Paper Economy - A US Real Estate Bubble Blog

Friday, May 28, 2010

Ticking Prime Bomb!: Fannie Mae Monthly Summary March 2010

Today’s release of the Fannie Mae Monthly Summary for April indicated that for data through March, total serious single family delinquency declined slightly.

Although this is a notable development particularly in light of the fact that Fannie Mae’s serious delinquency has been rising for roughly 33 consecutive months, more data is needed before any conclusions can be drawn as to the trend going forward.

For March, 3.90% of non-credit enhanced loans went seriously delinquent while the level was 13.29% of credit enhanced loans resulting in an overall total single family delinquency of 5.47%.

The following charts (click for larger ultra-dynamic and surf-able chart) show 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.


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New York Re-Busting!

Looking at the latest S&P/Case-Shiller (CSI) data it’s obvious that although the government’s housing tax subsidy worked to breathe new life into the New York regional (NY, and parts of NJ and CT) housing market, the effect was largely temporary.

The most notable effect materialized for “low tier” homes (homes currently priced less than $281,772) where prices jumped significantly during the spring and early summer of 2009 before reaching a peak in September.

Since then though, low tier prices have declined every month completely wiping out all gains logged in 2009 and dropping further to the lowest level seen since 2004.

Middle tier homes (homes currently prices between $281,772 and $428,806) have suffered a similar trend reaching a stimulated peak in September 2009 then moving lower to complete a total wipe out all of the gains seen in 2009.

High priced homes (homes currently priced above $428,806) are currently hovering just 0.14% above the low level reach in early 2009, a level that will more than likely be breach when the April data is compiled.

Of course, with the (final) extension of the housing tax gimmick having likely driven similar trends into April (the expiration month), it’s likely that the data will start to reflect a second artificial pop in prices effecting the May – July releases of the CSI.

Again though, this government-sponsored propping of prices will likely only be a short temporary reprieve from an ongoing and notable decline.

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Thursday, May 27, 2010

Extended Unemployment: Initial, Continued and Extended Unemployment Claims May 27 2010

Today’s jobless claims report showed a decline to both initial and continued claims with a subtle flattening continuing to shape up for both series while total continued claims including federal extended benefits appear to also be flattening.

Seasonally adjusted “initial” unemployment claims declined by 14,000 to 460,000 claims from last week’s revised 474,000 claims while “continued” claims declined by 49,000 resulting in an “insured” unemployment rate of 3.6%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 5.33 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.46 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.8 million people on state and federal unemployment rolls.

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.

The following chart 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.

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

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

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Bull Trip!: GDP Report Q1 2010 (Preliminary)

Today, the Bureau of Economic Analysis (BEA) released their second installment of the Q1 2010 GDP report showing that the economy continued to expand with real GDP increasing at an annualized rate of 3.0% from Q4 2009.

On a year-over-year basis real GDP increased 2.50% while the quarter-to-quarter non-annualized percent change was 0.75%.

Growth continued to be driven by personal consumption expenditures and a still notable increase in private non-farm inventories while residential investment took another nose dive declining at an annualized rate of 10.7% since Q4 2009.

Nonresidential structures also declined notably dropping at an annualized rate of 15.3% from the prior quarter.

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Wednesday, May 26, 2010

New Home Sales: April 2010

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for April showing significant revisions to prior months as well as a notable jump in sales on a month-to-month and year-over-year basis fueled mostly from a surge of housing tax-credit buying.

Nevertheless, the low for the series currently remains February 2010 making the huge jump in sales look even more than suspiciously "stimulated".

New single family home sales jumped 14.8% since March and 47.8% since April 2009 while the monthly supply declined to 5.0 months while the median months for sale declined to 14.3 months.

The following charts show the extent of sales decline (click for full-larger version)

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Reading Rates: MBA Application Survey – May 26 2010

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 decreased 3 basis points since the last week to 4.80% while the purchase application volume declined 3.3% and the refinance application volume jumped 17% over the same period.

It's important to note that with the final expiration of the governments massive housing tax credit subsidy home purchase activity is dropping precipitously even with plunging interest rates.

The purchase application volume is now at the lowest level seen in over a decade.

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, May 25, 2010

Crashachusetts: Home Sales and Prices April 2010

It’s been a while… For sake of brevity I have been trying to consolidate all my Mass-related housing posts into one comprehensive post but there is just too much data (condos, singles, RPX, CSI, MAR, etc.) so I’ll just do my best with whatever is the latest data point.

