by Calculated Risk on 5/18/2010 11:27:00 AM

This morning the Census Bureau released the "Quarterly Starts and Completions by Purpose and Design" report for Q1 2010.

Click on graph for larger image in new window.

The first graph shows the NSA quarterly starts intent for four categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Condo starts in Q1 were just above the all time record low last quarter (4,000 vs 3,000 in Q4 2009).

Units built for rent set an all time record low in Q1 (19,000 units in Q1 2010 compared to the previous record low of 20,000 units in Q4 2009). This year a record low number of rental units will be built, and that is one reason the rental vacancy rate should continue to decline (household formation should be significantly higher than the increase in housing units in 2010).

Owner built units are just above the record low set in Q1 2009 (25,000 units in Q1 2010 compared to 24,000 units in Q1 2009).

And the largest category - starts of single family units, built for sale - increased to 86,000 in Q1.

With starts so low in every category, the number of units added to the housing stock in 2010 will be at a record low - and that will help reduce the significant excess inventory of housing units.

Comparing Housing Starts and New Home Sales

Monthly housing starts (even single family starts) cannot be compared directly to new home sales, because the monthly housing starts report from the Census Bureau includes apartments, owner built units and condos that are not included in the new home sales report.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. This is not perfect because of reporting differences and changes in cancellation rate - but it is close. The quarterly report shows that there were 86,000 single family starts, built for sale, in Q1 2010, and that is the same as the 86,000 new homes sold for the same period. This data is Not Seasonally Adjusted (NSA).

This breaks a streak of 9 consecutive quarter with homebuilders selling more homes than they started.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions).

This graph provides a quarterly comparison of housing starts and new home sales. In 2005, and most of 2006, starts (blue) were higher than sales (red), and inventories of new homes increased. For the previous 9 quarters, starts were below sales – and new home inventories declined. In Q1 starts and sales were about the same. Historically builders sell more home in Q1 than they start, but they probably started more homes this year anticipating some extra sales in April related to the expiring tax credit.

by Calculated Risk on 5/18/2010 08:30:00 AM

Click on graph for larger image in new window.

Total housing starts were at 672 thousand (SAAR) in April, up 5.8% from the revised March rate, and up 41% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 593 thousand (SAAR) in April, up 10.2% from the revised February rate, and 65% above the record low in January 2009 (360 thousand).

The second graph shows total and single unit starts since 1968. This shows the huge collapse following the housing bubble, and that housing starts are still very low.

Here is the Census Bureau report on housing Permits, Starts and Completions.

Housing Starts:
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 672,000. This is 5.8 percent (±13.0%)* above the revised March estimate of 635,000 and is 40.9 percent (±19 8%) above the revised April 2009 rate of 477,000.

Single-family housing starts in April were at a rate of 593,000; this is 10.2 percent (±10.7%)* above the revised March figure of 538,000.

Housing Completions:
Privately-owned housing completions in April were at a seasonally adjusted annual rate of 769,000. This is 19.2 percent (±13.8%) above the revised March estimate of 645,000, but is 8.7 percent (±12.8%)* below the revised April 2009 rate of 842,000.

Single-family housing completions in April were at a rate of 564,000; this is 14.6 percent (±13.1%) above the revised March figure of 492,000.

Building Permits:
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 606,000. This is 11.5 percent (±1.1%) below the revised March rate of 685,000, but is 15.9 percent (±1.3%) above the revised April 2009 estimate of 523,000.

Single-family authorizations in April were at a rate of 484,000; this is 10.7 percent (±1.1%) below the revised March figure of 542,000.

Note that permits fell sharply, suggesting a significant decline in housing starts next month.

by Calculated Risk on 5/17/2010 09:27:00 PM

These changes have been under discussion for some time ...

From Jon Prior at HousingWire: FHA Set to Reduce Closing Cost Assistance This Summer

The FHA will reduce allowable seller concessions — the percentage sellers can take from the sales price of a home to fund closing costs — from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set.

