Category: Real Estate

Felix Salmon Has A Talk with Treasury Officials

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And determines that they are still the banks bitches, working for them, rather than the citizenry.

In truth, Mr. Salmon did not say that Geithner and His Evil Minions™ see themselves as nothing more than a way to support the banksters, but that is the basic take away that I see here:

Well done to Shahien Nasiripour, who did the best job of anybody, at the Treasury blogger meeting yesterday, at getting Treasury’s officials to commit news. Specifically, he asked about Sheila Bair’s sensible idea that mortgage principal write-downs can help keep homeowners in their homes while also maximizing the value of the mortgage to the issuing bank. And he was told, quite clearly, that Treasury has been talking to Bair about this idea, and that if it makes sense at the bank level, it probably makes sense at the federal level, too, as part of the HAMP program to make mortgages affordable.

Except that once the meeting was over, its main architect, Treasury flack Andrew Williams, emailed Nasiripour to walk that particular idea back, saying that Treasury was NOT (his all caps) going to do anything “major” in terms of principal write-downs, and that any moves in that direction would be no more than “tweaks”.

………

It seems to me that insofar as Treasury has a problem with principal write-downs, that’s clearly a function of the fact that it’s worried about the consequences for banks’ balance sheets. We’re prosecuting a muddle-through strategy right now, where the government artificially props up house prices by providing substantially all of the mortgage finance in the country, in the hope that with economic recovery will come enough of a natural rebound in house prices to let the government slowly remove its support without them falling dramatically again.

(emphasis mine)

Unless the Treasury is banking on 6% inflation a year for the next 8 or 9 years, this is not going to happen.

House prices are still over valued, whether you use price to income, or rent to own (and rents are dropping too), and we are not going to see a recovery until house prices

This is complete regulatory capture, pure and simple.

Economics Update

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Employment-to-Population Ratio: Men (25-54 Years)

Labour Force Participation Rate: Men (25-54 Years)

And Barry Ritholtz scares the hell out of us

Well, today is Jobless Thursday, and new unemployment claims fell by 29,000 to 469,000, which is better, but not good.

The numbers needs to be below 400K before we see anything near real job growth.

The 4 week moving average fell by 3,500 to 470,750, though that number is still bigger than it was at the start of the year.

Continuing claims fell significantly, to 4,500,000, and next week, I will be a no longer be a part of that number (I file for the prior 2 weeks on Sunday).

Still, the news is an improvement, as is the latest Beige Book from the Federal Reserve, which shows signs of employment.

In any case, the ADP report on private sector jobs shows a loss of 20,000 jobs, which is the best month from them since January 2008.

So, the picture is not good, but appears to be improving, but fragile.

But if you want to be scared, just look at Barry Ritholtz’s analysis of historical employment for adult males, see the graph pr0n.

On a more personal level, personal bankruptcies rose in February.

We are seeing continued growth in manufacturing, at least according to the Institute for Supply Management Manufacturing Index, which fell to 56.5 from 58.4, but since any reading above 50 means expansion, it’s still positive.

The services sector is also showing encouraging growth.

Still, real estate is a mess, with pending home sales index falling 7.6%, though part of this might be the snowpocalypse.

Still, interest rates are not a problem with the 30-year fixed-rate mortgage rate averaging 4.97 %, which is the first time in a while that it has been below 5%.

Finally, the Bank of England left its benchmark rates unchanged, as well as holding off on more quantitative easing. (Printing money)

Economics Update

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H/t Calculated Risk


That bump is the tax credit h/t Calculated Risk

The big news is the upward revision of US GDP in the 4th quarter, though it should be noted that this delta is all inventory shrinking less quickly than expected, everything else was revised down.

Go to Calculated Risk to see a handy table illustrating this.

Meanwhile real estate is grim, with Freddy Mac reporting that delinquencies in single housings rising 16 basis points to 4.03 in January, and existing home sales falling sharply.

As I have said before, we are seeing the effects of the home buyer tax credit, not any real market recovery.

Meanwhile, in the old standards of energy and currency, people are feeling more sanguine about Greece, which means that they are looking for more return, and less safety, which pushed the dollar lower, and the lower dollar drove crude oil higher.

Economics Update

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Well, Ben Bernanke went before Congress, and said that there needs to be an extended period of low rates to ensure that the recovery.

Of course, in terms of real estate, the question is whether or not the Fed continues its policies to keep mortgage rates low, and considering the fact that new home sales fell to the lowest level on record in January, and mortgage applications fell this week, with the purchase index hitting its lowest level since 1997, housing is still on life support.

For that matter, so is commercial real estate, with the architecture billings index falling in January.

