by Calculated Risk on 5/24/2011 10:00:00 AM

The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 323 thousand. This was up from a revised 301 thousand in March (revised from 300 thousand).

Click on graph for larger image in graph gallery.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000 ... This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.

And a long term graph for New Home Months of Supply:

Months of supply decreased to 6.5 in April from 7.2 months in March. The all time record was 12.1 months of supply in January 2009. This is still higher than normal (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This represents a supply of 6.5 months at the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 67,000 units in April. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In April 2011 (red column), 32 thousand new homes were sold (NSA). This ties the record low for the month of April.

The record low for April was 32 thousand in both 1982 and 2009 - and now 2011. The high was 116 thousand in 2005.

Although above the consensus forecast of 300 thousand, this ties the record low for April - and new home sales have averaged only 298 thousand SAAR over the last 12 months ... moving sideways at a very low level.

by Calculated Risk on 5/24/2011 08:53:00 AM

This speech is on financial education, but the following comments outlined some of the impact of the financial crisis on financial decisions.

From Fed Governor Elizabeth Duke: Research, Policy, and the Future of Financial Education

The financial crisis and the slow recovery from it has obviously had a dramatic impact on the financial decisions made by American families. Many now have fewer financial resources and limited options. The pace and timing of their saving and investing life cycle has also been disrupted.
...
In addition, starting salaries for recent college graduates have also declined, which means that young Americans who are employed will have fewer resources for saving and investing than their predecessors. Young people are living with their parents longer, which helps conserve their limited resources but likely places a strain on their parents' budgets.

Also troubling is research showing that many consumers who should be saving for retirement instead have been forced to take hardship withdrawals from their 401(k) plans. According to an analysis by Vanguard, hardship withdrawals increased by 49 percent between 2005 and 2010. Other types of withdrawals increased by 56 percent.

The increasing use of retirement savings for other purposes is particularly troubling given that the responsibility for saving for retirement has shifted away from employers to individual employees.
...
Individuals who are approaching retirement age, in particular, are being forced to make changes to their plans for retirement. Social Security Administration data indicate that in 2009 and 2010, the proportions of men and women claiming social security benefits at age 62 began to rise again after several years of decline. Workers have either chosen to leave the work force early in the last few years or, more likely, have applied for social security benefits as early as possible because of the weak job market.
...
The recession has clearly disrupted the future expectations and financial plans of millions of Americans, but even in the best of circumstances, effectively managing one's longevity risk requires a level of financial knowledge well beyond that required of any previous generation.

Many in the 401(k) generation are now reaching retirement - with little in savings and using withdrawals from their 401(k) plans just to get by. A grim retirement ...

by Calculated Risk on 5/23/2011 07:56:00 PM

There was a theme today - mortgage delinquencies and REO (lender Real Estate Owned).

Although the FHA hasn't released their March data online yet, housing economist Tom Lawler obtained a copy and sent me the data. He also sent me an estimate of the Private Label Securities (PLS) REO inventory (from Barclays Capital). We can now update the Q1 graph with the final FHA data.

The combined REO inventory for Fannie, Freddie and the FHA decreased to 287,380 at the end of Q1, from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

Click on graph for larger image in new window.

The REO inventory for the "Fs" increased sharply in 2010, but may have peaked in Q4 2010. The Fs acquired 101,997 REO units in Q1, but sold 110,023. Both are records, and the numbers will probably increase all year.

The second graph includes the data for the Fs and adds Private Label Securities (PLS).

The PLS blew up first because it contained the worst of the worst loans; poorly underwritten subprime and Alt-A.

Also the PLS wasn't set up to effectively manage REO and they just dumped houses on the market. Usually house prices are sticky downwards - prices decline, but slowly. However this dump of REOs led to what Tom Lawler called "destickification" with house prices falling rapidly in many low end areas with high foreclosure rates.

Now about half of the REOs are owned by the Fs and they are little more careful in releasing REO to the market.

Note: We still need to add REO for bank and thrifts based on the FDIC Q1 QBP that will probably be released this week.

Earlier on delinquencies and REO:
• Mortgage Delinquencies by Loan Type
• The Foreclosure Pipeline
• Delinquency Graphs

by Calculated Risk on 5/23/2011 05:01:00 PM

Last night we discussed the NY Times article: Banks Amass Glut of Homes, Chilling Sales

I pointed out that the RealtyTrac estimate of 872,000 REO (lender Real Estate Owned) was probably too high, and I also noted that there are approximately 2.25 million homes currently in the foreclosure process. There are another 1.8 million homes with the borrower more than 90 days delinquent - so there is more to come.

I'd like to add these two table to hopefully clarify the situation. The first table shows REO inventory in Q1 2011 by Fannie, Freddie, FHA, PLS (Private Label Securities). Tom Lawler sent me the FHA data (released today) and the PLS data (an estimate from Barclays Capital).

