by Calculated Risk on 6/10/2011 08:50:00 AM

A couple of stories. The first is about the recent selloff in risky assets (junk bonds), and the second is a little reminiscent of some of the funding issues back in 2008 (this time in Europe):

From the WSJ: 'Junk' Bond Market Hit by a Selloff (ht Brian)

A steep decline in prices of bonds backed by subprime mortgages has spread through the riskiest segments of the credit markets ... Weak economic data including falling home prices and disappointing jobs numbers have led investors to dump these securities ... The decline in high-yield, or "junk," corporate bonds accelerated after last week's employment figures, with prices falling nearly 1% on Thursday, the worst one-day loss in three months ...

And from the WSJ: Bond Deal May Augur More European Travails

Investors balked at buying a €1 billion ($1.46 billion) bond offering by Banco Santander SA that was backed by debt of Spanish local governments ... That left a group of big European banks that managed the deal holding roughly €500 million of the debt.

The lack of demand ...underscores the jittery nature of the region's credit markets. That some of the biggest banks in Europe, including Commerzbank AG, HSBC Holdings PLC and Société Général SA, were left holding the bag also demonstrates how easily sovereign risk can spread around the euro zone.

Prior to the financial crisis, many banks were stuck with lousy Residential Mortgage Backed Security (RMBS) that they couldn't sell to investors (all that Alt-A and Wall Street subprime - the worst of the worst mortgage loans). This story, about European banks getting stuck with debt backed by local Spanish governments, reminds me of those problems (although the overall situation is not as dire).

by Calculated Risk on 6/09/2011 08:32:00 PM

From Buck Wargo at the Las Vegas Sun: Land that sold for $30 million fetches $4.4 million after foreclosure

A 23.53-acre property at the Las Vegas Beltway and Hacienda Avenue that sold for $30.2 million in 2007 and was later foreclosed upon has been sold for $4.4 million.

It is amazing that people were still paying crazy prices in 2007.

This is mixed use land, and the commercial real estate bust started later than the residential bust, but the usual pattern is for commercial real estate to follow residential real estate - both up and down. The housing bust was obvious to everyone by late 2006, so I'd think developers would have been avoiding commercial by then too. Apparently not ...

Earlier:
• Weekly Initial Unemployment Claims increase to 427,000
• Trade Deficit decreased to $43.7 billion in April
• Q1 Flow of Funds: Household Real Estate assets off $6.6 trillion from peak
• Graphs: Weekly Claims, Trade Deficit, Flow of Funds

by Calculated Risk on 6/09/2011 03:34:00 PM

CR Note: Economist Tom Lawler has written several articles on the different measures of homeownership and vacancy rates. Although some readers’ eyes will glaze over, this information is critically important for analyzing housing and the U.S. economy. I'm still thinking about the implications!

"Lucy, you got some 'splainin' to do!"
Ricky Ricardo, "I Love Lucy", 1951
From economist Tom Lawler:

My frustration with the conflicting data on US housing that comes from different reports from the Census Bureau, and the inability of Census analysts to explain the differences or even tell “private” analysts what time-series data they should use to analyze US housing trends, has existed for at least a decade. Occasionally that long-standing “frustration” has led me to write that it almost appears as if Census officials and analysts “don’t care” about the conflicting data.

Whether that was or was not the case in the past, it most certainly is not the case today. In fact, some Census folks called me up yesterday to discuss some of the issues, and to let me know that (1) they are “concerned” about the differences; (2) they understand that the differences in measures of key variables have significant implications for the outlook for housing and the outlook for construction employment, with potentially significant public policy implications; and (3) they are going to devote considerable time and effort to investigate the differences.

While this phone call was not “on the record” and as a result I won’t discuss any details, one senior Census official agreed that Census has got “some ‘splaining to do!” I view this as a most, most welcome sign!

As a reminder of the key differences, below is a summary table of a few vacancy rate and homeowner rates from the decennial Census, the Housing Unit Coverage Study (HUCs) estimates (reflecting post-decennial-Census analysis), and the Housing Vacancy Survey (first-half averages).