In any case, Bernanke’s talk about continued low rates drove the dollar down, which in turn drove oil up.

Economics Update

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The lede today is that consumer confidence fell much more than expected, down to 46.0, when the consensus forecast was 55.0, a 10 month low.

Additionally, home prices fell in the 4th quarter, though the housing optimists are noting that the year over year drop is “only” 2½%.

When one considers the fact that the 4th quarter was juiced by tax credits, it’s worse than it looks.

Japan, on the other hand, Japan’s exports grew sharply in the 4th quarter, with a 40.9% year over year, the biggest jump since 1980, largely on increases in exports to China.

Still the dismal consumer confidence numbers put the market in a mind to doubt that there will soon be a robust recovery, which drove oil prices down, and led to a flight to safety which pushed the Yen and the dollar up.

Economics Update

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Chicago Fed Index

OK, the good news is that the Federal Reserve Bank of Chicago’s national activity index was positiver, so we are back to something resembling treading water, and US commercial real estate prices rose 4.1% in December.

Yes, that is a month to month number, and a pretty big jump at that, though it’s worth noting that, “prices are still down 29.2 percent year over year and 40 percent from the peak.”

Additionally, short sales of have jumped again in January:

According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, short sales accounted for a substantial 15.9 percent of home purchase transactions in January. This was well above the share of other distressed property activity – with damaged REO accounting for 13.4 percent of activity and move-in ready REO making up 13.8 percent.

The January figures represent a steady increase in short sale popularity. As recently as November of 2009, short sales accounted for 12.4 percent of the home purchase market, according to the Campbell report, behind move-in ready REO at 12.6 percent and nearly even with damaged REO transactions at 12.3 percent.

I would note that when you add short sales, damaged REO (basically foreclosures), and undamaged REO together, means that at least 43.1% of all sales.

In energy, oil continues to climb, approaching $80/bbl, and in currency, and the dollar was mixed.

Economics Update

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Mortgage applications fell last week, with home purchases leading the way relative to refinancing on the way down.

Even so, housing starts rose sharply, though as Calculated Risk notes, a lot of this is likely from home builders trying to complete houses in time before the latest round of housing tax credits expire at the end of April.

In the world of actually making stuff, US industrial output rose more than expected in January.

In the “looming train wrecks” category, the newly released minutes from the Fed’s January meeting show increasing confidence in the economy, it appears that there are some strong voices for the Federal Reserve to significantly shrinking their balance sheet, would would likely result in a significant, probably in excess of 50 basis points (½%), increases in mortgage rates, which would make an already shaky real estate market even more problematic.

In any case, the news on housing starts and industrial output drove both oil and the dollar is higher.

Economics Update

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Capital One charge-off rates, H/t Calculated Risk

Well, the New York Federal Reserve Bank just released its Empire State Manufacturing, Index, and it rose more than expected, from 15.9 in December to 24.9 in January, though I have no clue as to how the numbers went up:

……The details of the report were mixed. New orders slowed to 8.8 in February from 20.5 in the prior month. Shipments inched lower. However, inventories were flat in February after 17 straight negative monthly readings. Employment was positive for the second straight month……

I’m a little bit confused, but it appears that what we are seeing here is almost entirely stronger inventories, so as been noted before, it appears to be an inventory bounce.

In consumer credit, things appear to be moderating, in that default rates for the major card companies did not increase last month, or more accurately they didn’t rise last month for major credit card companies, except for Capital One, whose charge off rates rose from 10.14% to 10.41% in January. (See chart pr0n)

In real estate the National Association of Home Builder confidence index rose last month, albeit from an amazingly unambiguously crappy 15 to startlingly unambiguously crappy 17, where 50 is neutral.

In England, inflation rose sharply in January, to a 3.5% annual rate, which really isn’t scary at all, and additionally it should be noted that much of this was driven by the VAT (sales tax) increasing from 15% to a 17.5 as that stimulus measure expired, as shown by the fact that the, “CPIY rate of inflation, which strips out the effect of indirect taxes, fell from 2.8 per cent in December to 1.9 per cent in January.”

I just want to say, once again, that low inflation is a part of the problem, and another parts are the inflation hawks, both among regulators and among bond investors.

In currency, the dollar fell on reduced concerns about the Greek financial meltdown, which increased risk appetite.

I am not sure why investors had reduced concerns about Greece though. (I’ll get to the Greek crisis in more detail later)

Additionally, we have a report that the Bank of Japan is planning more quantitative easing if the Yen strengthens to OJ May Expand Easing Should Yen Reach ¥87:$1.00.

In any case, the falling dollar had commodity traders buying oil, which drove the price higher.