Single Family REO Inventory: Number of Properties
	Q1 2011	Peak Quarter	Peak
Fannie Mae	153,224	Q3 2010	166,787
Freddie Mac	65,159	Q3 2010	74,897
FHA	68,997	Current quarter	68,997
PLS	171,566	Q3 2008	436,270
Subtotal	458,946	Q3 2008	570,634
Banks & Thrifts	???

Note: The banks and thrifts will be added when the Q1 Quarterly Banking Profile is released this week. Last quarter the total of all REO was close to 600 thousand, and this quarter will probably be a little lower.

The peak for PLS was in Q3 2008, and their REO inventory has been declining steadily. It now appears both Fannie and Freddie are selling more REO than they are acquiring.

However it is important to note that foreclosing isn't the only solution. Some loans are cured by the borrower, other loans are modified (with various methods), and some homes are "short sales" with the lender agreeing to sell for less than the amount owed.

Single Family Activity in Q1 2011
	Freddie	Fannie	FHA	Total
REOs Acquired	24,709	53,549	23,739	101,997
REOs Sold	31,628	62,814	15,581	110,023
Mods and Short Sales1	62,641	78,079	60,0002	200,720

¹Includes a few deed-in-lieu of foreclosure that become REO.
²Estimated based on last 6 months.

First, the F's (Fannie, Freddie and the FHA) will probably foreclose on close to 500 thousand homes this year since they are picking up the pace. So they will also sell 500+ thousand homes this year - they sold 110,000 in Q1 alone.

But notice that modifications and short sales are twice the number of foreclosures. So if the F's foreclose and sell 500 thousand homes, they might modify/short sell another 1,000,000 (this is mostly modifications, and of course short sales are distressed sales too, but they usually sell for more than REO).

If we add in the PLS and banks and thrifts, the lenders will probably make significant progress on delinquencies this year (and again in 2012). Of course some of the modifications will redefault and end up as REO too, but I just wanted to make sure everyone knows that all of these properties won't end up as REO.

by Calculated Risk on 5/23/2011 01:23:00 PM

By request, the following graphs show the percent of loans delinquent by loan type: Prime, Subprime, FHA and VA. First a table comparing the number of loans in Q2 2007 and Q1 2011 so readers can understand the shift in loan types:

MBA National Delinquency Survey Loan Count
	Q2 2007	Q1 2011	Change	Seriously Delinquent
Prime	33,916,830	31,897,319	-2,019,511	1,859,614
Subprime	6,204,535	4,180,219	-2,024,316	1,109,848
FHA	3,030,214	6,285,254	3,255,040	511,620
VA	1,096,450	1,366,455	270,005	62,720
Survey Total	44,248,029	43,729,247	-518,782	3,572,679

Both the number of prime and subprime loans have declined over the last four years; the number of suprime loans is down by about one-third. Meanwhile the number of FHA loans has increased sharply.

Note: There are about 50 million total first-lien loans - the MBA survey is about 88% of the total.

Click on graph for larger image in graph gallery.

The first graph is for all prime loans. This is the key category now ("We are all subprime!").

Since there are far more prime loans than any other category (see table above), over half the loans seriously delinquent now are prime loans - even though the overall delinquency rate is lower than other loan types.

The second graph is for subprime. This category gets all the attention - mostly because of all the terrible loans made through the Wall Street "originate-to-distribute" model and sold as Private Label Securities (PLS). Not all PLS was subprime, but the worst of the worst loans were packaged in PLS.

Although the delinquency rate is still very high, the number of subprime loans had declined sharply.

The third graph is for FHA loans. The delinquency rate is declining, however this is primarily because most of the FHA loans were made in the last couple of years.

Another reason for the improvement was eliminating Downpayment Assistance Programs (DAPs). These were programs that allowed the seller to give the buyer the downpayment through a 3rd party "charity" (for a fee of course). The buyer had no money in the house and the default rates were horrible.

The last graph is for VA loans.

There are still quite a few subprime loans that are in distress, but the real keys going forward are prime loans and FHA loans.

by Calculated Risk on 5/23/2011 09:29:00 AM

Not a good few days for Europe. S&P warned on Italy, Fitch downgraded Greece and said an extension of maturities would be considered a default. There were large protests in Spain and Iceland's Eyjafjallajökull volcano erupted.

From Bloomberg: Greece Readies Crisis-Fighting Steps

The cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro- era high after Standard & Poor’s said May 20 it may cut Italy’s credit rating. That warning came hours after Fitch Ratings cut Greece three grades ... and said it would consider an extension of maturities as a default.

“Greece risks a sovereign default and finance ministers have expressed strong doubts about the sluggish progress,” French Finance Minister Christine Lagarde said in a May 20 interview with Austria’s Der Standard.

Naturally bond yields are rising for some countries - and falling in Germany and in the U.S. (flight to quality). Here is a table for some European bond yields via Bloomberg (ht Nemo for the links). The Greece 10-year bond yield is now over 17% (another new record).

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

Weekend:
• Summary for Week Ending May 20th
• Schedule for Week of May 22nd