by Calculated Risk on 2/28/2014 06:14:00 PM

From the FDIC: First Choice Bank, Mercerville, New Jersey, Assumes All of the Deposits of Vantage Point Bank, Horsham, Pennsylvania

As of December 31, 2013, Vantage Point Bank had approximately $63.5 million in total assets and $62.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.5 million. Compared to other alternatives, First Choice Bank's acquisition was the least costly resolution for the FDIC's DIF. Vantage Point Bank is the 5th FDIC-insured institution to fail in the nation this year, and the first in Pennsylvania.

A twofer Friday!

by Calculated Risk on 2/28/2014 05:45:00 PM

From the FDIC: WashingtonFirst Bank, Reston, Virginia, Assumes All of the Deposits of Millennium Bank, National Association, Sterling, Virginia

As of December 31, 2013, Millennium Bank, N.A. had approximately $130.3 million in total assets and $121.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.7 million. Compared to other alternatives, WashingtonFirst Bank's acquisition was the least costly resolution for the FDIC's DIF. Millennium Bank, N.A. is the 4th FDIC-insured institution to fail in the nation this year, and the first in Virginia.

It is Friday!  On pace for about the same number of bank failures as last year (24).

by Calculated Risk on 2/28/2014 04:06:00 PM

From housing economist Tom Lawler: Government New Home Sales Report, If Accurate, Suggests Large Builder Share Down; Aggressive Home Price Hikes May Be to Blame

The Commerce Department earlier this week estimated that new SF home sales ran at a seasonally adjusted annual rate of 468,000, up 9.6% from December’s upwardly-revised (to 427,000 from 414,000) pace. Estimated sales for October and November were revised downward slightly, and the estimated sales for the fourth quarter of 2013 were not revised.

While January’s new SF home sales estimate was somewhat higher than I expected, I was even more surprised that last quarter’s sales estimates were not revised downward. Most large publicly-traded home builders reporting on a calendar quarter showed relatively weak net orders last quarter compared to a year earlier, and the nine large builders I regularly track¹ had combined net orders that were down 3.8% from a year earlier (not seasonally adjusted, of course.) That contrasts sharply with Census estimates showing an unadjusted YOY increase in sales last quarter of about 15%.

Of course, comparisons of builder results and Census sales estimates are tricky, given (1) the different treatment of cancellations; and (2) differences in the timing of the recognition of contract signings. Nevertheless, the difference results were “unusual,” and over the last two years builder results that varied materially from Census preliminary estimates have been a decent predictor of revisions to Census estimates of SF sales.

If in fact the Census sales estimates are reasonable (further revisions will occur, given its methodology), an implication would be that large builders’ share of the new SF home market declined significantly in the second half of last year. One possible reason is that many of the large publicly-traded builders, facing demand that exceeded their ability to supply new homes (in several instances because of “supply-chain” issues) in the early part of the year, jacked up prices by not just unusually large amounts, but by more than other builders. The combination of higher mortgage rates and these unusually aggressive price hikes not only slowed their sales, but also slowed their sales relative to other builders. Given that the huge price hikes at many large builders pushed margins on closed sales in the second half of last year to the highest levels in seven to eight years, it’s perhaps not “shocking” that other builders weren’t as aggressive.

Given the optimistic sales plans most of these large builders have for 2014 – backed by rapid expansions in their land/lot acquisitions over the last one-to-two years – it seems unlikely that these large publicly-traded builders will be able to hike prices much if at all this year unless they are will to see their share erode further, which seems unlikely.

¹ D.R. Horton, Pulte, NVR, Ryland, Beazer, Meritage, Standard Pacific, MDC, and M/I.

by Calculated Risk on 2/28/2014 01:14:00 PM

From Zillow: Negative Equity Crosses 20 Percent Threshhold to End 2013

According to the fourth quarter Zillow Negative Equity Report, the national negative equity rate dipped below 20 percent to 19.4 percent for the first time in years, thereby reducing negative equity by roughly a third from its 31.4 percent peak in the first quarter of 2012. Negative equity has fallen for seven consecutive quarters as home values have risen, freeing almost 3.9 million homeowners nationwide in 2013. The national negative equity rate fell from 27.5 percent of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21 percent in the third quarter. However, more than 9.8 million homeowners with a mortgage still remain underwater.
emphasis added

The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q4 2013 compared to Q4 2012.

