Paper Economy - A US Real Estate Bubble Blog

Friday, February 27, 2009

Ticking Time Bomb?: Fannie Mae Monthly Summary January 2009

Decades from now the summer of 2008 will likely be remembered to mark the turning point where legislative blundering took an otherwise serious financial crisis and molested it into an epic financial collapse.

By fully assuming the liabilities of Fannie Mae and Freddie Mac, the two colossal and corrupt (and conduit of corruptness funneling junk Countrywide Financial loans onto the implied balance sheet of the federal government) government sponsored enterprises, the federal government, led by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, has thrust taxpayers into an abyss of insolvency with one mighty shove.

Given the sheer size of these government sponsored companies, with loan guarantee obligations recently estimated by Federal Reserve Bank of St. Louis President William Poole of totaling $4.47 Trillion (That’s TRILLION with a capital T… for perspective ALL U.S. government debt held by the public totals roughly $4.87 Trillion) this legislative reversal making certain the “implied” government guarantee is reckless to say the least.

The following chart (click for larger) shows what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers and that should they report the delinquent results as a percentage of the unpaid principle balance, things might likely look a lot worse.

Finally, the following chart (click for larger) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

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Bull Trip: GDP Report Q4 2008 (Preliminary)

Today, the Bureau of Economic Analysis (BEA) released second installment of the Q4 2008 GDP report showing a stunning contraction with GDP declining at an annual rate of -6.2%.

Looking at the report more closely it’s easy to see that the quarter was a disaster overall with huge double-digit declines to Durable Goods, Imports (actually a benefit) and Exports as well as Fixed Investment.

Fixed investment provided significant drags on growth with non-residential investment declining -21.1% and residential investment declining -28.8%.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

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Thursday, February 26, 2009

New Home Sales: January 2009

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing continued and eve accelerating deterioration in demand for new residential homes across every tracked region resulting in a startling 48.24% year-over-year decline and a truly horrendous 77.75% peak sales decline nationally.

It’s important to keep in mind that this stunning year-over-year decline is coming on the back of the significant declines seen in 2006, 2007 and 2008 further indicating the enormity of the housing bust and clearly dispelling any notion of a housing bottom having been reached.

Additionally, although inventories of unsold homes have been dropping for well over a year, the sales volume has been declining so significantly that the sales pace now stands at an astonishing 13.3 months of supply.

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)


Look at the following summary of today’s report:

National

  • The median sales price for a new home declined 13.47% as compared to January 2008.
  • New home sales were down 48.24% as compared to January 2008.
  • The inventory of new homes for sale declined 29.3% as compared to January 2008.
  • The number of months’ supply of the new homes has increased 35.7% as compared to January 2008 and now stands at 13.3months.
Regional

  • In the Northeast, new home sales were down 50.9% as compared to January 2008.
  • In the Midwest, new home sales were down 33.8% as compared to January 2008.
  • In the South, new home sales were down 45.9% as compared to January 2008.
  • In the West, new home sales were down 59.9% as compared to January 2008.

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Mid-Cycle Meltdown?: Jobless Claims February 26 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims increased 36,000 to 667,000 from last week’s unrevised 627,000 claims while “continued” claims surged 114,000 resulting in an “insured” unemployment rate of 3.8%.

It’s important to note that although the last several reports have indicated a slight decrease in the seasonally adjusted initial jobless claims, the non-seasonally adjusted numbers are showing very large increases.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit but as you can see, the pattern is still indicating that recession has arrived.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a “monthly” average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.

As you can see, acceleration to claims generally precedes recessions.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke surly did) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and now has we have fully entered, instead, a mid-cycle meltdown.

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Wednesday, February 25, 2009

Existing Home Sales Report: January 2009

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for January which firmly indicates a new leg down in home sales despite the significant slide to median selling prices fueling speculative sales in the western region.

The report continues to show stunning declines to the median selling price for both single family homes and condos across virtually every region.

The NAR leadership continues their shameless spin with their chief economist Lawrence Yun suggesting that buyers were sidelined by all the “stimulus package discussion” and that the housing markets will soon benefit from the government handouts:

“Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus, … The housing market will soon get a lift from very favorable buying conditions – not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit, and higher conforming loan limits that will allow more people to tap into 50-year low mortgage rates.”

The following (click for larger versions) are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.







Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.

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Reading Rates: MBA Application Survey – February 25 2009

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased 8 basis points since last week to 5.07% while the purchase application volume declined 2.64% and the refinance application volume dropped 19.11% compared to last week’s results.

It’s important to note though that although the steady decline in mortgage rates has likely played a significant role in the large increases in refinance application volume, it’s also altogether possible that the MBAA has some difficulty in seasonally adjusting their numbers around the November to January periods.

As you can see on the charts below, November through January usually brings some erratic spikes to the volume indices but the cause, at least in some part, is likely the result of troubles seasonally adjusting a noisy weekly series and not an actual spontaneous doubling of refinance activity.

As was noted last year, it’s probably sensible to wait until February to draw a final conclusion.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).



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Tuesday, February 24, 2009

Crashachusetts Existing Home Sales and Prices: January 2009

Today, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for January showing that single family home sales declined significantly dropping 12.5% on a year-over-year basis while condo sales absolutely collapsed falling a staggering 26% over the same period firmly indicating that a new and dramatic leg of the housing downturn has commenced.

Further, the single family median home value declined a whopping 17.9% on a year-over-year basis to $263,500 while condo median prices simply fell off a cliff… plunging a stunning 26.1% to $204,000.

Clearly, the impact of the recent stock market crash (that keeps on crashing) and ongoing economic crisis is bearing down on both consumer sentiment and, more fundamentally, credit availability resulting in a significant pullback in spending on homes and other costly purchases.

It’s perfectly clear now that home sellers that choose to wait out the “down market” did so in vain as the 2008 selling season marked likely the last opportunity to sell any residential property at anywhere near the prices set in the peak boom years.

With confidence depressed and eroding and sale volumes this low, Boston area home prices have nowhere left to go but down.

Of course, the new Massachusetts Association of Realtor president Gary Rogers puts a slightly more optimistic spin on things with an absurd baseball analogy of the housing market hitting a triple:

“With historically-low mortgage interest rates, average home prices at their lowest level in years, and the new Federal $8,000 tax credit, the housing market just hit a ‘triple’ for first-time homebuyers in the Commonwealth, … Meanwhile, the December 1 deadline for that tax credit and shrinking supply of homes for sale really makes this a good time to get into the market to buy a home. Starter home sales really get the market moving for everyone else who already owns a home.”

I don’t even know what to say to that one… corny… possibly just plain old pathetic… I’m not sure, but I’m starting to think that the MAR is just plain losing it… the pressure must just be too much for them.

MAR reports that in January, single family home sales declined slightly at 12.5% as compared to January 2008 with a 19% decline in inventory translating to 14.3 months of supply and a median selling price decline of 17.9% while condo sales dropped 26% with an 24% decline in inventory translating to 16.9 months of supply and a median selling price decline of 26.1%.


As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current home price movement.

January’s key MAR statistics:

  • Single family sales declined 12.5% as compared to January 2008
  • Single family median selling price decreased 17.9% as compared to January 2008
  • Condo sales declined 26% as compared to January 2008
  • Condo median price declined a stunning 26.1% as compared to January 2008
  • The number of months supply of single family homes stands at 14.3 months.
  • The number of months supply of condos stands at 16.9 months.
  • The average “days on market” for single family homes stands at 146 days.
  • The average “days on market” for condos stands at 179 days.

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Beantown Bust: Boston CSI and RPX December 2008

The S&P/Case-Shiller (CSI) Home Price index together with the Radar Logic (RPX) for Boston represent the most accurate indicators of the true price movement for both single family homes and the entire residential real estate market as a whole (singles, multi and condos).

For December, both the CSI and RPX showed continued weakness with the CSI declining 7.01% on a year-over-year basis while the RPX dropped 19.08% over the same period.

Further, both reports indicate that area home prices have suffered significant peak declines with the Boston CSI showing a decline of 16.11% since the peak set in September 2005 while the Boston RPX shows a 32.44% price decline since its peak of June 2005.

Recently S&P introduced a new line of data series that specifically track condominium prices in five select markets including Boston which showed that in December Boston condo prices declined 6.13% on a year-over-year basis and 13.77% on a peak decline basis (see chart below).

In all likelihood the dramatic declines to consumer confidence and increases in unemployment will work to place significant downward pressure on property prices for the foreseeable future.

