Category: Real Estate

Economics Update

No Comments

Well, GDP in the Euro Zone fell by 1.5% in the 4rth quarter, and 1.2% from the 4th quarter of 2007.

The quarterly drop is the largest in 13 years, and the year over year drop is the first recorded ever…..One of the joys of integrating your economy is that you integrate your recessions.

It’s no wonder that OPEC’s predictions for world oil consumption have been slashed again, though interestingly enough, oil is up today, by the largest amount this year, largely on the expectation that the stimulus bill will pass.

In real estate, the New York Federal Reserve is continuing its aggressive policy of buying from the sh$% pile, purchasing another $23.2 billion in agency mortgage-backed securities this week, for a total of $114.96 billion.

There is an interesting bit here though, this quote, “The Fed has also said it may soon begin modifying mortgages it owns within the assets it owns.”

Somehow I figure that this is part of a much bigger story, only I don’t know what it is yet.

Also we have Citi and J.P. Morgan Chase Agreeing to a foreclosure moratorium, and I think that this might be a part of the rest of that story. Specifically, I think that they are worried about Geithner’s “Stress Test,” and they are doing this because they are hoping for goodwill from regulators.

Finally, the dollar is down today, for the same reason that oil is up. The stimulus package looks like a light at the end of the tunnel, and so the “flight to safety” moderated a bit.

Economics Update

No Comments

Well, the obvious lede here is the weekly initial jobless claims, which dropped 8000 to 623,000, still well within OMFG territory, and the four-week moving average, which is to my mine a better and less noisy metric, jumped from 583,500 to 607,500, while continuing claims rose to 4.81 million…..Ouch.

We have some more numbers for the real estate bloodbath too, with the NAR reporting that median home prices declined in Q4 of 2008 by 12.4% as compared to Q4 of 2007.

Foreclosures fell in January, but this is largely because the GSEs have put a temporary moratorium.

More telling is the fact that foreclosures and short sales accounted for 45% of sales in Q4.

Mortgage rates are down this week to 5.16%, which is still above the 4 and change percent from last month, so I do not expect this to do much to the market.

We do have a bright spot, with , it was +1% over December as opposed to the expected -.8%, but look as the chart on the right shows, it’s still very grim.

It’s worth noting that some of the increase is because retail gasoline prices have been trending higher (bottom chart), which along with increased spending for food and for clothing, were largely responsible for the increase.

In currency, the Yen and the dollar strengthened as investors fled to their relative safety, and in energy, oil fell below $34/bbl on high inventories and low demand.

Economics Update

No Comments

The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

The Next Shoe to Drop on Wall Street

No Comments

It appears that Moody’s is reviewing the credit ratings of hundreds of billions of dollars of Commercial Mortgage Backed Securities (CMBS).

These are like residential mortgage backed securities, only they are for things like malls and apartment buildings, as opposed to houses and condos, and they are following the same path as the residential MBS, which is, as Calculated Risk notes, “First the reviews, then the downgrades, followed by the bank write-downs, and then more reviews …”

Economics Update

No Comments

To no one’s surprise, the Federal Reserve has extended its multi-trillion dollar so called liquidity facilities another 6 months, better known as the sh$tpile for cash program:

In addition to prolonging the currency swap lines that were due to expire on April 30, the U.S. central bank said it would extend through October 30 a host of other programs providing liquidity to the U.S. commercial paper and money markets, and to large Wall Street firms.

They’ve already spent in excess of 8 trillion dollars bailing out insolvent banks, but they think that more of the same will help.

The Federal Reserve is broken as an institution. It is run by and for the banks.

We also have aggressive stimulus programs ramping up in Australia and Japan.

Meanwhile, real estate and construction continues to be a disaster with US construction falling 1.4% in December and 5.1% for 2008, the largest drop since records began being kept in 1993, and the Homeownership rate has fallen to the 2000 level, so much for Bush’s “Ownership Society….In stead of owning, we got pwn3d.* With current equity losses of US home owner pegged at $3.3 trillion, a new record on vacant homes 19 million.