Economics Update

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As today is a holiday in the United States, it was a fairly slow news day, but over the weekend, we got a report on house prices in the UK, and the asking price rose at the fastest rate in 3 years, of course, the whole problem with the real-estate crisis was the disconnect between ask and offer, so I’d wait for sale prices to rejoice.

In real estate in the US, delinquencies on commercial mortgage backed securities (CMBS) jumped in January.

On the brighter side, Japanese GDP grew strongly, largely on capital spending driven by exports.

In currency and energy, the Euro hit a 9 month low on the mess that is Greece, while crude oil was basically flat, up 6¢/bbl.

Scary Mortgage Developments

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The first bit of news is that the mortgage delinquency rate in the United States has passed 10%.

That’s a pretty scary number if you are a mortgage lender.

The second bit of scary news, and it contributes to the first, is that borrowers are increasingly paying off credit cards before their mortgages, with, “percentage of borrowers who are delinquent on their mortgages but paying their credit card bills on time is growing, to 6.6 percent in the third quarter of 2009 from 4.9 percent in the same quarter of 2008.”

Part of this may be the bankruptcy changes of a few years back, which make it much more difficult to discharge credit card debt, but a lot of it is also the fact that the mindset has changed, and people are looking at their houses as bad investments, and so are in a “walk away” mindset.

The banks and mortgage brokers rode the bubble by selling homes as investment vehicles, as opposed to shelter, and now, they are dealing with borrowers who increasingly look to their homes in the same way, and are considering “jingle mail” as a way to deal with something that they see as a failed investment.

Home Prices Fell 12% in 2009

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Better, but still grim

Actually, 11.9%, but why quibble over 10 basis points?

If you listen to the National Association of Realtors, (and if you have 2 brain cells to rub together, don’t listen to the NAR) they say that this is encouraging because the 4th quarter drop was the smallest quarterly drop in 2 years, but that’s because we had the little gold rush for the tax credit.

If you look at the latest rent-to-own ratio, we still have some price declines to go, though, as I have noted before, rents are trending downward too, which would indicate that there is a lot more pain on the way than the rather facile analysis at the first link.

Economics Update (a Day Late)

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Well, yesterday was, as Atrios says, jobless Thursday, and unemployment claims fell more than forecast, falling to just 440,000, which is still not enough for an increase in non-farm employment.

The White House is predicting about 95,000 new jobs a month being created in 2010, but based on some quick numbers, a 1.1% annual labor force growth times 155,200,000 people in the US labor force divided by 12 months, there need to be about 142,000 jobs created each month just to accommodate natural growth, so things aren’t getting better, they are just getting worse more slowly.

On the other hand, the news out of California, that tax receipts are well in excess of predictions, is legitimately good news.

Finally, in a discovery of the blatantly obvious, a the TARP’s Congressional Oversight Panel has determined that commercial real estate is imploding, and this threatens the viability of many small and mid sized bank. …………Hoocoodanode?

Economics Update

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H/t Calculated Risk

We have the numbers for the December trade deficit, and it increased by 10.4%, largely on the increases in energy imports. (See graph pr0n)

In the nexus of banking and real estate, home mortgage demand fell last week, despite the fact that rates fell on the 30 year fixed mortgage, and as the Mortgage Bankers Association notes, the fall is in new home purchases, refinancing continues apace:

The Refinance Index increased 1.4 percent from the previous week and the seasonally adjusted Purchase Index decreased 7.0 percent from one week earlier. The unadjusted Purchase Index decreased 1.1 percent compared with the previous week and was 7.5 percent lower than the same week one year ago.

In international finance, the Bank of Korea kept its benchmark steady 2%, largely in response to surging unemployment in South Korea.

Australia, on the other hand, experienced the largest growth in the workforce in 3 years.

In currency, the dollar was mixed, largely on reports that a deal may be in the offing in the Euro Zone for Greece’s debt mess, news of which also drove oil prices slightly higher.

Oh Crap.

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The Federal Reserve has announced that it is terminating its Term Asset-Backed Securities Loan Facility (TALF) at the end of March.

Basically, the Fed buys bonds secured by loans at sub market rates, in order to keep interest rates low.

Well, now that this program is starting to wind down, we are starting to just how much rates will climb when government support is withdrawn, and it ain’t pretty:

The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans.

The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression.

They are talking about auto loans, where the spread (It’s not clear, but I think that this is in comparison to treasuries) for TALF instruments is 0.35% and for non-TALF it is 1.75%.

If the end of the TALF results in anything like a 1% increase in mortgage rates, home sales fall off the cliff again, and they fall hard, because for the same payment, you have about 11% less in home prices, and people buy houses on the basis of monthly payment, not price.

