by Calculated Risk on 3/23/2010 11:22:00 AM

Earlier the NAR released the existing home sales data for February; here are a couple more graphs ...

Click on graph for larger image in new window.

This graph shows NSA monthly existing home sales for 2005 through 2010 (see Red columns for 2010).

Sales (NSA) in February 2010 were 7.9% higher than in February 2009, and 3.2% lower than in February 2008.

We will probably see an increase in sales in May and June because of the tax credit, however I expect to see existing home sales below last year later this year.

The second graph shows the Year-over-year change in reported existing home inventory.

There was a rapid increase in inventory in the 2nd half of 2005 (that helped me call the peak of the bubble), and the YoY inventory has been decreasing for the last 19 months. However the YoY decline is getting smaller - even with a large reported inventory (and probably more shadow inventory). This is something to watch.

This slow decline in the inventory is especially concerning with 8.6 months of supply in February - well above normal.

by Calculated Risk on 3/23/2010 10:00:00 AM

The NAR reports: February Existing-Home Sales Ease with Mixed Conditions Around the Country

Existing-home, which are finalized transactions that include single-family, townhomes, condominiums and co-ops, slipped 0.6 percent nationally to a seasonally adjusted annual rate of 5.02 million units in February from 5.05 million in January, but are 7.0 percent higher than the 4.69 million-unit pace in February 2009.
...
Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.

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 February 2010 (5.02 million SAAR) were 0.6% lower than last month, and were 7.0% higher than February 2009 (4.69 million SAAR).

Sales surged last November when many first-time homebuyers rushed to beat the initial expiration of the tax credit. There will probably be another increase in May and June this year, although that will be probably be smaller than the November increase. Note: existing home sales are counted at closing, so even though contracts must be signed in April to qualify for the tax credit, buyers have until June 30th to close.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.59 million in February from 3.27 million in January. The all time record high was 4.57 million homes for sale in July 2008.

Inventory is not seasonally adjusted and there is a clear seasonal pattern - inventory should increase further in the spring.

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

Months of supply increased to 8.6 months in February.

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 3/23/2010 08:21:00 AM

From Bloomberg: Treasury’s Geithner Urges End to Fannie, Freddie ‘Ambiguity’

U.S. Treasury Secretary Timothy F. Geithner said the government should end the “ambiguity” over its involvement in mortgage finance companies Fannie Mae and Freddie Mac.

“Private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained,” Geithner said in testimony prepared for the House Financial Services Committee that was obtained by Bloomberg News. The hearing is scheduled for today at 10 a.m. in Washington.

Here is Geithner's testimony (ht TD) Some excerpts (note: Embargo was broken by the Financial Services Committee and several web sites):

The Administration has defined a framework of objectives for reform of the mortgage finance system. A reformed housing finance system should deliver stability and efficiency to the housing market, while minimizing the risks and costs borne by the American taxpayer.

Objectives of Reform

In considering reform, the Administration will be guided by the view that a stable and wellfunctioning housing finance market should achieve the following objectives:

Widely available mortgage credit. Mortgage credit should be available and distributed on an efficient basis to a wide range of borrowers, including those with low and moderate incomes, to support the purchase of homes they can afford. This credit should be available even when markets may be under stress, at rates that are not excessively volatile.

Housing affordability. A well-functioning housing market should provide affordable housing options, both ownership and rental, for low- and moderate-income households. The government has a role in promoting the development and occupancy of affordable single- and multi-family residences for these families.

Consumer protection. Consumers should have access to mortgage products that are easily understood, such as the 30-year fixed rate mortgage and conventional variable rate mortgages with straightforward terms and pricing. Effective consumer financial protection should keep unfair, abusive or deceptive practices out of the marketplace and help to ensure that consumers have the information they need about the costs, terms, and conditions of their mortgages.

Financial stability. The housing finance system should distribute the credit and interest rate risk that results from mortgage lending in an efficient and transparent manner that minimizes risk to the broader financial and economic system and does not generate excess volatility. The mortgage finance system should not contribute to systemic risk or overly increase interconnectedness from the failure of any one institution.