Even alleged good news in real estate, that the Pending Home Sales Index rose in December is pretty hollow, because, money quote from CR, “The biggest gains were in areas with the biggest improvements in affordability.”

So, if your house prices have dropped by 40+%, as they have in parts of California and Florida then homes might be moving…Otherwise, not so much.

Still real estate is not as bad off as the auto industry, with GM and Chrysler offering buyouts to all of their hourly workers, Ford posting 40.2% drop in January U.S. sales, and GM dropping 49%, Chrysler down 55% LLC, with the Japanese car makers seeing their sales dropping about 30% each

BTW, it appears that China may be headed for a period of economically induced social unrest, because more than one in seven rural migrant workers, more than 20 million, are unemployed.

In a nation that has systematically eliminated its safety net, 20 million pissed off unemployed people can make a lot of trouble.

In energy, I’m not sure if $40/bbl is the bottom, or if OPEC cuts are working, but oil was up today, and it appears that we have found a bottom there.

In currency, there dollar was down as there was less “flight to safety.”

*Leet speak for “owned”.

Economics Update

No Comments

Well, the jobless numbers are out, and they are not pretty with initial claims running at 588,000,continuing claims rising 159,000 to 4.776 million, which is the highest number recorded since the 1967, when they started collecting the data, and the 4 week moving average rose by 24,250 to 542,500.

Additionally durable goods orders fell by 3.7% in 2008.

And if you are wondering if there is a segment of the banking industry that won’t need a bailout, stop wondering.

There isn’t a segment of the banking industry that is not in trouble, as regulators are not moving to inject capital into credit unions, which are traditionally the most conservative, and the safest of the bank like institutions.

The fact that new home sales have fallen to the lowest level ever recorded (recording started in 1963) probably has a lot to do with this.

Also, freight truck tonnage is cliff diving. (H/T Calculated Risk)

Meanwhile, the most healthy of the Big 3 (Big 2½) auto makers, Ford, just reported a larger-than-expected $5.9 billion loss in the last quarter.

In international finance New Zealand is aggressively dropping its benchmark interest rates too, with their central bank 150 basis points (1½%) to the record low of 3.5%.

About the only good news is that it appears that deflationary expectations are easing, as the spread between 10 year Treasury Inflation Protected Securities (TIPS)and 10 year nominal securities has risen about 1% for the first time since November 10.

Meanwhile, the dollar was mixed today, and oil fell on the housing news.

Economics Update

No Comments

Well, the FOMC meeting ended, and they relased statement saying that they will stay at zero interest rates for some time.

Additionally, they are looking at, “Unconventional Measures,” which appear to include buying longer term Treasuries.

It appears that one of those steps is that they will write down a significant of the mortgage backed securities that they picked up in the Bear and AIG bailouts, a sort of voluntary “cram down”.

Europe seems to have stabilized, at least for now, with consumer sentiment steadying.

Meanwhile, mortgage applications fell sharply, as interest rates have risen, from 4.88% at the beginning of the year to 5.22% now, in anticipation of ballooning deficits.

Of course, if reports that Moody’s is considering cutting GE’s triple-A credit rating, are true, we’re in for another big shock.

Both oil and the dollar inched up today.

U.S. House Panel Approves Wimpolicious Cramdown Provision

No Comments

Most notably, the bill , which puts us in a rinse, lather, repeat situation.

As the late Tanta (I miss her) said, “Just Say Yes To Cram Downs“:

In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I’m here to tell you that you will certainly not “forget” to model negative HPA in your ratings models, and will probably pay more than a few seconds’ attention to your appraisals. You might even decide that, if a loan does get into trouble, you’re better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you’ll accept. That would be a major bummer, right?

Without the cramdown provision going forward, you have created moral hazard, and the lenders will do the same stupid things, over, and over, and over again.

