Category: Real Estate

Economics Update

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While it’s generally known that the Fed will cut rates, it is news when European Central Bank President Jean-Claude Trichet says that it’s likely that they will do the same, it is a bit of a surprise.

In terms of interest rate spreads, it’s not looking good, with the spreads for Fannie Mae and Freddie Mac hitting the highest level since March.

In real estate we have Journalistic bullsh%$ good news, with reports that new home sales increased in September, but as Barry Ritholtz of the The Big Picture notes, these are bad numbers:

One other thing to note: Note the monthly 2.7% increase was based in part on last month’s being revised downwards, making the differential look bigger (this month is also likely to be revised downwards). Annualized sales for the month was 464k; Actual unadjusted monthly new home sales are about 35-45k, down from 100-120k (before they get annualized).

Year over year, house sales fell by 33%, and prices fell by 9%.

Meanwhile, it looks like the tax payers have already sent a significant chunk of change to the banks $63 billion to 15 banks:

  • PNC Financial Services ($7.7 billion)
  • Capital One Financial ($3.55 billion)
  • Regions Financial ($3.5 billion)
  • SunTrust Banks ($3.5 billion)
  • KeyCorp ($2.5 billion)
  • Comerica ($2.25 billion)
  • State Street ($2 billion)
  • Northern Trust ($1.5 billion)
  • Huntington Bancshares ($1.4 billion)
  • First Horizon National ($866 million)
  • City National ($395 million)
  • Valley National Bancorp ($330 million)
  • UCBH Holdings ($298 million)
  • Washington Federal ($200 million)

Oh…me bad…I forgot that BB&T is in for $3.1 billion too.

Well, at least gas prices and oil prices are continuing to fall.

In currency, we have
the dollar and yen pounding the Euro and Pound to the degree that the bank of Japan is considering an intervention to keep the Yen form spiking too high.

It also looks like the Australian dollar is at serious risk of falling off a cliff, see here and here.

I Recall an Anime Movie About This

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Specifically Hayao Miyazaki’s Howl’s Moving Castle.

Only this one is real, or at least in prototype state courtesy of those wacky Danes from art collective N55 in Copenhagen.

The theory is that when rising ocean levels from global warming make your current location to wet, the house walks somewhere else.

Reminds me of that bit of dialogue from a Get Smart episode:

99: What’s that?

Max: An electric snake, we’ll send it it to get
information.

99: What does it run on?

Max: Tiny Little Feet.

Heh.

Bad Financial Journalism

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So, here we see the artcle based on data from the National Association of Realtors (NAR), an organization whose statements should trigger very loud bullsh^% alert titled, “U.S. Home Resales Rose in September to One-Year High.”

Noting that home sales grew 5.1% from in September, 2008 as compared to August 2008.

The housing crash is over…Let the rejoicing begin!!!!!

Bad Journalism…the real story is that, “Foreclosure-related sales accounted for 35 percent to 40 percent of last month’s total,” and that’s the NAR’s, whose job is to lie like a rug present a rosy estimate.

But Mr. Morggage of the Mortgage Lender Implode-O-Meter notes that actual existing home sales are down, the month to month is created by seasonal sdjustments, and seasonal markets only should be applied to a stable market, not one in free fall.

By his figuring, existing home sales fell by 9.6% between August and September.

Me, I’d split the difference, which gives us (5.1%-9.6%)/2 or a drop of 2.05% for no reason at all. I pulled the equation out of my overly ample ass.

See table pron below.


Click for full sized.

A Good Note on Policy

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Tom Angotti of the Gotham Gazette Makes a very good point:

Neither of the two candidates [Obama and McCain] has explicitly acknowledged the failure of the current urban policy that single-mindedly promotes homeownership. But if history is not to repeat itself, both parties might do well to explicitly acknowledge the needs and problems of urban renters – that means the majority of New Yorkers — and redefine the “American Dream” as a stable job, a rent-controlled apartment and a safe, walkable urban environment.

This is true. In addition to being a failure in regulation and monetary policy, it is a failure of philosophy on two levels:

  • As Greenspan admits free market fundamentalism has failed.
  • The idea of a stand alone home owned by the occupant as an unexpurgated good.

Many of our problems, not just the housing crash, but also urban sprawl, are a direct result of the latter philosophy.

