by Calculated Risk on 2/02/2010 10:00:00 AM

The Census Bureau reported the homeownership and vacancy rates for Q4 2009 this morning. Here are a few graphs ...

Click on graph for larger image in new window.

The homeownership rate declined to 67.2% and is now at the levels of early 2000.

Note: graph starts at 60% to better show the change.

The homeownership rate increased in the '90s and early '00s because of changes in demographics and "innovations" in mortgage lending. The increase due to demographics (older population) will probably stick, so I've been expecting the rate to decline to the 66% to 67% range - and not all the way back to 64% to 65%.

The homeowner vacancy rate was 2.7% in Q4 2009.

A normal rate for recent years appears to be about 1.7%.

This leaves the homeowner vacancy rate about 1.0% above normal, and with approximately 75 million homeowner occupied homes; this suggests there are close to 750 thousand excess vacant homes.

The rental vacancy rate was 10.7% in Q4 2009.

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are close to 41 million rental units in the U.S. If the rental vacancy rate declined from 10.7% to 8%, there would be 2.7% X 41 million units or about 1.1 million units absorbed.

This suggests there are still over 1.8 million excess housing units, and these excess units will keep pressure on housing starts, rents and house prices for some time.

by Calculated Risk on 2/02/2010 08:36:00 AM

From Dina ElBoghdady and Dan Keating at the WaPo: Rising FHA default rate foreshadows a crush of foreclosures

The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year ... About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency's figures show.

... The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

... the FHA projects that it will pay out claims to lenders on one out of every four loans made in 2007 -- the worst rate in at least three decades. The claim rate should be nearly the same on the vastly larger volume of loans made in 2008.

Ouch.

by Calculated Risk on 2/01/2010 10:58:00 PM

From the Las Vegas Sun: Short sales soar while foreclosure sales slacken (ht sportsfan)

Short sales averaged about 7 percent to 8 percent of total [Las Vegas] existing-home closings in early 2009, but averaged 22 percent of the market by the end of the year and in early January ...

“We have seen a decrease in foreclosure activity in Las Vegas, which was puzzling to us,” said Daren Bloomquist, marketing manager for California-based RealtyTrac, which monitors foreclosures in Nevada. “Maybe Las Vegas has become somewhat of a test ground for streamlining short sales. It sounds like it could have an impact in Las Vegas.”
...
Dennis Smith, president of Home Builders Research, said short sales will be the “story of the year” because of the effect they will have on the housing market.
...
John Mechem, a spokesman for the Mortgage Bankers Association, said what is happening in Las Vegas is occurring across the country. It is costly for lenders to go through the legal process of foreclosing, and he added that homes can be damaged over time. The return is better on short sale, he said.

As I've noted, I think short sales will be the story of 2010. It is probably the best solution for many homeowners and lenders.

As the story mentions, Treasury has started pushing Short Sale and Deed-in-Lieu of Foreclosure as an alternative to modifications.

The Treasury Department is offering incentives on short sales by providing a $2,500 subsidy, $1,000 to the servicer and $1,500 to the seller for moving expenses. In addition, investors can get $1,000 by allowing subordinate lenders to get $3,000 in proceeds from the sale. The program is effective April 5, but servicers can implement it earlier.

This is better than "walking away" for the lender - the losses are less than for a foreclosure. And this is better for the homeowner too because Treasury requires that "the borrower will be released from all liability for repayment of the first mortgage debt", although the borrower will still take a credit hit.

by Calculated Risk on 2/01/2010 07:40:00 PM

As part of the annual budget, the Obama Administration released the underlying economic assumptions too (see Page 13 of PDF)

For GDP, they are forecasting real GDP growth of 2.7% in 2010, followed by 3.8%, 4.3% and 4.2% in 2013.

For unemployment, the forecast is for an average of 10% in 2010, with a decline to 9.2% in 2011, 8.2% in 2012 and 7.3% in 2013 as shown on the following graph:

Click on graph for larger image in new window.

The blue line is the actual historical monthly unemployment rate. The red line is the Obama Administration annual forecast.

Based on this forecast, the current "human recession" will last for several years for many Americans.

by Calculated Risk on 2/01/2010 04:44:00 PM

More from the Q4 GDP underlying detail tables ...

Note: Residential investment (RI), according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

Back in Q4 2008 - for the first time ever - investment in home improvements exceeded investment in new single family structures. This has continued through Q4 2009.

Click on graph for larger image in new window.

This graph shows the various components of RI as a percent of GDP for the last 50 years. The most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $153.3 billion Seasonally Adjusted Annual Rate (SAAR) in Q4, significantly above the level of investment in single family structures of $110.9 billion (SAAR).

Home improvement spending, as a percent of GDP, is close to the long term median. Brokers' commissions are above the median after being boosted by the homebuyer tax credit.

Of course investment in single family structures is still fairly close to the record low set in Q2 2009, and far below the normal level. Also far below normal is investment in multifamily structures. These two categories will not increase significantly until the number of excess housing units is reduced (I'll have more on the number of excess housing units tomorrow after the Census Bureau releases the Q4 Housing Vacancies and Homeownership report).