Category: Real Estate

Economics Update

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Well, we have another expert on the economy saying that the so-called green shoots are not real, the Postmaster General of the United States, John Potter, is saying that mail volume continues to fall, and in these days of email, increasingly mail volume is driven by, and so is a a very good indicator of, the state of the mail order business.

On the other hand, the banks have continued loosening short term credit, with
the LIBOR dropping sharply again, indicating that bank to bank lending is getting healther, and the National Association of Homebuilder confidence index rose to 16 from 14, though with neutral being 50, this is a change from “end of the world bad” to “beins strapped in a chair and forced to watch the Ben Affleck Jennifer Lopez movie Gigli” bad.

It doesn’t help that the situation for the GSEs, Fannie and Freddie, is looking increasingly dire, with further losses into the tens, if not hundreds of billions forecast, and one wonders if at some point, a decision is made to wind them down, which would eliminate much of the available financing available for mortgages in the US.

I would also note that, with the big banks concentrating on buying up other banks, the fact that the smaller US look to need an additional $24 billion in capital does not bode well for the finance needs for much of our economy.

While we’re at it, let’s note that the real estate crash is now firmly hitting the higher end of the market, as people purchase those homes as “trade ups,” and they have run out of rubes people with sufficient equity in the old homes to do so.

And in the old standbys, energy and currency, rose by the most in a month, on concerns about Nigerian unrest, a fire at a refinery in Pennsylvania, and concerns about the start of the Summer driving season, while dollar rose on comments by the Japanese Finance Ministry that they needed to work to keep the Yen from appreciating too much.

Economics Update

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So, initial jobless claims rose 32,000 637,000 (seasonally adjusted) worse than expected, the four-week moving average rose by 6,000 to 630,500, and continuing claims rose by 202,000 to a record 6.56 million.

Meanwhile producer prices rose unexpectedly by 0.3%, indicating that, perhaps, the inflation genie is not as firmly in the bottle as one would hope.

Meanwhile, in real estate, office rents in London have fallen to 1991 levels, as a combination of overbuilding and the implosion of “The City”, the UK Wall Street have driven down rents.

We are seeing the same thing in retail space, with rents falling and concessions increasing, at such high profile locations as Rodeo Drive, 5th Avenue, Bond Street, and the Champs Elysees.

It’s no wonder then, that commercial and multi-residential mortgage loan originations have fallen sharply. (top pic)

Also, the HousingWire has a good picture on the surge in foreclosures that I noted yesterday. (bottom pic)

Neanwhile, energy and the dollar seem to be at odds with each other, with oil up today, it appears on the belief of a recovery, and the dollar also up, on economic insecurity.

Go figure.

Economics Update

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With all this talk of green shoots, its worth noting that the evidence in the underlying economy does not really indicate much in the way of a recovery, which is why the decline in retail sales in April should come as no surprise.

That’s a big portion of the US economy right there, and what’s not is real estate, which is showing little in the way or recovery either, with foreclosures at a new record in April, though actual repossession of property fell, because the banks are worried about the costs of actually having to take care of the property when they finally assume ownership, along with changes in laws that have drawn out the process in many of the hardest hit states.

The number of foreclosures were up 1% over an already record March, and up 32% year over year.

We also saw a drop in mortgage applications as refinancing slowed with the increase in interest rates.

There is not a whole bunch of economic recovery in the Euro zone either, with industrial output falling more than 20% year over year.

We are seeing some good news on the credit front again though, because LIBOR hit a 2 month low, though in the real world, where it’s lending to real businesses, as opposed to banks, real interest rates, interest minus inflation, are at a 25 year high and it is curtailing all sorts of capital activity.

It also looks like BankUnited may be heading to a headline on Friday Night Bank failures, with a late filing with the SEC saying that they need to raise over $1 billion in capital, because, “the Board of Directors of the Bank entered into a Stipulation and Consent to Prompt Corrective Action Directive (the “PCA Agreements”) with the OTS.” (Office of Thrift Supervision).