Economics Update

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I think that the first story is a real biggie, the Insurance Bureau at the Financial Supervisory Commission of Taiwan has forbidden Insurance companies in that nation* from buying mortgage backed securities from the GSEs, Fannie Mae, Freddie Mac and Ginnie Mae.

The scare quote of the article is, The FSC has not only limited insurance company exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities, but has decided that existing credit ratings are meaningless.“

Taiwan is not huge in relation to world GDP, but it’s a lot bigger than Iceland….We may be seeing the first furtive steps toward an exit that will likely end in a stampede.

If I’m wrong about a stampede away from US securities, it’s clear that there
is a stampede away from hedge funds…Makes sense, why pay these guys something like 20% when they are losing money.

In the real world or ordinary people and work, the weekly US jobless claims were worse than forecast, 478,000. The standard caveat about this being a noisy metric applies.

I would be remiss in not noting that the 4 week moving average fell, to 480,250 from 484,750.

BTW, it looks like the credit crunch is not near over, because very little let up on interest rate spreads. (H/T Calculated Risk.)

For what it’s worth, Oil prices were up a bit, because there are indications that OPEC might actually make a small supply reduction stick amongst its members.

The thing that really scares me is the fact that Washington Mutual’s Credit Default Swaps will be sold at 57¢ on the dollar, and this is considered a relief to investors.

Even scarier is the little note at the bottom that losses in the Lehman debacle, when investors got 8¢ on the dollar ended up losing less money than expected, because it was a small group who all sold in a big circle to each other.

What happens when one of the members of this circle jerk goes down in flames?

*Or whatever the frack the Taiwan’s status is right now.

Economics Update

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Not a great day.

Consumer confidence had the largest plunge ever, from 70.3 to 57.5, and home construction fell to a 17½ year low.

There are some indications that the credit freeze is relaxing, at least temporarily, the short term spread between LIBOR and Treasuries has dropped a bit.

I’m not sure that there is a real thaw, as evidenced by the fact that hedge funds are hemorrhaging money and investors.

The dollar, meanwhile was largely static today.

In energy, oil is back above $70/bbl, but that is likely the result of OPEC holding an emergency meeting to cut production.

Economics Update

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With upwards of 70% of the US Economy being consumer spending driven, it’s not good news that the final for consumer confidence missed expectations, 70.3, as opposed to the forecast 71.0, but it does reflect the fact that the final number for economic growth in the 2nd quarter was revised downward.

The fact that August new home sales are the lowest since 1982, which was not a great year for the economy either, points to the fact that the economy sucks in the real world too.

Of course, while all this is going on, Congress is still fighting over bailing out Wall Street, which has lead to a muddled picture for the dollar.

That beins said, it’s clear that the energy markets are banking on a recession with both oil and retail gasoline heading lower.

All this uncertainty is why 30 year mortgage rates exploded this week, going from 5.78% last week, to 6.09% this week.

31 basis points in a week….Ouch.

FWIW, the central banks are shoveling cash out the door, which will eventually start devaluing the currency (inflation).

Economics Update

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Again, the elephant in the room, the Paulson, “Let’s give it to the American Taxpayer without lube,” plan is not included here.

First, let’s start with the continued deflation of the housing bubble, with home prices down 5.3% in July as compared to the previous year.

This one reason that retailers are forecasting an absolutely dismal holiday season.

It also appears that the Paulson plan, or at least whatever is making its way through Congress is not getting a vote of support from the bond market, with money still fleeing to treasuries, and the spreads between them and short term “safe” private debt remaining historically high.

It’s the same with the dollar, which is up a bit vs. yesterday’s bloodbath, but still weak.

Of more concern are indications that we are seeing a run on hedge funds.

In any case, oil prices are down a bit from yesterday’s hysteria, settling at $106.61/bbl, and retail gasoline is down again.

Update: Dodd Bill Does Have Bankruptcy Changes

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According to Politico.com:

Among the major provisions Dodd is adding:

  • Authority for bankruptcy judges to restructure mortgages for homeowners facing foreclosure. This was considered a poison pill in a housing bill that passed Congress earlier this summer, but it has gained much more currency now that Washington wants to bail out Wall Street.

Two snaps up to the distinguished gentleman from Connecticut.

