by Calculated Risk on 8/08/2012 04:53:00 PM

Sometimes it helps to state the obvious in advance ...

The Not Seasonally Adjusted (NSA) house price indexes will show month-to-month declines later this year. This should come as no surprise and will not be a sign of impending doom.

The key is to watch the year-over-year change and to compare to the NSA lows earlier this year. I think house prices have already bottomed, and will be up slightly year-over-year when prices reach the usual seasonal bottom in early 2013.

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index over the last several years. There is a clear seasonal pattern. In recent years the seasonal pattern has been exaggerated by the large number of foreclosures - foreclosures tend to be fairly steady all year, but conventional sales are stronger in the spring and early summer, and weaker in the fall and winter. This leads to more downward pressure from foreclosures in the fall and winter.

Note: The CoreLogic index tends to lead Case-Shiller. Both are three month averages, but CoreLogic is weighted to the most recent month.

Right now I'm guessing both indexes will report negative month-to-month price changes for August or September (reported in October or November). Just something to be aware of ...

by Calculated Risk on 8/08/2012 02:23:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

From the GLVAR: GLVAR reports sixth straight month of increasing local home prices,record number of short sales, housing supply bouncing back a bit

According to GLVAR, the total number of local homes, condominiums and townhomes sold in July was 3,572. That’s down from 3,945 in June and down from 4,037 total sales in July 2011.
...
Reversing a months-long trend, the total number of homes listed for sale on GLVAR’s Multiple Listing Service increased slightly from June to July, with a total of 16,944 single-family homes listed for sale at the end of the month. That’s up 0.1 percent from 16,930 single-family homes listed for sale at the end of June, but still down 24.5 percent from one year ago.

The number of available homes listed for sale without any sort of pending or contingent offer also rebounded compared to the previous month, but was still down considerably from last year. By the end of July, GLVAR reported 4,293 single-family homes listed without any sort of offer. That’s up 16.3 percent from 3,690 such homes listed in June, but down 60.9 percent from one year ago.
...
40 percent of all existing local homes sold during July were short sales, which occur when a lender agrees to sell a home for less than what the borrower owes on the mortgage. That’s up from 34.2 percent in June and the highest short sale percentage GLVAR has ever recorded.

Continuing a trend of declining foreclosure sales in recent months, bank-owned homes accounted for 20.7 percent of all existing home sales in July, down from 27.8 percent in June.

A few key points:
• Even with the slight increase in inventory in July, inventory is still down sharply from a year ago (down 60.9 percent year-over-year for single family homes without contingent offers).

• The decline in sales from the record levels in 2011 (even more sales than during the bubble!) is because of the decline in foreclosures. Some of the recent decline in foreclosures is due to new foreclosure rules in Nevada, but there is also a shift to short sales.

• Short sales are almost double foreclosures now. The GLVAR reported 40 percent of sales were short sales, and only 20.7% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).

• The percent distressed sales was extremely high at 60.7% in July (short sales and foreclosures), but that was down from 62% in June.

by Calculated Risk on 8/08/2012 12:02:00 PM

The combined Real Estate Owned (REO) by Fannie, Freddie and the FHA declined to 202,765 at the end of Q2 2012, down from 209,077 in Q1, and down 18% from 249,501 in Q2 2012. The peak for the combined REO of the F's was 295,307 in Q4 2010.

According to Fannie Mae, "foreclosures continue to proceed at a slow pace", even following the mortgage settlement:

Our foreclosure rates remain high; however, foreclosures continue to proceed at a slow pace caused by continuing foreclosure process issues encountered by our servicers and changing legislative, regulatory and judicial requirements. The delay in foreclosures, as well as a net increase in the number of dispositions over acquisitions of REO properties, has resulted in a decrease in the inventory of foreclosed properties since December 31, 2010.

