by Calculated Risk on 12/15/2008 11:02:00 PM

Jad Mouawad at the NY Times writes about the impact of falling oil prices on investment: Big Oil Projects Put in Jeopardy by Fall in Prices

The NY Times article discusses the impact of falling oil prices on energy investment worldwide, but also interesting is the impact on domestic investment. The following graph compares real oil prices (data from the St. Louis Fed, adjusted with CPI) and real investment in petroleum exploration and wells in the U.S. (data from the BEA).

This doesn't include investment in alternative energy sources.

Click on graph for larger image in new window.

Not surprisingly there is a strong correlation between oil prices and investment. With oil prices now in the $45 per barrel range, this suggests that domestic investment could fall to $25 billion per year or so. This is another area of non-residential investment that will probably see a significant decline in 2009.

by Calculated Risk on 12/15/2008 06:15:00 PM

First another great cartoon! Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis

From Bloomberg: AIG Sells Mortgage-Backed Securities to Fed Vehicle

American International Group Inc. ... sold residential mortgage-backed securities with a face value of $39.3 billion to a facility funded by the Federal Reserve.

AIG will receive about $19.8 billion for the assets ...

Without some details, it is impossible to know if half off is a good price for the Fed.

Also, check out Eric's earlier cartoon on Bernanke and quantitative easing.

by Calculated Risk on 12/15/2008 05:42:00 PM

From the Business Ledger: Vacancy rates skyrocket in [Chicago] I-55 corridor

[A] slowdown in leasing along with new speculative buildings coming online and new sublease space hitting the market have combined in a “perfect storm” ... Since Jan. 1, the I-55 corridor vacancy rate has risen from 11.66 percent to 18.5 percent at the end of the third quarter.

Over the last few years I heard several times how there wouldn't be a sublease problem this time. Here was the story: during previous downturns there was a flood of sublease space, but then a number of companies were eventually squeezed for space when the economy recovered, so this time they would be smarter and hold the extra space waiting for the recovery.

So much for that theory.

by Calculated Risk on 12/15/2008 01:55:00 PM

From HousingWire: Fitch: Alt-A Mortgages Deteriorating More Rapidly than Expected

Citing “a rapid deterioration of U.S. Alt-A RMBS performance,” Fitch Ratings again took the hatchet to its previous assumptions for Alt-A mortgages on Monday morning, revising its surveillance methodology and updating loss projections for all U.S. Alt-A RMBS.

Hoocoodanode?

by Calculated Risk on 12/15/2008 01:42:00 PM

The question has come up again about comparing housing starts and new home sales.

As I've noted before, it is incorrect to directly compare monthly housing starts to sales. The monthly housing starts report from the Census Bureau includes apartments, owner built units and condos that are not included in the New Home sales report.

However, every quarter, the Census Bureau releases Starts by Intent, and it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The most recent report shows there were 102,000 single family starts, built for sale, in Q3 2008 and this is less than the 118,000 new home sales for the same period. This suggests homebuilders are selling more homes than they are starting – but not by much.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions), although this isn’t perfect because homebuilders have recently been stuck with “unintentional spec homes” because of the high cancellation rates.

Click on graph for larger image in new window.

This graph provides a quarterly comparison of housing starts and new home sales. In 2005, and most of 2006, starts were higher than sales, and inventories of new homes rose sharply. For the last several quarters, starts have been below sales – and new home inventories have been falling - but it continues to be a race to the bottom between starts and sales!

by Calculated Risk on 12/15/2008 12:56:00 PM

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The builder confidence index was at 9, tying the record low set in November.

Usually housing bottoms look like a "V"; this one will probably look more like an "L". (this refers to activity like starts and sales, but will probably also be apparent in the confidence survey).

Press release from the NAHB: Builder Confidence Remains At Record Low In December

Builder confidence in the market for newly built single-family homes held at a record low in December as deepening economic turmoil, a deteriorating job market, and an ongoing flow of foreclosed homes onto the market continued to negatively impact sales conditions. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) did not budge this month from November’s all-time low reading of 9, with two out of three component indexes losing further ground.

“The crisis continues,” said NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W. Va. “While builders are doing everything we can in the way of price and non-price incentives to move new homes off the books, buyers are afraid to move forward, and in any case there is almost no way to compete with the cut-rate product that is continually flooding the market from mounting foreclosures.” ...

“We have seen no improvement over the past month in terms of sales conditions for new homes,” said NAHB Chief Economist David Crowe. “In fact, certain factors have gotten progressively worse, not the least of which is the job market, where massive layoffs are having a devastating effect on consumer confidence.” ...

Two out of three of the HMI’s component indexes registered some further deterioration in December. The index gauging current sales conditions and the index gauging sales expectations for the next six months each declined to new record lows, falling one point to 8 and two points to 16, respectively. The index gauging traffic of prospective buyers held at a record low of 7 for the month.

Two out of four regions posted declining builder confidence readings in December, with the Midwest and South edging down one point and two points, to 6 and 10, respectively. The Northeast held even with the previous month’s 11 reading, while the West posted a one-point gain to 7.

by Calculated Risk on 12/15/2008 12:40:00 PM

From the WSJ: Treasury Still Studying Auto Rescue

The U.S. Treasury Department said Monday it has made no decisions on how to engineer a rescue effort for U.S. auto makers,
...
"We continue to assess and review the information we have received from the auto makers, and we are providing regular briefings to the White House on our thinking," [Treasury spokesman Brookly McLaughlin] said. "No decisions have been made."

It sounds like the administration might be considering some sort of prepackaged bankruptcy, with the government providing DIP (debtor-in-possession) financing.

by Calculated Risk on 12/15/2008 10:06:00 AM

Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis

Eric says he was inspired by my post yesterday: What if they had a Fed Meeting ...

by Calculated Risk on 12/15/2008 08:40:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in December. The general business conditions index, at -25.8, held near the record low set in November. The new orders and shipments indexes also remained near their recent record lows, and the unfilled orders index dropped to a new low. The indexes for prices paid and prices received fell below zero, and employment indexes remained deep in negative territory.

This is just the beginning of what is likely to be a grim weak week of economic news.

by Calculated Risk on 12/14/2008 09:02:00 PM

From the NY Times: Fannie Mae Lets Renters Stay Despite Foreclosures

Fannie Mae said Sunday that it would sign new leases with renters living in foreclosed properties owned by the company.
...
In recent months, skyrocketing foreclosure rates have exposed as many as 70,000 renters to evictions, even though many never missed rent payments, according to analysts who track housing data.
...
“While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”

With so many vacant homes for sale, it makes sense to offer renters month to month leases to stay (instead of evicting them even if they are paying their rent). It sounds like Freddie Mac will offer the same program, although I doubt the private sector will follow their lead.