As you can see from the chart below (click for larger), although the RPX captures a greater degree of seasonality, both series are very strongly correlated.

The December results confirm that the typical seasonal pattern is firmly in place as all indices head lower on a downward trend that generally bottoms in mid-winter.


To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement, annual and peak percentage changes to the Boston CSI home price index from the 80s-90s housing bust to today’s bust.



The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.

Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out.

The “annual” chart compares the percentage change, on a year-over-year basis, to the Boston CSI from the last positive value through the decline to the first positive value at the end of the decline.

In this way, this chart captures only the months that showed monthly “annual declines”.

The “peak” chart compares the percentage change, comparing monthly Boston index values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

The final chart shows that the Boston housing market has been, in a sense, declining steadily since early 2001 when annual home price appreciation peaked and the intensity of the housing expansion began to wane (click on following chart for larger version).

It appears that that the main thrust of the housing expansion occurred “in-line” with the wider economic expansion that was fueled primarily by the dot-com bubble and that since the dot-com bust, the housing market has never been quite the same.

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S&P/Case-Shiller: December 2008

Today’s release of the S&P/Case-Shiller home price indices for December 2008 again confirms a worsening of deterioration seen in the nation’s housing markets with ALL of the 20 metro areas tracked reporting significant year-over-year declines and ALL metro areas showing large and even shocking declines from their respective peaks.

Further, there continues to be a notable re-acceleration of the price slide with the 10-city index dropping 2.31% and the 20-city index dropping 2.52% just since last month.

In all likelihood, we are now firmly sliding down an even more momentous slope of home price declines as the continued economic crisis and dramatically accelerating unemployment work to both crush consumer sentiment and force panicked mortgage lenders to continue to tighten their lending standards.

As the housing decline enters the year of the “Prime-Bomb” a larger and much more damaging population of homeowners will face historic levels of financial stress the outcome of which is, at the moment, very hard to calculate.

The 10-city composite index declined a record 19.19% as compared to December 2007 far surpassing the all prior year-over-year decline records firmly placing the current decline in uncharted territory in terms of relative intensity.

Topping the list of regional peak decliners were Phoenix at -45.51%, Las Vegas at -44.03%, Miami at -41.25%, San Francisco at -40.41%, San Diego -39.22%, Los Angeles at -37.41%, Detroit at -36.30%, Tampa at -34.46%, Washington DC at -29.76%, Minneapolis at -25.78%, Chicago at -18.65%, Seattle at -16.70% and Boston at -16.11%.

Additionally, both of the broad composite indices showed significant declines slumping -28.34% for the 10-city national index and 27.05% for the 20-city national index on a peak comparison basis.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator and be sure to read the Tutorial in order to best understand how best to utilize the tool.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are still likely less than half of the way through the portion of the decline in which will be seen fairly significant annual declines (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.


In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.

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Monday, February 23, 2009

Collapsedachusetts Existing Home Sales Preview: January 2009

Sources inside the Massachusetts Association of Realtors (MAR) report that tomorrows monthly existing home sales results will show that in January single family home sales declined significantly dropping 12.5% on a year-over-year basis while condo sales absolutely collapsed falling a staggering 26% over the same period firmly indicating that a new and dramatic leg of the housing downturn has commenced.

Further, the single family median home value declined a whopping 17.9% on a year-over-year basis to $263,500 while condo median prices simply fell off a cliff… plunging a stunning 26.1% to $204,000.

Clearly, the impact of the recent stock market crash (that keeps on crashing) and ongoing economic crisis is bearing down on both consumer sentiment and, more fundamentally, credit availability resulting in a significant pullback in spending on homes and other costly purchases.

It’s perfectly clear now that home sellers that choose to wait out the “down market” did so in vain as the 2008 selling season marked likely the last opportunity to sell any residential property at anywhere near the prices set in the peak boom years.

With confidence depressed and eroding and sale volumes this low, Boston area home prices have nowhere left to go but down.

It’s also important to note that the January’s single family home sales count was the lowest January count on record since 1991 and at 1737 units sold was 45.6% below the record January peak set in 1999.

The following charts (click for larger) show the decline in single family home sales since 2005.

Notice that January 2009 registered a home sales count well below the 2008 level as well as indicating that the February’s results may very well drop well below 2000 units, a significant decline.


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