Making a Bad Situation Worse

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Well, it appears that the American House fetish and the lobbying of predatory realtors is getting results, as the House Financial Services Committee has approved the markup of H.R. 6694, which re-institutes the insane downpayment assistance program, in which sellers make a payment to non-profits, plus a “service charge”, and the non profits “gift” this to a potential home buyer, so that they can qualify for a FHA loan.

Typical scenario: a home owner has a buyer who has no downpayment for a $100K house, so the home seller “donates” $6000 to to a “non-profit” group, which takes a $500 fee, and “gifts” the remainder to the home buyer, so the home buyer now buys the house at $106,000, which the FHA recognizes as 5% down, and so qualifies for a loan.

Of course, the buyer has still put no money down, and they owe more on the mortgate, and the statistics show a much higher default rate.

It does not put people in houses. It creates a default/foreclosure timebomb.

Economics Update

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Again, as this seems, this is only the so called little stuff, because there is a lot of big stuff again

I’ve been firmly in the recession camp of the, “Is it recession yet,” dispute, and the the Leading Economic Indicators falling again reinforces that notion, though the fact that the Philadelphia Fed Factory Index rose runs counter to that, but as it is the first rise in 10 months, I put that one in the outlier category.

Meanwhile, the weekly, and this week affected by hurricanes, new filings for unemployment rose to 455K and housing starts fell to a 17 year low, even as mortgage rates continue to fall.

Of course, not too many people can get the loans these days, because all the money is fleeing to treasuries.

Gas prices tick higher – Sep. 17, 2008

Housing Starts Plummet to 17-Year Low in August – Economy * US * News * Story – CNBC.com

In energy, eased off of a bit, as did gasoline for the first time in 9 days, as the panicking over Hurrican Ike moderated.

Finally, I just want to say that Tom Toles is a bloody genius:

Economics Update

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It’s generally not been a good year for manufacturing and construction, with the Institute for Supply Management’s (ISM) manufacturing index falling to 49.9, with any number below 50 meaning contraction, though I wonder how much inflation is being measured as “growth”, which is what I think is driving much of the US Commerce Department data showing an increase in factory orders.

I think that this is entirely export driven growth, a position that the abysmal auto sales reinforces, but these export sales are being driven by a cheap dollar, which will eventually drive interest rates higher in the US (foreigners will demand higher returns), crushing domestic consumption.

That being said, construction is clearly cratering, falling 0.6% in July, twice expectations.

Meanwhile, banking continues to look pretty heinous with the FDIC expanding office space in the expectation of a spate of bank failures, S&P downgrading two regional banks, and suggesting that 37% of regional banks will be down graded.

Additionally, when GMACis laying off thousands, you know that the industry is in dire straits.

With Euro zone inflation falling, it appears that the ECB will hold rates steady, for a while at least, which will serve to keep the dollar relatively strong, as evidenced by the US Dollar’s rise today.

Since the hurricanes in the Gulf were relatively mild, oil and gasoline have continued their downward path.

Economics Update

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Well, the big news is that the US GDP rose by an adjusted 3.3% rate in Q2. The initial estimate was 1.7%, and the estimate for this, the 2nd cut on GDP numbers was 2.7%.

Of course, inflation ran at a 4.2% rate, which puts it back into negative territory, though the economists typically use the “core” rate, 2.1%, even though purchasing energy and food is included in the GDP numbers.

This is reinforced by the weekly unemployment numbers, with new claims down by 10,000 this week, but, “continued claims are now above 3.4 million for the first time since 2003.”

What is going on is that the real estate asset bubble was concealing the fact that productivity from 2000 through 2007, but middle class income fell.

We were working harder for less money, and going into debt because our houses were appreciating.

Things ain’t great in Europe either, with European retail sales falling, though German unemployment fell, even while the German economy contracted….I really don’t get that one.

We do have good news on the monoliner insurers, with MBIA getting a juicy insurance deal thanks to the help of the New York State Insurance Superintendent…..Smells like a backdoor bailout to me.

In the world of home mortgages, it appears that numbers showing a mortgage application increase may be garbage, because they do not account for multiple applications from one person, which is what tends to happen when lenders get pickier about issuing loans.

Finally, oil is down, the dollar is up, and gas prices are down again, more than 45¢ off their peak.

GSE Update

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Two bits of news about Fannie Mae and Freddie MAC that bear notice:

First, it appears that the credit default swaps, think insurance with a bunch of corruption thrown in, on the GSEs could face a 5 year delay in pay-outs in the event of a government bailout, and S&P lowered the rating on subordinated debt as a result to BBB+ from A-.

