by Calculated Risk on 7/23/2011 10:58:00 AM

The big story of the week was in Europe: Greece will default. Here is the statement: STATEMENT BY THE HEADS OF STATE OR GOVERNMENT OF THE EURO AREA AND EU INSTITUTIONS

This marks a significant step in the European financial crisis. The European leaders have finally recognized that the Greek debt burden must be reduced. Analysts are debating if this debt reduction is sufficient - probably not - and if other countries will need to default too. European leaders are adamant that private sector involvement is for Greece only. I have my doubts.

The U.S. data was mixed. There was a little good news in the housing sector including an increase in multifamily starts and in the remodeling index. Existing home sales were weak as expected, and the Architecture Billings Index (for commercial real estate) indicated contraction.

In manufacturing, the Philly Fed survey indicated a little expansion in July, from contraction in June.

Finally, the debt ceiling charade continued. As expected, no deficit reduction deal was reached, and we have now arrived at the final act. My guess is a deal will be reached to raise the debt ceiling, there will be a filibuster in the Senate, the House might reject the deal once, and then it will finally pass.

• Housing Starts increased in June

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 629,000. This is 14.6 percent (±10 9%) above the revised May estimate of 549,000 and is 16.7 percent (±11.8%) above the June 2010 rate of 539,000.

Single-family housing starts in June were at a rate of 453,000; this is 9.4 percent (±11.1%)* above the revised May figure of 414,000. The June rate for units in buildings with five units or more was 170,000.

Click on graph for larger image in graph gallery.

Total housing starts were at 629 thousand (SAAR) in June, up 14.6% from the revised May rate of 549 thousand.

Single-family starts increased 9.4% to 453 thousand in June.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

This was above expectations of 575 thousand starts in June. Multi-family starts are increasing in 2011 - although from a very low level. This is one of the bright spots for construction and the economy this year.

• Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply

The NAR reports: June Existing-Home Sales Slip on Contract Cancellations

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June 2011 (4.77 million SAAR) were 0.8% lower than last month, and were 8.8% lower than in June 2010.

According to the NAR, inventory increased to 3.77 million in June from 3.65 million in May.

This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 3.1% year-over-year in June from June 2010. This is the fifth consecutive month with a YoY decrease in inventory.

Months of supply increased to 9.5 months in June, up from 9.1 months in May. These sales numbers were below the consensus, but close to Lawler's forecast was 4.71 million using the NAR method.

This graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2011.

Sales NSA are below the tax credit boosted level of sales in June 2010 and June 2009, but slightly above the level of June sales in 2008.

Last year sales collapsed in July (orange column - after the expiration of the tax credit), so expect a report of a large YoY increase in sales announced next month.

• AIA: Architecture Billings Index indicates declining demand in June

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

This graph shows the Architecture Billings Index since 1996. The index decreased in June to 46.3 from 47.2 in May. Anything below 50 indicates a contraction in demand for architects' services.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions. Note that the government sector is the weakest. The American Recovery and Reinvestment Act of 2009 is winding down, and state and local governments are still cutting back.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this suggests another dip in CRE investment in 2012.

• Residential Remodeling Index at new high in May

The BuildFax Residential Remodeling Index was at 124.3 in May, up from 109.7 in April. This is based on the number of properties pulling residential construction permits in a given month.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 22% from May 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

• Moody's: Commercial Real Estate Prices increased in May

From Bloomberg: U.S. Commercial Property Prices Increased 6.3% in May, Moody’s Says

Here is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. 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 11% from a year ago and down about 46% from the peak in 2007. Prices fell sharply over the previous six months, and this increase only erases part of that decline.

Note: There are few commercial real estate transactions compared to residential, so this index is very volatile.

• Philly Fed Survey: "Regional manufacturing remained weak in July"

From the Philly Fed: July 2011 Business Outlook Survey "The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased to 3.2 from -7.7 [any reading above zero is expansion]."

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through July. The ISM and total Fed surveys are through June.

The averaged Empire State and Philly Fed surveys are back close to zero combined. July was a little better than June for both surveys.

• Other Economic Stories ...
• NAHB Builder Confidence index increases in July, Still Depressed
• On Track for Record Low Housing Completions in 2011
• Multi-family Starts and Completions
• NY Fed's Brian Sack: The SOMA Portfolio at $2.654 Trillion

Have a great weekend!

by Calculated Risk on 7/23/2011 08:15:00 AM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 22, 2011.