Click on graph for larger image.

From Zillow:

Figure 6 shows the loan-to-value (LTV) distribution for homeowners with a mortgage in 2013 Q4 versus 2012 Q4. Even though many homeowners are still underwater and haven’t crossed the 100 percent LTV threshold to enter into positive equity, they are moving in the right direction.

Almost half of the borrowers with negative equity have a LTV of 100% to 120% (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140% (about 6.5% of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Note: CoreLogic will release their Q4 negative equity report in the next couple of weeks. For Q3, CoreLogic reported there were 6.4 million properties with negative equity, and that will be down further in Q4.

by Calculated Risk on 2/28/2014 10:59:00 AM

From the NAR: Pending Home Sales Hold Steady in January

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged up 0.1 percent to 95.0 in January from an upwardly revised 94.9 in December, but is 9.0 percent below January 2013 when it was 104.4.
...
The December index reading was the lowest since November 2011, when it stood at 94.6.

The PHSI in the Northeast rose 2.3 percent to 79.0 in January, but is 5.3 percent below a year ago. In the Midwest the index declined 2.5 percent to 92.9 in January, and is 9.3 percent lower than January 2013. Pending home sales in the South increased 3.5 percent to an index of 111.2 in January, and is 5.5 percent below a year ago. The index in the West fell 4.8 percent in January to 84.2, and is 17.5 percent below January 2013.

Existing-home sales are expected to be weak in the first quarter

A few comments:
• Mr. Yun blamed some of the decline on the weather (the weather was unusually bad again in January), but the index remained weak in the South too (down 5.5% year-over-year and probably not weather), and in the West (partially related to low inventories).

• My view is there were several reasons for the decline in this index: weather in some areas, fewer distressed sales, less investor buying, fewer "pending" short sales, and low inventories.  I think fewer distressed sales, fewer "pending" short sales, and less investor buying are all signs of a healthier market - even if overall sales decline.

• Mr Yun lowered has forecast for 2014 to 5.0 million existing home sales, down from his previous forecast of 5.1 million existing home sales this year. I'll take the under on his new forecast, and I think it would be a positive sign if sales were under 5 million in 2014 as long as distressed sales continue to decline and conventional sales increase.

 • Of course, for housing, what really matters for the economy and employment is new home sales (not existing), and housing starts. 

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March.

by Calculated Risk on 2/28/2014 09:55:00 AM

Click on graph for larger image.

• The final Reuters / University of Michigan consumer sentiment index for February increased to 81.6 from the January reading of 81.2, and from the preliminary February reading of 81.2.

This was above the consensus forecast of 81.2. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.

I expect to see sentiment at post-recession highs very soon.

• From the Chicago ISM:

February 2014:

The Chicago Business Barometer remained broadly unchanged at 59.8 in February compared with 59.6 in January, as a double-digit gain in Employment offset declines in New Orders, Production and Order Backlogs. ... Some panellists cited the negative effect of the poor weather on their business, although overall this appeared to have a minor impact that was only visible in longer supplier lead times.

After expanding at a faster rate in January, Production and New Orders decelerated in February, while a more pronounced set back was seen in Order Backlogs. In contrast, the Employment Indicator bounced back sharply in February, jumping out of contraction, and nearly reversing the declines seen in the previous two months.

Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The latest Chicago Report confirms that the US economic recovery continued in February, with New Orders and Production remaining at high levels.”

This was above the consensus estimate of 57.8.

by Calculated Risk on 2/28/2014 08:38:00 AM

From the BEA: Gross Domestic Product, Fourth Quarter and Annual 2013 (second estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ...