In any case, the bad consumer spending figures pushed oil down on demand concerns, and pushed the dollar up as investors fled to safety.

Economics Update

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The US trade deficit rose in March, to 27.6 billion, on falling exports and the recent increases in oil prices.

Imports fell by $1.6 billion, but exports fell by $3 billion.

We will not be, as the Japanese did, exporting our way out of this trade deficit.

This is one reason why the American Express/CFO Research Services survey has 59% of CFOs seeing more layoffs.

Of course, the fact that nationwide, US home prices fell the most on record, 14% year over year, and the only markets where home sales are rising are where vultures are sweeping in to buy cheap foreclosure properties.

On the bright side, the National Federation of Independent Business’ monthly index of small business sentiment was up for the first time in 4 months.

It appears, however, that credit card company Advanta is not so optimistic. The company, which specializes in credit cards for small businesses, is shutting down its lending operations on June 10, after uncollectible debt exceeded 20%.

They are not shutting down, they are just shutting down all their credit lines, and just taking payments, which is awfully close to shutting down, so the credit cards just become so much plastic.

The deficit is not looking good either, with tax receipts so low that the federal government ran its first April deficit since 1983.

In energy, oil was up today, briefly breaking $60/bbl for the first time since November, before settling at $58.85/bbl.

This, along with banking changes and interest rate increases, is why the ruble is on a tear right now, and the US dollar fell to a 4 month low on comments by a number of experts that the recession is bottoming….Yeah….sure…

Commercial Real Estate Crash Hitting

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With commercial mortgage delinquencies hitting an 11-Year High, (H/TCalculated Risk) the records only going back 11 years, we are starting to see what might very well be a worse crash in commercial real estate than we saw in housing, because typically, CRE mortgages need to be refinanced every 5 years.

Additionally, we have a report from Deutsche Ban suggesting that 2/3 of loans backed by mortgage backed securities (CMBS) will not be able to be financed if they come due between now and 2018.

While CMBS are only about ¼ of this market, it’s not unreasonable to assume that we could see similar numbers in the same range for other forms of financing, as the property remains under water.

Even if that number is only 20-30% of outstanding commercial markets, we are looking at a death spiral that will make the housing bubble pop look tame.

Economics Update

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I think that we have some promising news here, though, eternal bear that I am, believe it to be a pause rather than the start of a turn around.

That being said, first time jobless claims fell, as did the less noisy 4 week moving average (see pic), which makes 4 weeks for the 4 week moving average, though continuing claims rose 56K to 6.351 million, indicating that this might more that businesses are running out of people to lay off than people are being rehired.

That being said, the fact that the April retail sales numbers beat expectations is just generally good news.

I’m not sure, however, how they managed to beat expectations, what with consumer credit dropping a record $11.1 billion in March, which indicates that the consumer is retrenching.

My guess is that this is an artifact of tax refunds.

In Europe, we have the Bank of England holding rates steady and the ECB cutting rates by 250 basis points (¼%), and both have expanded their programs of “quantitative easing” (printing money).

These actions were not particularly aggressive, which meant that the dollar Euro, because they are simply less likely to debase the currency as much as Uncle Ben (Bernanke).

The concerns about the US money supply are also finding their way into the US Treasuries market, with interest rates on the latest bond sales exceeding expectations, because investors are worried about monetarily driven inflation.

Still, reading the tea leaves on real estate, things are not going well, with delinquencies on dues to homeowners associations, which tend to foreshadow mortgage defaults, growing rapidly from 2.8% last June to 5.3% today.

Additionally, you have condo and apartment sales in Manhattan declining precipitously, with sales falling 48% year over year. (!)

The fact that mortgage rates are trending higher is not a help here.

In the world outside of real estate, the transportation based indicators are not showing any sign of recovery either, with Suez Canal April revenues falling 22.7% YoY.

Still, oil traders are betting on increased demand for oil, which translates into increased economic activity, and so crude rose today.