My Gut Versus One of the Experts in the Field

No Comments

Karl Case, co-creator of the Case-Shiller index, is says that he expects housing to bottom out by the end of this year.

I disagree. First, you always get overshoot when a bubble collapses, and there are too many shadow foreclosures out there, where banks have not listed the properties, or are delaying foreclosures because their hands/balance sheets are full.

If I had an investment decision on it, I’d probably go with Karl Case, but I don’t, so I’ll stick with my prediction.

You may see a bottom in the worst hit places, like California, which is down 42% year over year (!), sooner than that, but a too much “wealth” has simply been destroyed for a recovery this year.

I do not expect an uptick until sometime after 2012.

Economics Update

No Comments

The lede on most business sections was good news, that home sales rose in December, as you can see on the top chart, but as the bottom chart clearly shows, home prices continue to fall.

Prices are down 15.3% year over year, and sales in 2008 are down 13% from 2007 sales.

The real question is how much of this is foreclosures and other REOs creating a market for bottom feeders, because the percentage of foreclosures relative to sales is way up.

Of course, interest rates have gone up a bit for mortgages, as they have in Treasuries, and this might further reduce home sales.

We also have the Conference Board’s index of leading economic indicators rising for the first time in 6 months, but it appears that this is entirely because of increasing money supply, as the Fed cranks up the presses.

The National Association of Business Economics’ (NABE) quarterly industry poll shows a far more pessimistic view of the path forward, with the worst numbers since they started the survey in 1982.

Israel’s central bank cut its benchmark rate by 75 basis points to 1%, on indications of a recession there.

In currency, the dollar fell, largely on good news on UK bank bailouts, and in energy oil was down about 6 bits, on reports of high inventories.

Economics Update

No Comments

Well, it’s official now for the British, they are in recession too.

Not surprisingly, the Pound has tanked and the dollar is generally up on this news.

The Ruble further weakened too.

We also now have ING warning that France’s AAA sovereign debt rating is at risk.

Meanwhile, on this side of the pond, the New York Stock Exchange has lowered its market capitalization requirement for companies on the exchange.

They delisted a record 53 companies last year, and my guess is that they are worried about breaking 100 this year, so they changed the requirement to account for a tanking market.

A more general indicator of economic activity, the rail freight traffic, has fallen sharply.

Generally, the high energy prices of 2008 favored the industry, but when total economic activity falls, so does rail traffic, even as it grows relative to trucking. (H/T Calculated Risk: Rail Freight Traffic Off Sharply in 2009)

In the intersection of banking and real estate, it appears that the regulators of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) are seriously tightening up regulations because they are still engaging in risky activity.

I just want to note that I suggested that this might be an issue in March of last year.

Also, it appears that the inventory and foreclosure numbers are worse than you think.

Banks are not wanting to flood the market, so they are holding back on placing some of their foreclosures on the MLS and delaying foreclosures on properties in default, so there is a “ghost inventory” out there that is not showing up in the numbers.

In energy, oil was up today.

Economics Update

No Comments

The weekly new claims for unemployment jumped last week by 62,000 last week, to 589,000, the highest level since 1982, and more than predictions.

The 4 week average was flat, and continuing claims were worse than predictions too, at 4.607 million.

If that weren’t enough housing starts fell by 15.5% to 550,000, which, according to Calculated Risk,is, “by far the lowest level since the Census Bureau began tracking housing starts in 1959.”

Mortgage applications fell by 9.8% last week, because interest rates bumped by 0.37%, and most of the action right now is ReFi.

Over in Asia, the Bank of Japan is buying corporate bonds, because the credits markets have frozen there, and China’s economic growth fell to a 7 year low for the 4th quarter.

Meanwhile, it looks like the humongous loss phenomenon is moving from the banking giants to the regional banks, which may have a larger effect on business output, since they do a lot less of the high finance and a lot more lending to mom and pop businesses.