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. ...

The second estimate of the fourth-quarter percent change in real GDP is 0.8 percentage point, or $32.7 billion, less than the advance estimate issued last month, primarily reflecting downward revisions to personal consumption expenditures (PCE), to private inventory investment, to exports, and to state and local government spending that were partly offset by an upward revision to nonresidential fixed investment.

Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 3.3% to 2.6%. Government spending was a larger drag than originally estimated (-5.6% vs -4.9%).

by Calculated Risk on 2/27/2014 08:16:00 PM

File under the new LA skyline ... another high rise is planned, from Roger Vincent at the LA Times: New high-rise on Broadway would be one of tallest in Southland

[A] 34-story apartment skyscraper more than twice as tall as most other buildings in the historic core of downtown L.A.

To be built at a cost of nearly $150 million, the apartment and retail complex called Broadway @ 4th would house 450 units and fill in a key block in gentrifying downtown L.A.

Friday:
• At 8:30 AM ET, the second estimate of Q4 GDP from the BEA. The consensus is that real GDP increased 2.5% annualized in Q4, revised down from the advance estimate of 3.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for February. The consensus is for a decrease to 57.8, down from 59.6 in January.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 81.2, unchanged from the preliminary reading of 81.2, and unchanged from the January reading.

• At 10:00 AM, Pending Home Sales Index for January. The consensus is for a 2.7% increase in the index.

by Calculated Risk on 2/27/2014 02:10:00 PM

From Freddie Mac: FREDDIE MAC REPORTS NET INCOME OF $48.7 BILLION FOR FULL-YEAR 2013; COMPREHENSIVE INCOME OF $51.6 BILLION

• Full-year net income and comprehensive income totaled $48.7 billion and $51.6 billion, respectively
• Fourth quarter net income and comprehensive income totaled $8.6 billion and $9.8 billion, respectively – the company’s ninth consecutive quarter of positive net income and comprehensive income
• Financial results were positively impacted by the following significant items:

• Full-year tax benefit of $23.3 billion driven by release of deferred tax asset valuation allowance
• Pre-tax benefit of legal settlements of $6.0 billion for fourth quarter and $7.7 billion for full year
• Continued improvement in home prices which contributed to reduced loan loss provisioning
• Fair value gains on derivative portfolio and non-agency mortgage-related securities

• Recent level of earnings is not sustainable over the long term
emphasis added

There were significant one time gains (tax assets, legal settlements).

Click on graph for larger image.

Here is a graph of Fannie and Freddie REO. This was the second consecutive quarterly increase in REO.

Freddie’s SF REO inventory declined over the year, and the recent increase might be seasonal. From Freddie:

In 2013, REO inventory declined primarily due to lower single-family foreclosure activity as a result of Freddie Mac’s loss mitigation efforts and a declining amount of delinquent loans.

Freddie Mac experienced an increase in REO acquisitions during 2013 compared to 2012 in the Northeast region and REO acquisitions remained high in the Southeast region. High REO acquisition volumes in these regions were primarily due to higher foreclosure volume in Maryland, Pennsylvania and Florida.

by Calculated Risk on 2/27/2014 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing was Slightly Positive

Growth in Tenth District manufacturing activity was slightly positive in February, and although producers’ expectations moderated somewhat they remained at solid levels overall. Several contacts continued to cite delays and slowdowns caused by severe winter weather issues. Price indexes were mostly stable or slightly lower.

The month-over-month composite index was 4 in February, similar to the reading of 5 in January and up from -3 in December ... The new orders, employment, and capital expenditures indexes were mostly unchanged.

“The story in February was similar to January. Regional factory activity was held back somewhat by unusually harsh weather, but still managed to grow modestly.” [said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City]
emphasis added

This is the last of the regional surveys.  Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through February), and five Fed surveys are averaged (blue, through February) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

This suggests another weak reading for the February ISM survey to be released Monday, March 3rd.