by Calculated Risk on 5/25/2011 09:51:00 AM

During the housing busts that followed the California housing bubbles of the late '70s and late '80s, there came a period when sentiment for homeownership changed. The evidence was anecdotal, but it was not uncommon to hear people say owning a home was "dumb".

So one thing I've been looking for is a change in sentiment. Earlier posts on this with anecdotal evidence: Housing: Feeling the Hate, More "Hate" for Housing, and More "Hate" for Homeownership.

A shift in sentiment doesn't mean housing prices have bottomed - it just means the market is getting closer. In previous busts it seemed like negative sentiment lasted for a few years.

Last week Trulia and RealtyTrac released a survey of when Americans thought the housing market would recover. (ht Keith Jurow, Keith is far more bearish than I am bearish).

Here is the survey: Trulia and RealtyTrac Survey Reveals 54 Percent of American Adults Now Believe Housing Recovery Remains Unlikely Until 2014 or Later

As more cities across the nation experience double dips in home prices , more than half (54 percent) of U.S. adults believe recovery in the housing market will not happen until 2014 or later, according to the survey released today. In a previous survey conducted six months ago , 42 percent of American adults said they thought the market would turn around by 2012 or had already turned around. Now, only 23 percent continue to think this will happen.

When American Adults Believe Housing Market Will Recover
	Apr-11	Nov-10	% Change
Already Recovered[1]	5%	5%	0%
By the end of 2011	3%	10%	-70%
2012	15%	27%	-44%
2013	24%	24%	0%
2014 or Later	54%	34%	59%

Clearly there has been a sharp shift in when people think the housing market will "recover". Expecting a recovery is somewhat different from asking when people will want to buy, but I think they are somewhat related - if non-owners think the market won't bottom for several years, they would probably also say they won't buy soon too. Just a little more evidence of a shift in sentiment ...

by Calculated Risk on 5/25/2011 07:35:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 0.9 percent to its highest level since December 10, 2010. The seasonally adjusted Purchase Index increased 1.5 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.69 percent from 4.60 percent, with points decreasing to 0.69 from 0.93 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in graph gallery.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Refinance activity increased to the highest level since December 2010.

The four week average of purchase activity is at about 1997 levels. Of course this doesn't includes cash buyers - and there is a very high percentage of cash buyers right now. This suggests weak existing home sales through mid-year (not counting cash buyers).

by Calculated Risk on 5/25/2011 12:50:00 AM

From at the WSJ: Banks Face $17 Billion in Suits Over Foreclosures

State attorneys general told five of the nation's largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices ... The figure doesn't cover additional billions of dollars in potential claims from federal agencies.

The initial number floated by the government was a $20 billion settlement. The banks suggested a $5 billion fund to provide transition assistance for those losing their homes in foreclosure. However the banks already provide transition assistance ("cash for keys") for borrowers who leave the keys and property in decent shape - so that wasn't much of a penalty. I guess this $17 billion is the new government number - so it appears the sides are still far apart.

by Calculated Risk on 5/24/2011 06:35:00 PM

Moody's reported yesterday that the Moody’s/REAL All Property Type Aggregate Index declined 4.2% in March. Note: Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales and there are a large percentage of distressed sales - and that can impact prices and make the index very volatile.

The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement ...So-called trophy properties in New York, Washington, Boston, Chicago, Los Angeles and San Francisco are helping those markets avoid the drag caused by distressed asset sales nationwide, Moody’s reported.

The overall index shows “no sign of recovery,” Moody’s said.

Almost a third of all March transactions measured by Moody’s were considered distressed, meaning the properties’ owners faced foreclosure, had difficulty covering their mortgage payments or experienced other financial problems. It was the largest proportion of distressed property sales in the history of the index, Moody’s said.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in graph gallery.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are down 8.5% from a year ago and down about 47% from the peak in 2007. Prices are at new post-bubble lows - and about at the levels of early 2002.

For more on CRE prices, here is the CoStar report for March prices.

