien mortgages. This Program is expected to reach approximately 1 - 1.5 million responsible homeowners who are struggling to afford their mortgage payments. The Second Lien Modification Program coordinates with HAMP's first mortgage modification program to lower payments on second mortgages and offer comprehensive affordability solutions for homeowners.

I guess that program is falling a little short.