In early April, the FHA increased the upfront insurance premiums on FHA-backed loans from 1.75% to 2.25% of the loan amount. Borrowers also have to pay an annual premium based on the LTV and type of loan.

The FHA is also trying to crack down on poor performing mortgage brokers and lenders, from Nick Timiraos at the WSJ: Mortgage Insurer Turns to Lenders to Police Brokers

Under changes set to take effect May 20, the FHA will stop certifying mortgage brokers or tracking the individual performance of loans that they originate. Instead, it will require lenders to sponsor brokers and to assume responsibility for those loans, including losses from fraud or poorly underwritten loans ...

The FHA is also asking Congress for greater authority to recoup losses from lenders on defaulted loans that were improperly underwritten. Currently, the FHA has that indemnification authority for loans from some 600 lenders that account for 71% of all FHA-backed loans. The new rules would apply to the remaining 1,400 lenders that account for the remaining 29% of FHA originations.

These are all small changes, but they add up.

by Calculated Risk on 5/17/2010 05:40:00 PM

From Diana Olick at CNBC: Mortgage Mods Doomed by Back End Debt. On the absurdly high back end debt-to-income ratio:

"A 64.3% DTI is so far out of scope with the pre-bubble years safe and sound 36% total DTI — and even typical bubble-years full-doc DTI's of 50% — it is absolutely irresponsible," says mortgage analyst Mark Hanson. "Servicers are pushing the envelope with respect to getting people to qualify," he adds.

Olick adds:

I have to wonder if any mortgage originator today would even offer a new loan to anyone with those kinds of stats. My guess is no.

I hope not!

And from David Streitfeld at the NY Times: U.S. Mortgage Program Stalling, Data Shows

David Stevens, assistant secretary for housing at HUD ... said the program should be considered in light of the government’s extensive efforts over the last year to shore up the housing market. These efforts included keeping a lid on home mortgage rates, a tax credit and refinancing programs for those who owed more than their house was worth.

Stevens is referring to all the government programs aimed at supporting house prices (the assumed overall strategy). HAMP was very successful at delaying foreclosures and keeping the level of distressed inventory down. Other programs, such as the housing tax credit and Fed MBS purchase program, were aimed at boosting demand.

Lower supply and higher demand kept house prices from falling further. I guess if house prices don't fall too far from here, it is possible that the overall strategy could be considered a success even though some of the tactics, like HAMP and the housing tax credit, were clear failures when analyzed separately.

by Calculated Risk on 5/17/2010 02:54:00 PM

From Treasury: HAMP Servicer Performance Report Through April 2010

Click on table for larger image in new window.

About 299,000 modifications are now "permanent", and 277,000 trial modification cancelled. There is still a huge number of borrowers in limbo. According to HAMP, there are 637,353 "active trials".

As of April, there were 1,214,085 trials started, and as of last September there were 553,568. That gives 660,000 trials started over the last 7 months - about the same number as "active trials". Ouch. That suggests that the HAMP trial period is about 7 months!

The second graph shows the cumulative HAMP trial programs started.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to around 47,160 in April 2010. This is slowest pace since the program started, probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers. The program is dying ...

On page 6 is some new data. Not surprisingly the servicers who verified income before starting a trial modification have a much higher conversion rate than servicers that allowed borrowers to state their income.

Debt-to-income ratios worsen

If we look at the HAMP program stats (see page 5), the median front end DTI (debt to income) before modification was 44.9% - up slightly from 44.8% last month. And the back end DTI was an astounding 80.2% (up from 77.5% last month).

Think about that for a second: over 80% of the borrowers income went to servicing debt. And it is over 64% after the modification. Do they have a life?

Just imagine the characteristics of the borrowers who can't be converted!

In summary: 1) the program is dying, 2) the borrowers DTI characteristics are poor - and getting worse, and 3) there are a large number of borrowers in modification limbo.