Economics Update

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Surprise, surprise, the press is noticing that foreclosures are no longer just some sort of phenomenon effecting poor people who got subprime loans:

Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, Calif., in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

This is then followed by a a number of refis to take out equity, and a negative amortization loan.

A bubble market, with toxic products feeding the frenzy. No wonder Zillow dot com just completed a survey showing that ¼ of home owners are under water.

Even those who followed the old rules, 20% down and 30 year fixed, ended up buying into the appreciation story, with refinancing and exotic mortgages creeping into their home values.

And while fear fear has temporarily put a halt to the worst excesses, the declining job market, continues to mean that these people will stay under water.

The most recent reports, private ones from payroll check processor ADP, and the rather Dickensianly named outplacement firm Challenger, Gray & Christmas, don’t show a turnaround, though in a classic bit of journamalism, the fact that private sector employment fell by 491,000 is somehow good news.

Meanwhile in currency, the dollar weakened slightly, largely on uncertainty about both what the ECB will do the Euro rate, and the results of the banking stress test (more on that later).

In energy, both oil and natural gas were up, oil to a 5 month high, and the largest single day increase for natural gas in 2 months.

Economics Update

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We have some good news in real estate, with pending sales of existing homes posting their first back to back increase in almost a year, and construction rose unexpectedly.

Note however, that the pending homes sales numbers are for homes going into contracts, and has been diverging from closings lately, largely because of financing issues.

I’m a bull, and Yale economist Robert Shiller, of the famed Case-Shiller real estate index, is somewhat bearish too, saying that the improvements in real estate are “fragile”.

Sometimes, markets pause for a breath on the way down, just as they do on the way up.

That being said, the lending situation does seem to be loosening up, as spreads are falling, which means that money is cheaper.

Still, banks are predicting more loan losses from the economy contracting according to a Federal Reserve report.

Meanwhile the generally good news has driven oil up, on the expectation of increased demand, and driven the dollar down, as people leave the safe haven of the $US.

Just in Case You are Sleeping Well

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We have an enormous crisis looming in commercial real estate, because, unlike home ownership, these loans are typically for a short period, 5 years typically, and at the end of the term, you need to refinance, and right now, the property owners are under water:

Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching their renewal dates, and by some estimates, two out of three no longer will meet the original loan conditions and won’t be able to refinance. With prices for commercial properties expected to plunge, a vicious cycle could unfold, much as it has in the nation’s housing market.

The interesting thing here is that hese mortgages could be modified by a bankruptcy judge (cram down), they are performing loans, and it’s where the sensible banks did their business, which means that they will get hammered.

I see another government bailout.

Economics Update

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To initial jobless claims fell to 631,000 this week, down 14,000 from the prior week, though continuing claims rose by 133,000 to 6.271 million, another new record.

More generally, both personal income and personal spending fell.

We also have the Institute for Supply Management’s Chicago Purchasers’ Index for April rising to 40.1, though this still indicates contraction, just slower contraction, as 50 is the neutral point.

Additionally, mortgage rates are essentially unchanged over the past week. remaining near historic lows.

The markets seem to be anticipating an improvement in the economy, which has pushed oil up and the dollar down, which I think means nothing, but the folks who run those predictive markets rather like.

Economics Update

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Great Googly Moogly, the new GDP numbers are in for the first quarter, and they show that the economy contracted at a 6.1% annual rate, which follows a 6.3% rate for Q4 of 2008, the worst contraction for a 6 month period in 50 years.

There is a bright spot, however. As Calculated Risk notes, is that sectors that have been traditionally leading are doing better than those that typically lag a recession, which might point toward a bit of a moderation.

At least we are not Lithuania, whose economy contracted by 12% year over year.

It’s news like this that makes the Federal Open Market Committee (FOMC) statement minor economic news.

Basically, they said, “We think that it’s getting worse more slowly, and we can’t cut rates any more, but we will keep shoveling money out the door, and we are watching inflation, really we are.”