Economics Update

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Scary graph pr0n of the day, option ARM resets
h/t Calculated Risk

Well, today is “Jobless Thursday,” and initial claims unexpectedly rose to 480,000, rather than dropping as forecast, as did the rather more significant 4-week moving average, while continuing claims remained flat, though better productivity numbers might indicate a bit of an upswing.

Additionally, factory orders rose more strongly than forecast in December, which also is good news.

In the class half empty/full division. we have home listings rising for the first time in 18 months, which could presage a turn around in the market (full), or the fact that sellers who were trying to wait out the downturn are finally capitulating to the real estate market (empty), which would indicate further price declines ahead.

Me, I’m a bear on this.

Meanwhile, over on the other side of the pond, the Bank of England kept its benchmark rate at 0.5%, but perhaps more significantly, it announce that it is “pausing” in its quantitative easing (printing money) through buying bonds.

I’m not sure if they are just taking a month to survey the landscape, or if they think that recovery is, “just around the corner.”

Meanwhile, the recent swings in global stock markets, along with the jobs number, have investors worried, which has them buying up dollars, and these concerns also drove oil and other commodities lower.

Economics Update

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In the “recovery, my tuchas” division, we have the latest ADP estimate as to job losses, which shows that yet again, private sector employment fell, though the panglossian financial “journalists”, are now expecting employment to grow this month.

I don’t think so, seeing as how this is when the so-called birth/death adjustment gets rejiggered for the new year (more on this later).

Along with this, the Institute for Supply Management’s index of nonmanufacturing activity continues to remain in the doldrums, which is better than it was early last year, but still does not point to employment increases.

In the nexus of real estate and banking, mortgage applications were up sharply this week, but this was refinance activity, not home purchases.

In the old favorites of currency and energy, the dollar rose on the ADP report, as well as concerns about the potential Greek meltdown, while oil fell slightly on reports of strong inventories.

Economics Update (a Day Late)

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Busy day yesterday, both good and bad, so this is short.

First, we have the personal bankruptcy numbers dropped 10% from December to January, but are up 15% year over year, and the American Bankruptcy Institute expects 2010 BK levels to be higher than 2009.

In real estate, pending sales of existing homes rose slightly in December, but the percentage of homes remaining vacant rose in the 4thquarter.

Real estate is not going to lead us out of the recession, and absent cram-down legislation, government action is not going to help.

Economics Update (a Day Late)

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So, we now have some idea just how much the new home buyer tax credit artificially inflated the market, because existing home sales fell 16.7% from November to December.

Since existing home sales are recorded at closing, and in order to qualify for the tax credit, the sale had to close before the end of November, this (seasonally adjusted) number shows that just anemic residential real estate is.

In overseas central banks, the Bank of Japan has kept its benchmark rate at 0.1% (effectively 0%) as they continue to fight what is now a nearly 20 year long deflationary spiral.

In energy, oil was up slightly, while in currency, the US dollar fell slightly.

Economics Update (For the Week)

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Well, it’s “Jobless Thursday”, as Atrios is wont to say, and it ain’t a good Thursday, with initial claims up 36,000 to 482,000 and hitting a 2 month high, the 4-week moving average up 7,000 to 448,250, though continuing claims fell by 18K to 4,599,000.

Additionally, the Philadelphia Federal Reserve Bank’s business activity index fell from 22.5 to 15.2, which still indicates growth, positive numbers indicate growth, but might show that the stimulus package is running out of steam.

Also, it looks like finances may be catching up with the bank, with Citi reporting a loss for the year on a horrible 3rd quarter, and Bank of America posted a large loss, largely as a result of its eagerness to pay off the TARP so that it could go back to overpaying its incompetent executives, while Morgan Stanley misses its earning estimate, though it still turned a profit.

I had kind of figured that a lot of the obscene profits earlier in the year were the result of rearranging deck chairs, and I think that the 4th quarter results give credence to this view.

Note that these numbers were turning worse even as consumer defaults were falling.

BTW, in the UK, we are seeing journalists running around like chickens with their heads cut off over the recent spike in consumer prices, up to a 2.9% annual rate.

Kind of silly when you think about it.

US inflation seems well in check, with the
Producer Price Index for up 0.2% in December,

In real estate, home builder confidence fell in January, but the Architecture Billings Index was up slightly, though still below 50, indicating further contraction.

The jump in building applications, would seem to indicate improvements in the real estate market, but the FHA is increasing premiums and tightening loan standards, which may deflate the balloon.

The FHA really does not have a choice. Their balance sheet is a complete mess.