by Calculated Risk on 2/26/2010 10:00:00 AM

The NAR reports: Existing-Home Sales Down in January

Existing-home sales – including single-family, townhomes, condominiums and co-ops – dropped 7.2 percent to a seasonally adjusted annual rate1 of 5.05 million units in January from a revised 5.44 million in December, but remain 11.5 percent above the 4.53 million-unit level in January 2009.

Total housing inventory at the end of January fell 0.5 percent to 3.27 million existing homes available for sale, which represents a 7.8-month supply at the current sales pace, up from a 7.2-month supply in December.

Click on graph for larger image in new window.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in Jan 2010 (5.05 million SAAR) were 7.2% lower than last month, and were 11.5% higher than Jan 2009 (4.53 million SAAR).

This is a sharp drop from November when many of the transactions were due to first-time homebuyers rushing to beat the initial expiration of the tax credit (that has been extended). That pushed sales far above the historical normal level; based on normal turnover, existing home sales would be in the 4.5 to 5.0 million SAAR range.

The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 3.27 million in January from 3.29 million in December. The all time record high was 4.57 million homes for sale in July 2008.

This is not seasonally adjusted and this decline is mostly seasonal - inventory should increase in the Spring.

The third graph shows the 'months of supply' metric.

Months of supply increased to 7.8 months in January.

A normal market has under 6 months of supply, so this is high - and probably excludes some substantial shadow inventory.

I'll have more later ...

by Calculated Risk on 2/26/2010 08:30:00 AM

The headline GDP number was revised up to 5.9% annualized growth in Q4 (from 5.7%), however most of the improvement in the revision came from changes in private inventories. Excluding inventory changes, GDP would have been revised down to around 1.9% from 2.2%.

This table shows the changes from the "advance estimate" to the "second estimate" for several key categories:

	Advance	Second Estimate
GDP	5.7%	5.9%
PCE	2.0%	1.7%
Residential Investment	5.7%	5.0%
Structures	-15.4%	-13.9%
Equipment & Software	13.3%	18.2%

Note that PCE and Residential Investment (RI) - the two leading categories - were both revised down in Q4.

Changes in private inventories are transitory (only lasts a few quarters at the start of a recovery), and although the headline number was revised up, final demand was weaker than in the advance estimate.

by Calculated Risk on 2/26/2010 12:47:00 AM

From Renae Merle at the WaPo: FDIC to test principal reduction for underwater borrowers

The Federal Deposit Insurance Corp. is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from foreclosure.
...
Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period. ... "We're thinking about it in terms of earned principal forgiveness. If you stay current on your mortgage, you would earn a principal reduction. It would only be for loans significantly underwater," said FDIC Chairman Sheila C. Bair.

The program would ... apply only to loans acquired from a failed bank seized by the FDIC. That would be less than 1 percent of mortgages currently outstanding.
...
Lenders have been reluctant to cut the principal balance owed by distressed borrowers, arguing that it would encourage homeowners to become delinquent even if they can afford their mortgage.

This is a pretty limited program. If principal reduction was offered on a widespread basis, millions of homeowners would probably immediately default.

Also - the FDIC's previous modification efforts - after the seizure of IndyMac - were mostly unsuccessful. It is unlikely this one will do much better.

by Calculated Risk on 2/25/2010 09:30:00 PM

Two informative articles ...

Diana Golobay at HousingWire reports on the Mortgage Bankers Association (MBA) National Mortgage Servicing Conference 2010 in San Diego: Mortgage Servicers Kick Around HAMP Mod Options

... a session called “Loss Mitigation – When HAMP is Not an Option” proved to be extremely popular.
...
The shift away from the government plan marks a shift in the strategy of servicers as 2009 “was all about HAMP” in terms of allocating time and resources, according to Alanna Brown, director of government programs and new initiatives at Fannie Mae National Servicing Organization.
...
Rich Rollins, CEO of Infusion Technologies, said servicers are seeing increasing potential in short sales and leaseback options.

He agreed with a general mentality at the conference that 2010 — and even 2011 — looks to be the “year of the short sale,” which he said gives investors “immediate positive cash flow” as a non-retention strategy.

“HAFA gave [the short sale] credibility,” he told HousingWire.

There is much more in Diana's article.

Note: HAMP stands for the Treasury program: ""Home Affordable Modification Program", HAFA is part of HAMP and stands for "Home Affordable Foreclosure Alternatives" and is for short sales and deed-in-lieu (DIL) transactions.

And apparently the administration is considering more changes to HAMP, from Dawn Kopecki at Bloomberg: Obama May Prohibit Home-Loan Foreclosures Without HAMP Review

The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

The only obvious solutions for when current modification efforts fail are: 1) private principal reduction (but not paid for by taxpayers since that would be very unpopular), 2) converting homeowners to renters for some period, and 3) short sales / DIL.

Delaying tactics just drag out the problem ...

by Calculated Risk on 2/25/2010 07:48:00 PM

Earlier I discussed the possible impact of the end of the Fed's MBS (Mortgage Backed Securities) purchases on mortgage rates: Fed MBS Purchases and the Impact on Mortgage Rates. My estimate is that the spread between the Freddie Mac 30 year fixed mortgage rate and the Ten Year Treasury yield will increase by about 35 to 50 bps after March.

Analysts at Amherst Securities wrote today that they "don’t think there will be much of a widening", perhaps less than 25 bps, because some usual investors are under weighted in MBS. They also noted that "the widening may not happen for a number of months" as under weight investors add to their positions.

I also checked the recent residential MBS issuance and compared it to the same month Fed buying. The GSEs issued about $131 billion in residential MBS in December. And according to the NY Fed, net Fed agency MBS purchases were just over $62 billion in December. So the Fed bought about half of the new issuance; private buyers bought the other half.

Just two points to remember: there are private bidders (it is just a matter of price), and the increase to the normal spread might take a few months.