If that means anything, it’s beyond me, but it appears that the
Fed’s aggressive asset purchase program will not be further expanded, which implies that they think that we are at/near bottom.

In other banking news, remember yesterday’s stress test update, which fingered BoA and Citi?

Well, there are now reports that at least 6 of the 19 banking giants are under capitalized, hoocoodanode?

Meanwhile, in real estate, we have mortgage applications falling by 18%, and it appears that there is a tidal wave of troubled commercial mortgages on the horizon, with, “volume of commercial mortgages at risk of default has quintupled since the beginning of 2008.”

One of the interesting things here is that commercial real estate loans are generally short term, 5 years or so, so people who have to refinance into the teeth of the recession and credit crisis may be up a certain creek without a paddle, even though they would be otherwise solvent.

Meanwhile, oil rose on the slightly positive Fed statement and reports of a drop in gasoline inventories, while the dollar fell on on optimism about the world economy.

Economics Update

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Graph courtesy of Wikipedia

Well, we have some legitimately good news, that the Conference Board’s Consumer Confidence Index rose to 39.2 in April, a 12.3 point gain from March, though with the rather neutral year of 1985 being indexed to 100, 39.2 still sucks, as is clear from the graph.

Additionally, while the home prices continued to fall, they are falling at a slightly slower rate, or as Atrios so amusingly notes, “Positive 2nd Derivative!!!“*

House prices are still falling, and the rate of decline is the noisiest metric, unless you want to do the change in rate of decline (unless you want to go to something like the 3rd derivative, called “jerk” when dealing with motion).

I would wait and see for a few months before jumping back into the market.

Meanwhile, the flu concerns continue to push oil down, though the positive economic data above has driven the dollar down too, because there is less of a flight to safety.

*If you don’t get the joke because you are not a math geek, don’t despair….At least you are not a math geek, which has to count for something.

Economics Update

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Here’s a surprise, Bank of America buys Countrywide Financial, whose reckless mortgage policies destroyed their company and threw untold thousands out on the street, and now BoA is attempting to make the “Countrywide” brand vanish, because it is such a completely toxic entity.

Which means that they are writing off the so-called “good will”, basically the value of the “Countrywide” brand name, accrued with the purchase.

Heck of a job, Kenny.

In related real estate news, home ownership percentages are back at the level they were in 2000.

More generally, we have the Dallas branch of the Federal Reserve releasing its numbers, and they are all very negative, though they are no longer the end of the world bad, which is an improvement.

In energy, retail gasoline has been flat for the past 2 weeks, and oil is down on the expectation that the flu outbreak is likely to further crimp energy demand.

The flu also drove the dollar up, as people looked for safe havens.

Fun and Games With Bad Financial Reporting

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I’ve included some graph pr0n to show just what the innumerate folks in the 4th estate have been doing.

We have a rather good article by Diana Olick, who explains that the bump in house prices reported yesterday were a mirage.

Basically, at different times of the years, different people look for different homes, and these different people buy different sorts of houses:

All that said, the Realtors, in a twist, decided to give the month-to-month home price changes today, because it offered, as chief economist Lawrence Yun suggested, hope of a possible “green chute.” Existing home prices rose 4 percent from February to March, according to the Realtors. Now, if you were listening before, you would say, ok, that’s because the families are getting into the spring game. But Mr. Yun points out that the usual bump up in spring prices is about 1 percent, so the 4 percent monthly bump up should be a good sign. I’m not going to argue with that, because it makes sense to me

But still, we get crap like, “New home sales down, but show sign of revival“,and “Drop in new U.S. home inventories offers hope“, which ignore basic facts.

New home inventories are down because developers cannot compete against foreclosures and short sales, which are nearly half the market, and the fact that the numbers dropping, but “exceeding” forecasts generally ignores the fact that the forecasters have gotten the entire housing market wrong.

As Barry Righoltz notes, the real number is that new home sales fell 41% YoY in February 2009, though the margin of error is ±7.9%, it’s indisputably a drop.