Changes and comments from surferdude808:

This week there were four removals and two additions to the Unofficial Problem Bank List. These changes result in the list having 993 institutions with $415.7 billion in assets, down from 995 institutions with assets of $$416.2 last week.

Failure remains the most likely way to exit the list. Leaving via failure this week were Bank of Choice, Greeley, CO ($1.1 billion); LandMark Bank of Florida, Sarasota, FL ($275 million); and SouthShore Community Bank, Apollo Beach, FL ($46 million Ticker: SSHC). The other removal was an action termination against Alterra Bank (f/k/a 1st Financial Bank), Overland Park, KS ($133 million).

The two additions were Liberty Bank, F.S.B., West Des Moines, IA ($1.0 billion) and Columbia Savings and Loan Association, Milwaukee, WI ($23 million).

Next week, we anticipate the FDIC will release its actions for June 2011.

by Calculated Risk on 7/22/2011 09:30:00 PM

From Nick Timiraos at the WSJ: Government Considers Ways to Rent Foreclosed Homes

The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

I'll have some comments on this over the weekend.

And from Jon Prior at HousingWire: White House to tackle housing reform after debt ceiling fight

A spokesperson for Rep. Barney Frank (D-Mass.) told HousingWire Friday the Obama administration has begun work on a proposal to extend the conforming loan limits, which are set to expire in October. ... Rep. John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.) introduced a bill last week that would extend the elevated loan limits for another two years.

Campbell represents a district in Orange County that will probably be impacted by the lower conforming limits.

Note: Here is a Spreadsheet with the current loan limits and the new loan limits by area (sorted by largest change in limit).

by Calculated Risk on 7/22/2011 07:11:00 PM

Bank of Hobson's choice.
Governments way, or highway
Free will delusion
by Soylent Green is People
From the FDIC: Bank Midwest, National Association, Kansas City, Missouri, Assumes All of the Deposits of Bank of Choice, Greeley, Colorado

As of March 31, 2011, Bank of Choice had approximately $1.07 billion in total assets and $924.9 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $213.6 million. ... Bank of Choice is the 58th FDIC-insured institution to fail in the nation this year, and the fifth in Colorado.

I guess they had no choice.

by Calculated Risk on 7/22/2011 06:10:00 PM

Olympian fail
Momentum reversed collapse
Sisyphean task
by Soylent Green is People
From the FDIC: American Momentum Bank, Tampa, Florida, Acquires All the Deposits of Two Florida Banks: Southshore Community Bank, Apollo Beach and LandMark Bank of Florida, Sarasota

As of March 31, 2011, Southshore Community Bank had approximately $46.3 million in total assets and $45.3 million in total deposits; and LandMark Bank of Florida had total assets of $275.0 million and total deposits of $246.7 million. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Southshore Community Bank will be $8.3 million and for LandMark Bank of Florida, $34.4 million. ... The closings are the 56th and 57th FDIC-insured institutions to fail in the nation so far this year and the eighth and ninth in Florida.

Friday is here!

by Calculated Risk on 7/22/2011 04:27:00 PM

The current number of excess vacant housing units is a key piece of data for the housing market. Unfortunately available data is inconsistent.

Economist Tom Lawler has been arguing that many analysts are overestimating the vacant supply by using the HVS - and Lawler has been using the 2010 Census data to make his case. See: The “Excess Supply of Housing” War and Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS

Lawler has also pointed out the most commonly used data for the homeownership rate appears incorrect. The Census Bureau agrees: Census Bureau on Homeownership Rate: We've got “Some 'Splainin' to Do”

Today Goldman Sachs lowered their estimate of the excess supply.

While the decennial census data are from the largest sample, we do not believe it is appropriate to ignore the other sources. ...

With the 2010 Census results in hand, we would now say that excess vacancies in the housing market are 1.5 to 3.5 million units—a wide range, reflecting discrepancies in the available data.

Clearly though, the census results suggest the risks to our previous estimate of 3.5 million units are to the downside. ... [A]t the current rate of housing production and with household growth of one million per year, it would take 5.1 years to clear 3.5 million units of excess inventory, but only 2.2 years to clear 1.5 million units of excess inventory.

A range of 2.2 years to 5.1 years to clear the excess inventory? We need better data!

Lawler thinks the excess supply is closer to the low end of that range.

Note: The Census Bureau is looking at the various data sources now, and is expected to provide analysis on the differences soon.