In commodities, steel production fell 1.2% in 2008, the first annual drop in a decade, while oil was up a few pennies today.

In currencies the dollar was down vs. the Euro and Yen, but up against the Pound…but then again, everything is up against the pound.

Real Estate Implosion

No Comments

David Crowe, or the National Association of Home Builders, the folks who generally try to paint a bright picture of housing predicts that house prices will further collapse in 2009.

In addition to a 25.3% in the Case/Shiller Home Price Index drop since the peak in March, 2006, he is saying that house prices will fall a further 29% in 2009, for a total drop from peak of 47%.

Ouch.

Though I would also note that this likely a lead in to a pitch for some sort of Federal aid.

H/T Calculated Risk

Economics Update

No Comments

Most of the news today seems to involve currency and other nations, with the dollar rising against all major currencies, particularly the British Pound, which fell to its lowest level since 1985.

Considering the fact that the U.K. jobless rate and budget deficit has grown significantly, this should be no surprise.

On the other side of Europe, Russia is pulling back from Ruble support, engaging in what is called a “dirty” float, because they are burning through their currency reserves.

Meanwhile, S&P cut Portugal’s debt rating 1 step, from AA- to A+.

If you want to know the effect of this, you need only look at Greece, where the the rates that they have to pay on their bonds jumped following a similar downgrade. The spread over similar German debt went from 55 basis points (0.55%) to 325.1 basis points (3.251%).

In US real estate, the NAR index of builder confidence fell to 8, below the prediction of 9, with 50 being neutral. (!)

In energy, Oil is up.

Economics Update

No Comments

Well, weekly first time jobless claims at rose to 524,000, and the 4 week moving average was down 8000 to 518,500, and continued claims fell slightly, from 4.6 to 4.5 million. (Scary graph pr0n on right)

I’m not sure how much of this is being effected by the short weeks of Christmas and new years, but it should sort out in the next few weeks.

Not unsurprisingly, the Federal Reserve’s Beige Book, a collection of anecdotal economic information reported by the various Federal Reserve banks, was really quote grim.

Unsurprising, considering that foreclosure filings rose 81% in 2008 over 2007.

Housing is not recovering in the near term, even with mortgage rates hitting another record low.

One of the reasons that there will not be a recovery is that commercial real estate is imploding right now, with the volume of loans for office space and rental properties defaulting or becoming delinquent expected to triple in 2009.

In international finance, S&P downgraded Greek sovereign debt, from A to A-, and the ECB cut its benchmark rate to 2%, an all time low.

Not surprisingly, both of these pushed the dollar up today.

The juxtaposition of economic weakness with a stronger dollar drove oil down too.

Economics Update

No Comments

It’s official: retail sales just cratered. Retail sales fell 2.7% from November to December, and this is after November was adjusted down to 2.1 from the previously reported as a 1.8% drop.

It’s a 9.8% year over year drop, but adjusting for inflation declined by 11.3%. It’s a record, and a very scary one.

It’s why Nissan is moving its Auto plants to a 4-day week. No one is buying anything.

Expect to see more bankruptcies increasing in retail.

The department store Gottschalks and the clothing store Goody’s are filing for bankruptcy.

We will see more of this as retailers realize realize that the Christmas season did them in.

Also, note that part of the reason for this is that the credit crunch appears to be easing, which means that getting debtor in possession financing, which allows continuing operations under reorg, is easier, which makes bankruptcy easier.

That being said, the bankruptcy filing by Nortel still surprises me.

I’m not sure how much of this is the economy, how much is that it never recovered from the dot-bomb collapse in 2000, and how much is that it’s still very much a telephone equipment company.

In real estate foreclosure activity just spiked again in California, they recently passed a law to delay foreclosures by 45 days, and the 60 days are up now.

Even with low rates, which drove refinancing to a 5½ year record last week, are no help for homeowners who are under water.