The 4.7% month to month increase against an ±18.3% margin of error (!) means nothing. (link to the Census Bureau Data)

BTW, the top graph, the one that even the most mathematically inept person in journalism could use to figure this out, is in the Census Bureau report.

And then we have this report on durable goods orders, which again claims that, “Orders for U.S. Durable Goods Fall Less Than Forecast,” using a different set of data from the Census Bureau, but using a similarly clueless group of economists to show that it “beat expectations”

http://img141.imageshack.us/img141/7573/headsmashkeyboard112129.gifOnly, as you can see from the graph, new orders are down 27% year over year, (graph courtesy of Bonddad) but we still have to see that, “Prosperity is just around the corner.”

Gah!!!!!

Economics Update

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Well, we have the new jobless claims out, and again, they are grim, with initial claims raising from 613K to 640K, though the 4 week moving average, which is a better indicator, dropped to 646,750 from 651,000.

Continuing claims hit another record, up 93K to 6.137 million, worse than the forecast.

The fact that mass layoffs, more than 50 people, hit a record, with 2,933 in March, probably had something to do with this.

In world finance, we have Moody’s downgrading the debt of the Baltic Republics Lithuania and Latvia, indicating a bumpy way ahead.

In real estate March existing home sales fell, and with mortgage rates inching up, I would not expect a significant improvement in the situation.

Meanwhile, oil is up, and the dollar is down, for reasons not clear to me.

Economic Scene – The Bottom for Housing Is Probably Not Near – NYTimes.com

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Dave Leonhardt looks at various metrics for home prices and concludes that foreclosure auctions may be the pest metric, because many people are deferring putting their house on the market, hoping for prices to increase.

Auctions indicate that house prices still have a way to fall, as I agree, and Dean Baker has the graph shown to indicate that prices are still above historical norms.

I actually expect a measure of overshoot. so if you assume that prices will head down to about 80 before rebounding, and the the path is a straight line, you are looking at a real estate turn around somewhere in 2011-2012, based on my imprecise eye.

Economics Update

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Well, the IMF has updated its recession forecast for 2009, and their estimate has become much more pessimistic, with their estimate for contraction at -1.3%, down from -0.5%, they are also anticipating credit losses on the order of $4.1 trillion, and that the financial system will not stabilize until sometime in 2010.

Honestly, I still think that the new estimate is overly optimistic, but I’m a born bear.

This is born out by the fact that official UK economic predictions are that the British Isles will experience their fastest contraction since the end of the WW II, and Japanese exports are down year over year by almost ½.

That being said, we have some good news in real estate, with the Architecture billings index rising last month, and home were up 0.7%month to month in February, though prices are still down 6.5% year over year, but it’s the first two month price gain in about 2 years.

Additionally, mortgage applications are up, though this is largely refi activity, and the delay in foreclosures in California have returned with a vengeance, now that the little “holiday” created by the law changes that lengthened the time line from default to eviction has passed.

Banking still sucks though with Fannie and Freddie losses from defaults rising, Capital One’s losses on credit card defaults were worse than expected, as were Morgan Stanley’s losses (the cut dividends too), though Wells Fargo, who largely eschewed the high flying ways of the other large banks, had record profit and displaced Bank of America as the nation’s top lender.

In energy, oil rose slightly, despite reports of a growing inventory, and in currency, the dollar fell on reduced investor worries.

I Want What They Are Smoking

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IHS Global Insight is saying that the nation’s housing market is undervalued:

A new report released today by IHS Global Insight and PNC Financial Services Group revealed that the nation’s housing market as a whole is “slightly undervalued,” but said there was no sign of a bottom.

The so-called “House Prices in America” fourth quarter update found that home prices had fallen a collective 9.9 percent from their 2007 peak, although much more in sand states like California and Florida.

About the only thing that I can figure is that they are thinking that the dollar figures are Zimbabwean dollars of something.

Housing is still well above historical trends in terms of absolute price, rent/own ratio, and relative to wages.