Also, it’s important to note that both the Warren Group and Radar Logic have gone offline as free data services so gone are my Arlington critiques and Boston RPX CSI mashup… such is life.

Today’s Boston Globe headline must read something like “Boston is Back!, Home Sales Leap with Nothing But Clean Sky’s Ahead” as the Mass Association of Realtors (MAR) pump their April sales, price and pending sales data but the fact is, the ridiculous housing trends seen in the Boston metro area for the last year have more to do with the tax gimmick and a false sense of stability than with any fundamental healing of our market.

Home prices are still too high in the Boston metro market and now that the charade of government meddling is largely complete (…though we still need to see higher interest rates and less foreclosure mitigation), we will likely soon find out how fundamental the supposed stabilization truly is.

In any event, the MAR released their April sales and price report showing that sales of single family homes surged 43.8% on a year-over-year basis while condo sales exploded up 63.9% over the same period.

The single family median home price increased 7.3% while the condo median price 6.8% on a year-over-year basis.

As for the Boston area S&P/Case-Shiller data, prices (on a non-seasonally adjusted basis) increased 3.83% on a year-over-year basis in March bringing the peak decline to 17.01% since the fall of 2005.

As it is altogether likely that one of the major unforeseen consequences of the government tax scam will be less future sales, now is the time to really focus on our market to get a sense of which way housing is truly trending.





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Chicago Condos Re-Busting!

One of the weaker trends from this morning’s S&P/Case-Shiller home price report was the price line coming out of the Chicago condo market.

Despite the propaganda PR spun by Chicagoland Realtors, prices are headed south and, in some sense, capture the “head fake” created by the Feds market meddling in pristine fashion.

Last year, as the market was making its way down the road of mean reversion, the Feds took it upon themselves to thwart this healthy re-pricing.

They stepped in with tax gimmicks, quantitatively eased lending rates and largely temporary (and failed) foreclosure mitigation plans in an attempt to win the hearts and “minds” of the senseless American consumer.

The trick worked for a bit, with surging sales and rising prices well into late 2009 but eventually the underlying trend of reversion reemerged.

In fact, prices are now down over 12% on a year-over-year basis and 4.84% since just last month.

To put that startling pace of decline in perspective, the recent price drop would put anyone who purchased a home within the last 12 months with less than 12% down under water while also stripping all the equity from any “buyer” who closed in just the last 30 days with less than 5% down.

The “shock and awe” stimulus is now complete and with it goes all the fraudulent housing trends of the last twelve months.

Gone are the count-down clocks, the full page ads, the tax credit induced sense of urgency, the skewed sales and prices… back is reality and many markets may soon follow the lead now seen in Chicago.

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Inventory Surge and Organic Trends

One of the most important housing trends to follow over the next few months is the developing rise of single family home inventory.

With four consecutive monthly increases, the latest being best described as a surge, sellers appear to be bringing their homes to market at a pace that not only exceeds that of last year but also to a level that is very reminiscent of the housing turning point year of 2007.

This is clearly “shadow inventory” (i.e. postponed home sales of homes held by individuals, investors and banks) now coming to market either out of stimulation from the government tax gimmick or simply as a result of the sense of a stabilization of the home markets.

Make no mistake, increasing inventory will put downward pressure on prices and result in a more strained circumstance for home sellers.

While we will have to wait to see how this season’s peak inventory shapes up, it’s safe to say that there is a substantial backlog of homes that need to come to market and with no tax gimmick artificially simulating sales, we will finally be getting back to the “organic” trends.

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S&P/Case-Shiller: March 2010

Today’s release of the S&P/Case-Shiller (CSI) home price indices for March 2010 (browse the dashboard) reported that the non-seasonally adjusted Composite-10 price index declined 0.38% since February further indicating that the government sponsored housing bounce seen last year continues to erode.

On a year-over-year basis though, the Composite-10 index again showed a notable increase rising 3.15% compared to March 2009.

Looking at the 1990s-era comparison charts below you can see that it took roughly 2 times longer (roughly 40 months) for our current housing decline to show its first year-over-year gain than was seen during the 1990s decline.

If the 1990s remains a good model, this would imply that we have roughly another 40 months (3.3 years) left to go until we hit the ultimate price bottom.