Also it appears that the foreign investors who largely bankrolled the GSE’s business during the housing boom are retrenching, meaning that it will be harder for them to find additional financing.

Economics Update

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Yesterday, I talked about a historically high housing inventory, well, now we have the numbers, 4.67 million, an 11.2 month supply.

Mortgage applications are up this week, but not enough to indicate any sort of resurgence of the housing market.

We have seen an increase in orders for durable goods, but this is almost entirely export driven, which means that US consumption is flat, and if the dollar strengthens further, it’s mixed today we lose what is currently the only major driver of economic growth.

Of course, with the ECB policy makers all pointing in different directions, likely because Germany’s inflation rate is down, it’s not surprising that nothing much is moving in currency right now.

Banking is not looking good period, what with FDIC troubled bank list growing, “117 with $78 billion in assets – up from 90 banks, $26 billion in assets in 1st quarter.”

The credit markets are still frozen, with Merrill Lynch and Wachovia seeing their rates skyrocket as they attempt to rollover bonds, and Fannie Mae just sold short term debt with a spread of 89 basis points vs. US treasuries, which may be a record.

Also, the FDIC is now saying that the IndyMac failure will have a bigger price tag than earlier predicted…..Are we looking at the FDIC needing a bailout?

And it isn’t just banks having problems, personal bankruptcies are surging, with the number of filings in the 2nd quarter the highest since the 4th quarter of 2005, when people rushed to beat the new law.

In energy, oil is up on hurricane Gustav, and gasoline is down again.

Economics Update

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Well, once again, we have the financial press, trumpeting so called good news, that US home prices did not fall as fast as the previous month, even though the year over year decline was 15.4%.

They are noting that home sales are up a bit, but they neglect to note how many of these sales are short sales and REO (foreclosure, basically) sales.

The numbers that I’ve seen are around 20-30%, and no one notes that inventory is still at historical highs.

On the brighter side, consumer confidence is up, largely on the fact that Gasoline has fallen over 10% over the past few weeks, as it did again today, though oil is up over concerns regarding hurricane Gustav.

Everyone is expecting a fully coupled worldwide slowdown, and so the Dollar is now at a 6 month high, even though we are seeing signs of commodities bouncing back, at least that’s what the market in copper is showing, with contracts for immediate delivery being rather higher than those for 3 months delivery.

I would also note that Fannie and Freddie are slowing the rate of mortgage purchases for their portfolio, which means two things, that mortgages will be harder to get and more expensive, and that they are “deleveraging”, which is finance speak for trying to get themselves out of the hole that they have dug.

Economics Update

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The Philly Fed chief is calling for higher interest rates, because of inflation concerns.

The fact that there are now closings of marginal mines and the like would also indicate that the commodity plunge of the past 6 weeks or so is going to bottom out soon.

Though, truth be told, I’m not sure that it will make much of a difference, as the the fact that spread between LIBOR and the Fed Funds rate is 78 basis points, near an all time high, and an indicator that the Fed has largely lost control over interest rates in the rest of the economy, as well as indicating that the credit system is still frozen up.

Mean while, in real estate, we have bad news presented as good news, with stories trumpeting an increase in existing home sales in July, and soft pedaling a 7% year over year house prices.

Why is this National Association of Realtors (NAR) Bulls$#@?????

Because, Seasonally adjusted it’s ignoring seasonal adjustments July and August are always big months, particularly for parents who do not want their children to change schools mid year. It’s actually the worst seasonally adjusted numbers since 2000.

This is why 75% of Americans have negative view of economy, because the financial press is a bunch of Pollyannas, who ignore the the fact that aggregate weekly hours have been experiencing continuous negative growth on a month-to-month basis since January 2008.

Meanwhile, among the Wall Street Banks, we are now getting reports of a dead pool for Lehman CEO Dick Fuld. He’s expected to be out within a year, which does not bode well for the company as a whole.

Meanwhile, Robert Rubin is stepping down from his position chairman of the board’s executive committee, though he will remain on the board, which probably means something, but I do not know what, but considering Citi’s record, I’m assuming bad news.

Meanwhile, oil is up today, even though the Baku-Tbilisi-Ceyhan pipeline has resumed flow, but gasoline prices continues their downward course.

Thedollar is mixed today.