Earlier:
• New Home Sales in April at 323 Thousand SAAR, Ties Record low for April
• Lawler: FDIC-insured institutions’ Real Estate Owned (REO) decrease in Q1
• New Home Sales graphs

by Calculated Risk on 5/24/2011 02:51:00 PM

From economist Tom Lawler:

The FDIC released its Quarterly Banking Profile for the first quarter of 2011. ... On the REO front [lender Real Estate Owned], the carrying value of 1-4 family residential real estate owned on FDIC-insured institutions’ balance sheet on 3/31/11 was $13.2795 billion, down from $14.0498 billion on 12/31/10 and $14.5527 billion last March. The steep drop suggests that banks probably increased the pace at which they sold SF REO properties last quarter.

Click on graph for larger image in new window.

As I have noted before, it is unfortunate that the FDIC does not collect data on the NUMBER of REO properties held, and there are actually significantly different estimates across analysts of the average carrying value of 1-4-family REO properties at FDIC-insured institutions. If one were to assume an average carrying value of about $150,000 – which is slightly over 50% above that for Fannie and Freddie – then FDIC-insured institutions would have owned about 88,530 residential REO properties last quarter. (Barclays Capital analysts believe the average carrying value is higher, and as a result the number of properties would be lower).

Using the $150,000 number, here is a chart of REO holdings of Fannie, Freddie, FHA, and FDIC-insured institutions.

Note that this is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories. At the end of last year Fannie, Freddie, FDIC-insured institutions, FHA, and private-label RMBS accounted for approximately 89% of the dollar balance of 1-4 family first-lien mortgage debt outstanding. If one “grossed up” the estimates shown in the chart by this factor – which probably produces a “too high” number – then one estimate of the total REO inventory for 1-4 family properties would be around 615,000.

Of course, such an estimate probably understates the effective number of REO properties. E.g., institutions could well have unloaded properties in bulk sales to private entities looking to fix up and then sell and/or rent the properties but who have not yet done so. However, at least based on available lender data, estimates of the number of REO properties from RealtyTrac look materially too high, and overall REO inventories have clearly declined over the last two quarters.

CR Note: this is probably a good estimate of REO inventory. The key is REO inventory is declining again even though some organizations have significantly increased their foreclosure activity and are working through the backlog of seriously delinquent mortgages.

by Calculated Risk on 5/24/2011 12:25:00 PM

• From the Richmond Fed: Manufacturing Activity Stalled in May; But Expectations Remain Upbeat

In May, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — fell sixteen points to −6 from April's reading of 10. Among the index's components, shipments decreased nineteen points to −13, new orders dropped twenty-five points to finish at −15
...
The pace of hiring held steady at District plants in May. The manufacturing employment index was unchanged at 14 and the average workweek measure flattened, losing seven points to 0. However, wage growth slowed sharply, falling sixteen points to 6.

This was the first regional manufacturing survey to show contraction - the others showed sharply slower growth in May.

Also the Richmond Fed service survey indicated slowing: Service Sector Activity Slowed in May; Hiring and Wages Remained Strong at Non-Retail Firms, and Leveled off at Retail Businesses (This is new and not closely followed).

• FDIC releases Q1 Quarterly Banking Profile

The number of institutions on the "Problem List" flattened. The net increase of four, to 888, is the smallest in three-and-a-half years. The number of "problem" institutions is the highest since March 31, 1993, when there were 928. Total assets of "problem" institutions increased from $390 billion to $397 billion.

I'll have more from this later.

• Home sales: Distressing Gap. The following graph shows existing home sales (left axis) and new home sales (right axis) through April. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Click on graph for larger image in graph gallery.

The gap is due mostly to the flood of distressed sales. This has kept existing home sales elevated, and depressed new home sales since builders can't compete with the low prices of all the foreclosed properties.

I expect this gap to close over the next few years once the number of distressed sales starts to decline.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different. Also the National Association of Realtors (NAR) is working on a benchmark revision for existing home sales numbers and I expect significant downward revisions to sales estimates for the last few years - perhaps as much as 10% to 15% for 2009 and 2010. Even with these revisions, most of the "distressing gap" will remain.

Earlier:
• New Home Sales in April at 323 Thousand SAAR, Ties Record low for April