The bulk sales program has had a minimal impact so far:

In February 2012, FHFA announced the pilot of an REO initiative that solicited bids from qualified investors to purchase approximately 2,500 foreclosed properties from us with the requirement to rent the purchased properties for a specified number of years. The pilot involves the sale of pools of foreclosed homes including both vacant properties and occupied rental properties. The first pilot transaction involves the sale of pools of properties located in geographically concentrated locations across the United States. The winning bidders have been chosen and transactions are expected to close in the third quarter of 2012. We do not yet know whether this initiative will have a material impact on our future REO sales and REO inventory levels.

Click on graph for larger image.

This graph shows the REO inventory for Fannie, Freddie and the FHA.

This is only a portion of the total REO. There is also REO for private-label MBS, FDIC-insured institutions, VA and more. REO has been declining for those categories too. Most analysts expect an increase in foreclosures, and the number of REO might increase over the next several quarters.

Although REO was down for Fannie and Freddie in Q2 from Q1, but REO increased for the FHA - this is something to watch.

by Calculated Risk on 8/08/2012 10:05:00 AM

From Fannie Mae: Fannie Mae Reports Net Income of $5.1 Billion for Second Quarter 2012

The company’s continued improvement in financial results in the second quarter of 2012 was almost entirely due to credit-related income, resulting primarily from an improvement in home prices, improved sales prices on the company’s real-estate owned (“REO”) properties, and a decline in the company’s single-family serious delinquency rate. The company’s comprehensive income of $5.4 billion in the second quarter of 2012 is sufficient to pay its second-quarter dividend of $2.9 billion to the Department of the Treasury.

These are key points - the improvement was due to 1) an increase in home prices, 2) improved sales prices of REO, and 3) decline in serious delinquency rate.

Here are some more details from the Fannie Mae's SEC filing 10-Q:

The significant improvement in our second quarter results was primarily due to recognition of a benefit for credit losses of $3.0 billion in the second quarter of 2012 compared with a provision for credit losses of $6.5 billion in the second quarter of 2011. This benefit for credit losses was due to a decrease in our total loss reserves driven primarily by an improvement in the profile of our single-family book of business resulting from an increase in actual home prices, including the sales prices of our REO properties. In addition, our single-family serious delinquency rate continued to decline, driven in large part by the quality and growth of our new single-family book of business, our modification efforts and current period foreclosures. Key factors impacting our credit-related results include:

• Home prices increased by 3.2% in the second quarter of 2012 compared with 1.2% in the second quarter of 2011. We historically see seasonal improvement in home prices in the second quarter; however, the home price increase in the second quarter of 2012 was larger than expected and the largest quarterly increase we have seen in the last few years. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default.

• Sales prices on dispositions of our REO properties improved in the second quarter of 2012 as a result of strong demand. We received net proceeds from our REO sales equal to 59% of the loans’ unpaid principal balance in the second quarter of 2012, compared with 56% in the first quarter of 2012 and 54% in the second quarter of 2011.

• Our single-family serious delinquency rate declined to 3.53% as of June 30, 2012 from 3.67% as of March 31, 2012 and 4.08% as of June 30, 2011.

Click on graph for larger image.

This graph from the Fannie Mae Second-Quarter Credit Supplement shows the REO sales price divided by the Unpaid Principal Balance (UPB). Fannie is losing less on each REO due to a combination of slightly higher house prices and strong investor demand.

Also, Fannie Mae' REO inventory declined in Q2 to 109,266 houses, the lowest level since 2009. I'll have more REO soon.

by Calculated Risk on 8/08/2012 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from a week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.76 percent from 3.75 percent, with points decreasing to 0.46 from 0.51 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

There is no evidence in this index of an increase in purchase applications. However the Fed Senior Loan Officer survey showed the opposite, from Nick Timiraos at the WSJ: Home Prices Climb as Supply Dwindles

The Federal Reserve said Monday demand for mortgages to purchase homes jumped during the second quarter by the largest amount in at least three years, according to a survey of bank lending officers.

The following table is from the Senior Loan Officer survey:


Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn't clear why the MBA index and the Fed survey results are different.