by Calculated Risk on 7/13/2010 07:47:00 AM

From the NFIB:

The National Federation of Independent Business Index of Small Business Optimism lost 3.2 points in June falling to 89.0 after posting modest gains for several months. The Index has been below 93 every month since January 2008 (30 months), and below 90 for 23 of those months, all readings typical of a weak or recession-mired economy.
...
Over the next three months, 8 percent plan to reduce employment (up one point), and 10 percent plan to create new jobs (down four points), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, unchanged from the May reading and positive for the second time in 20 months.
...
“Hiring and capital spending depend on expectations for growth in future sales, so the outlook for improved spending and hiring is not good,” said [William Dunkelberg, NFIB’s chief economist].

Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock.

The key problems are a shortage of customers and also falling prices (via WSJ): “widespread price cutting continued to contribute to reports of lower nominal sales.”

Updates: something to remember: "Small businesses" includes a large percentage of real estate related companies - so weak housing skews the results. The press release will be here, and the report here.

by Calculated Risk on 7/12/2010 11:30:00 PM

Another update on condos as shadow inventory ...

From Kelly Bennett at the Voice of San Diego: Vantage Pointe's Trouble Persists, but Downtown Thinks It's Found Bottom

Weighing in at 679 units, downtown's biggest condo building, Vantage Pointe, has met with outsize trouble since 2004 when buyers first got in fistfights for the privilege of securing a unit.

The building's trouble continues. The developers haven't sold a single unit in the 14 months since returning deposits to the previous contracted buyers. About 40 buyers have signed contracts to buy there but can't close the deals. More than 150 other units are being rented.

But that's not enough to satisfy the project's lenders behind its $210 million loan, the largest construction loan on a single residential building in San Diego history. Those lenders filed a notice of default in April, pushing the developers to the first stage of foreclosure.

This is another reminder that unless these condos are listed, they do not show up as either existing or new home inventory (the new home report doesn't include high rise condos).

And 150 of these units have been rented and will probably be sold someday too. I spoke to a landlord in the downtown San Diego area yesterday, and she has had to cut rents significantly to compete with all the condo units being rented.

There are some areas - like Las Vegas and Miami - that have a huge number of vacant high rise condos. But there are also many smaller buildings that are mostly vacant in a number of cities (like in New York, Chicago, Raliegh, N.C. and Irvine, Ca). This is all part of the shadow inventory ...

by Calculated Risk on 7/12/2010 06:32:00 PM

From James Kanter at the NY Times: European Ministers Weigh Details of Stress Test

European Union finance ministers met Monday to start two days of discussions partly aimed at deciding how much information to reveal after they complete [stress] tests ...

“The European banking sector is, over all, resilient,” Olli Rehn, the European commissioner for economic and monetary affairs, said at a news conference. “At the same time when we publish the stress tests we will have to prepare for any pockets of vulnerability.”

The results will be released on July 23rd.

And posted this morning from "some investor guy", part 3 in the series on sovereign default:

Part 3. What are the Market Estimates of the Probabilities of Default?

Earlier posts:

Part 1: How Large is the Outstanding Value of Sovereign Bonds?

Part 2. How Often Have Sovereign Countries Defaulted in the Past?

Part 2B: More on Historic Sovereign Default Research

More coming later this week.

by Calculated Risk on 7/12/2010 04:08:00 PM

The Sacramento Association of REALTORS® has been breaking out short sales for over a year now. They report monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales), and I'm following this series as an example to see mix changes in a distressed area.

Click on graph for larger image in new window.

Here is the June data.

Total June sales were up from May, and up from June 2009. Of course June was the scheduled closing deadline to qualify for the Federal homebuyer tax credit (closing date since extended), and also the California tax credit played a role. Sales should collapse in July.

The year-over-year (YoY) increase in June sales break a 12 month streak of declining YoY sales. But that was because of the tax credit, and sales will be off YoY in July.

Short sales were up 66% YoY (Year of the Short Sale!), and REO sales were down by 30%.

Note: This data is not seasonally adjusted.

The second graph shows the percent of REO, short sales and conventional sales. The percent of short sales is now at a high for this brief series.

In June, 62.4% of all resales (single family homes and condos) were distressed sales.

The percent of REOs has been generally declining (seasonally there are a larger percentage of REOs in the winter). Also there appears to be a higher percentage of conventional sales associated with the tax credit.

On financing, 54.6% percent were either all cash (21.3%) or FHA loans (33.3%), suggesting most of the activity in distressed former bubble areas like Sacramento is first time home buyers using government-insured FHA loans, and investors paying cash.

With the tax credit (mostly) over, I expect total sales to decline and the percent of distressed sales (Short and REO) to increase.

by Calculated Risk on 7/12/2010 02:15:00 PM

From the Federal Housing Finance Agency: FHFA Issues Subpoenas for PLS Documents

FHFA, as Conservator of Fannie Mae and Freddie Mac (the Enterprises), has issued 64 subpoenas to various entities, seeking documents related to private-label mortgage-backed securities (PLS) in which the two Enterprises invested. The documents will enable the FHFA to determine whether PLS issuers and others are liable to the Enterprises for certain losses they have suffered on PLS. If so, the Conservator expects to recoup funds, which would be used to offset payments made to the Enterprises by the U.S. Treasury.
...
Before and during conservatorship, the Enterprises sought to assess and enforce their rights as investors in PLS, in an effort to recoup losses suffered in connection with their portfolios. Specifically, the Enterprises have attempted to determine whether misrepresentations, breaches of warranties or other acts or omissions by PLS counterparties would require repurchase of loans underlying the PLS by the counterparties and whether other remedies might be appropriate. However, difficulty in obtaining the loan documents has presented a challenge to the Enterprises’ efforts. FHFA has therefore issued these subpoenas for various loan files and transaction documents pertaining to loans securing the PLS to trustees and servicers controlling or holding that documentation.

Many of the originators of the PLS mortgages are no longer in business (New Century, etc.), however most of the PLS issuers still exist.