In energy, oil fell on reports of large stockpiles.

In currency, the dollar was mixed, and the Ruble was devalued again on reports of a continued impasse in the Russia/Ukraine spat.

Economics Update

No Comments

Initial claims for unemployment fell unexpectedly to 467,000, but continuing claims increased to 4.6 million, the highest number since 1982.

We also saw Monster.com’s Online Job Index Stumbles falling in December, which is another indication that we are nowhere near the bottom.

In retail, holiday sales were grim, with even Wal-Mart missing sales predictions.

This is far from surprising when you consider the fact that consumer credit fell by a record amount in November.

People are not buying, they are paying down debt.

Surveys in Europe are showing a precipitous drop in sentiment too.

We are also seeing a rather precipitous drop in port traffic in 2008, it looks to be about 8%, to the lowest level since 2004, according to the National Retail Federation (NRF)

Consumers are buying less, and domestic manufacturers are drawing down inventories, and both of these reduce the demand for imports.

As such, it is no surprise that the Bank of England cut its benchmark rate by 50 basis points (½%), the lowest since its founding…..In 1694.

Interest rates are still trending down here, with the 30-year fixed mortgage rate hitting a record low.

I’m not sure how long the low rates will last though, as Moody’s is reporting that the Federal Home Loan Banks (FHLB) are experiencing serious losses in mortgage backed bonds, and may fall below required capital minimums as a result.

While failure is not imminent, the spreads between their bonds and treasuries are rising as a result.

BTW, we are also seeing holes in one of the panglossian predictions of real estate professionalw, residential rents are dropping too, “apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008.”

We are also getting rumblings that the Chinese are losing their appetite for US debt, though Brad Setser says that this article is bogus, and he has the number to show this.

Really, the important thing here is not that people are not investing in US debt, it’s that they are talking about not investing, in the New York Times no less, which is the first step to a drying up of foreign lending.

The only foreign lending that does not seem to be decline is that of central banks to commercial banks. Case in point: the Bank of Japan decided to shovel $13 Billion to banks in the hopes of jumpstarting their lending.

In currency, the dollar fell today, largely because the 50 basis point cut of the BoE was less than had been predicted.

In energy, oil fell again, on the expectation that the recession would continue to suppress demand.

Economics Update

No Comments

Umm….Holy excrement?

The payroll firm ADP Employer Services just released its report as to job losses in December, 693,000 jobs lost…..In one month…..The ironically named Challenger, Gray & Christmas is also saying that layoffs reached a 5 year high in 2008.

The BLS will release its numbers on Friday, but I rather expect them to hew pretty closely to ADP’s numbers, particularly since ADP has been working to make its survey match the government numbers.

It’s no wonder that late loan payments are higher than at any point since 1980, there are a lot of people out of work.

In retail, we saw U.S. retail sales fell 0.8% YOY in the week following Christmas, and mall vacancies are at a 10 year high, rising from 6.6% to 7.1%, the highest quarterly jump ever recorded, and the highest vacancy rate ever recorded.

We are also seeing mortgage applications down for the first time in 4 weeks, though that could people waiting for the Federal Reserve’s purchase of mortgage backed securities to drive rates lower.

We are seeing similarly grim economic data in Europe too.

About the only bright news is that GM is saying that it does not expect to need more in the way of loans…After $13.4 billion in tax dollars to GM and $6 Billion to GMAC, I would certainly hope so.

The jobs number drove the dollar down, and traders are starting to go long on the Canadian dollar, which implies that they expect commodities, oil and timber come to mind for Canada, to start going up again.

That being said, expectations were not met today, with oil falling by 12% on reports of large inventories…..They are literally running out of tanks to store the stuff.

Retail gasoline, however has risen for the 9th straight day, and is now higher than it was a month ago…..My thinking here is that there was an overshoot on the way down, and (assuming that oil stays around $50/bbl) we will be looking at $2/gal gas.