The housing finance system could be redesigned in a variety of ways to meet these objectives. However, the Administration believes that any system that achieves these goals should be characterized by:

Alignment of incentives. A well functioning mortgage finance system should align incentives for all actors – issuers, originators, brokers, ratings agencies and insurers – so that mortgages are originated and securitized with the goal of long-term viability rather than short term gains.

Avoidance of privatized gains funded by public losses. If there is government support provided, such as a guarantee, it should earn an appropriate return for taxpayers and ensure that private sector gains and profits do not come at the expense of public losses. Moreover, if government support is provided, the role and risks assumed must be clear and transparent to all market participants and the American people.

Strong regulation. A strong regulatory regime should (i) ensure capital adequacy throughout the mortgage finance chain, (ii) enforce strict underwriting standards and (iii) protect borrowers from unfair, abusive or deceptive practices. Regulators should have the ability and incentive to identify and proactively respond to problems that may develop in the mortgage finance system.

Standardization. Standardization of mortgage products improves transparency and efficiency and should provide a sound basis in a reformed system for securitization that increases liquidity, helps to reduce rates for borrowers and promotes financial stability. The market should also have room for innovations to develop new products which can bring benefits for both lenders and borrowers.

Support for affordable single- and multifamily-housing. Government support for multifamily housing is important and should continue in a future housing finance system to ensure that consumers have access to affordable rental options. The housing finance system must also support affordable and sustainable ownership options.

Diversified investor base and sources of funding. Through securitization and other forms of intermediation, a well functioning mortgage finance system should be able to draw efficiently upon a wide variety of sources of capital and investment both to lower costs and to diversify risk.

Accurate and transparent pricing. If government guarantees are provided, they should be priced appropriately to reflect risks across the instruments guaranteed. If there is crosssubsidization in the housing finance system, care must be exercised to insure that it is transparent and fully consistent with the appropriate pricing of the guarantee and at a minimal cost to the American taxpayer.

Secondary market liquidity. Today, the US housing finance market is one of the most liquid markets in the world, and benefits from certain innovations like the “to be announced” (or TBA) market. This liquidity has provided a variety of benefits to both borrowers and lenders, including lower borrowing costs, the ability to “lock in” a mortgage rate prior to completing the purchase of a home, flexibility in refinancing, the ability to pre-pay a mortgage at the borrowers’ discretion and risk mitigation. This liquidity also further supports the goal of having well diversified sources of mortgage funding.

Clear mandates. Institutions that have government support, charters or mandates should have clear goals and objectives. Affordable housing mandates and specific policy directives should be pursued directly and avoid commingling in general mandates, which are susceptible to distortion.

NOTE: 10 AM ET embargo was broken by several web sites before this was posted.

by Calculated Risk on 3/22/2010 11:56:00 PM

"A sampler of versusplus.com musical econoparodies!" (I've posted most of these over the last couple of years):

by Calculated Risk on 3/22/2010 08:45:00 PM

There will be hearing tomorrow about Fannie and Freddie, but the Obama administration will only "outline broad principles".

From Jim Puzzanghera at the LA Times: Pressure rises to overhaul Fannie Mae, Freddie Mac

[I]n a hearing Tuesday, lawmakers will start pressing the Obama administration for an exit strategy [for Fannie Mae and Freddie Mac] ...

"It's clear that Fannie and Freddie, as they currently exist, should be put out of existence, which means the important question is what combination of entities public and private will replace them," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

He has called Treasury Secretary Timothy F. Geithner to testify at the hearing before his committee about how to do that.

And from Nick Timiraos and Michale Crittenden at the WSJ: New Plan to Reshape Mortgage Market

The administration will outline broad principles for the future of the mortgage market at the hearing, including stronger consumer protections and explicit guarantees for any government backstop of mortgages.

"The housing-finance system cannot continue to operate as it has in the past," Mr. Geithner says in prepared testimony. The administration won't issue a detailed overhaul proposal until later this year.

Clearly we can't go back to a structure that privatizes profits and socializes losses.