Select Housing Measures: Decennial Census (4/1)
	1990	2000	2010	2010 vs 1990	2010 vs 2000
Rental Vacancy Rate	8.5%	6.8%	9.2%	0.7%	2.4%
Homeowner Vacancy Rate	2.1%	1.7%	2.4%	0.3%	0.7%
Gross Vacancy Rate	10.1%	9.0%	11.4%	1.3%	2.4%
Vacancy Rate ex Seasonal/Recreational/Occasional Use	7.3%	6.1%	8.1%	0.8%	2.0%
Homeownership Rate	64.2%	66.2%	65.1%	0.9%	-1.1%
Gross Vacancy Rate, HUCS (4/1)
	1990	2000	2010	2010 vs 1990	2010 vs 2000
Gross Vacancy Rate, HUCS1	10.5%	9.2%	11.4%	0.9%	2.1%
Select Housing Measures: HVS/CPS (H1)
	1990	2000	2010	2010 vs 1990	2010 vs 2000
Rental Vacancy Rate	7.2%	7.9%	10.6%	3.4%	2.7%
Homeowner Vacancy Rate	1.7%	1.5%	2.6%	0.9%	1.1%
Gross Vacancy Rate	11.4%	11.7%	14.5%	3.1%	2.8%
Vacancy Rate ex Seasonal/Recreational/Occasional Use	7.5%	7.5%	9.9%	2.4%	2.4%
Homeownership Rate	63.9%	67.2%	67.0%	3.1%	-0.2%

¹ Obviously, there has not yet been a “Housing Unit Coverage Study” for Census 2010!!!

by Calculated Risk on 6/09/2011 12:45:00 PM

The Federal Reserve released the Q1 2011 Flow of Funds report this morning: Flow of Funds.

The Fed estimated that the value of household real estate fell $339 billion in Q1 to $16.1 trillion in Q1 2011, from just under $16.5 trillion in Q4 2010. The value of household real estate has fallen $6.6 trillion from the peak - and is still falling in 2011.

Household net worth peaked at $65.8 trillion in Q2 2007. Net worth fell to $49.4 trillion in Q1 2009 (a loss of over $16 trillion), and net worth was at $58.1 trillion in Q1 2011 (up $8.7 trillion from the trough).

Click on graph for larger image in graph gallery.

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Note that this ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2011, household percent equity (of household real estate) declined to 38.1% as the value of real estate assets fell by $339 billion.

Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 38.1% equity - and 10.9 million households have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt declined by $85 billion in Q1. Mortgage debt has now declined by $634 billion from the peak. Studies suggest most of the decline in debt has been because of defaults, but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

Assets prices, as a percent of GDP, have fallen significantly and are only slightly above historical levels. However household mortgage debt, as a percent of GDP, is still historically very high, suggesting more deleveraging ahead for households.

by Calculated Risk on 6/09/2011 09:15:00 AM

The Department of Commerce reports:

[T]otal April exports of $175.6 billion and imports of $219.2 billion resulted in a goods and services deficit of $43.7 billion, down from $46.8 billion in March, revised. April exports were $2.2 billion more than March exports of $173.4 billion. April imports were $1.0 billion less than March imports of $220.2 billion.

The first graph shows the monthly U.S. exports and imports in dollars through April 2011.

Click on graph for larger image.

Exports increased in April and imports declined (seasonally adjusted). Exports are well above the pre-recession peak and up 19% compared to April 2010; imports are up about 16% compared to April 2010.

The second graph shows the U.S. trade deficit, with and without petroleum, through April.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The petroleum deficit decreased in April as the quantity imported decreased sharply even as prices increased. Oil averaged $103.18 per barrel in April, up from $77.13 in April 2010. There is a bit of a lag with prices, but it is possible prices will be a little lower in May.

The trade deficit was smaller than the expected $48.9 billion.