Further, the 1990s decline took roughly 100 months (8.3 years) to go from peak to peak (i.e. peak to trough and back to full recovery again) so again, using the 1990s as a model would imply that our current decline will run a total of roughly 200 months (16.6 years) from peak to full recovery.

This means that current holders of peak priced homes may have to wait until some time in 2023 to be made whole again.

Alternatively, if we are currently experiencing the Japanese model for residential real estate deflation… the ultimate recovery may still be many decades out.

The 10-city composite index increased 3.15% as compared to March 2009 while the 20-city composite increased 2.35% over the same period.

Topping the list of regional peak decliners was Las Vegas at -56.31%, Phoenix at -51.84%, Miami at -47.97%, Detroit at -46.75% and Tampa at -42.69%.

Additionally, both of the broad composite indices show significant peak declines slumping -30.95% for the 10-city national index and -30.59% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com to view the full release.

Also, follow the S&P/Case-Shiller dashboard.

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.

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 month-to-month 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.

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.

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Monday, May 24, 2010

Existing Home Sales Report: April 2010

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for March showing the continued development of the second epic government sponsored surge in home sales activity with single family home sales increasing 7.45% since last March and climbing a whopping 20.53% above the level seen last year.

As for prices, the April release finally brought a notable, albeit totally manufactured, jump in median prices (bravo for the Feds and Realtors!), the first year-over-year increase in at least 42 months climbing 4.46% since last year.

Another trend worth following is the continued increase in inventory with the fourth consecutive monthly rise bringing current inventory to 3.43 million units resulting in a monthly supply of 8.2

Today’s results likely indicate that the government’s tax gimmick (second and final expiration is upon us) is driving a surge of phony demand and bringing a renewal of speculative animal spirits but the effect will likely be temporary.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.



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Friday, May 21, 2010

Massive Unemployment: Mass Layoffs April 2010

The April release of the Bureau of Labor Statistics (BLS) Mass Layoff Report indicated a notable jump in large-scale layoffs with 1856 mass layoff events resulting in 200,870 initial unemployment claimants on a seasonally adjusted basis.

On a seasonally unadjusted basis, the mass layoff events totaled 1840 with 199,690 initial claimants.

It's important to note that this increase in layoffs is contributing to a flattening of the series that is consistent with a similar flattening currently shaping up for the weekly unemployment claims series.

It could be that we are now seeing the initial signs of a job market that is settling into a long trend of elevated unemployment and general weakness.

The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.

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Technical Sell-off or The Bite of a Secular Bear?

This is quite the sell-off.

It’s been so sharp and materialized so quickly that it’s hard to build a consistent story around it.

Is this occurring because of the European contagion or because China is slowing (by dictate) or because the majority of the simulative efforts by the Feds are now complete leaving our economy to come off the juice and likely writhe for the remainder of 2010 or a mix of them all?

While it’s probably a little of all the above, the most significant driver of this sell-off may simply be the collective memory of the last calamity and possibly a general disbelief that government propping was a proper and lasting solution.

The run-up since March 2009 has been so exceptional, most “investors” likely suspect that there is a disconnect between the equity markets and the state of the government sponsored “real” economy and are taking no chances.

Still, as Carter Worth pointed out yesterday on CNBC, the S&P 500 breaking through the 200 day simple moving average is not unprecedented even in the midst of a longer up-trend.

Two significant examples are the 1998 sell-off and the 2004 sell-off (noted by Worth) highlighted on the chart.

While we could be in the midst of a third leg of unwind of the massive secular bear market that commenced in 2000, from a technical standpoint, this could just be a short term pullback with the ultimate day of reckoning still far into the future.

Still, this is just a simple technical comparison and obviously can’t account for the myriad of troubling issues facing the U.S. and world economies today.

The secular bear trend continues to be fully intact with one decade lost and another starting on a weak note and facing serious headwinds.

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Thursday, May 20, 2010

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey May 2010

Today, the Federal Reserve Bank of Philadelphia released the results of their Business Outlook Survey (BOS) for May showing a slight improvement in manufacturing activity for the Philadelphia region with the current activity index increasing to 21.4.

Further, although the future activity index has topped out a bit in recent months, at a reading of 37 it’s still well within expansion territory.

In the first two charts, the bright yellow band indicates contraction (0 to -100) while any value above that band indicates expansion.


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