Paper Economy - A US Real Estate Bubble Blog

Thursday, September 30, 2010

Ticking Prime Bomb!: Fannie Mae Monthly Summary August 2010

The Latest release of the Fannie Mae Monthly Summary for August indicated that for data through July, total serious single family delinquency continued to declined.

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

In July, 3.62% of non-credit enhanced loans went seriously delinquent while the level was 11.27% of credit enhanced loans resulting in an overall total single family delinquency of 4.82%.

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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Bull Trip!: GDP Report Q2 2010 (Final??)

Today, the Bureau of Economic Analysis (BEA) released their third "estimate" of the Q2 2010 GDP report showing that the economy continued to weakly expand with real GDP increasing at an annualized rate of just 1.7% from Q1 2010.

On a year-over-year basis real GDP increased 3.00% while the quarter-to-quarter non-annualized percent change was 0.43%.

It's important to recognize a fairly significant shift in release terminology that the BEA has taken in the last few quarters when interpreting today's results.

For years, the BEA released three installments of their GDP report, the "advance", the "preliminary" and the "final" for each quarter with the assumption (on the part of the reader) that by the publication of the "final" most metrics captured in the report were fairly firm.

Stating with Q2 2009 though, the BEA began to term the three revisions "estimates" labeling each release "first", "second" and "third estimate".

While this may seem like a minor issue, it's important to recognize that this switch provides a pretext for publishing estimated figures that have little basis in reality.

Case in point, as I pointed out last October, the BEA seriously overestimated the rebound in fixed residential investment first "estimating" that Q3 2009 came in at +23.4%, a faster rate than any quarter in recent history including the entirety of the housing bubble.

This "estimate" was more than suspicious, it was just flatly wrong and now, after multiple revisions, reflects a much more tepid 10.6% rate.... and even that "estimate" might be nothing but a farce.

And yet now, for Q2 2010 the BEA is again estimating that fixed residential investment expanded at a rate of 25.7%!!

With "estimates" like these, it's safe to say that the BEA is having serious trouble with accuracy... possibly as a result of the severity our current decline... possibly for political reasons.

In any event, these GDP report should be viewed with a high degree of skepticism.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 30 2010

Today’s jobless claims report showed a decrease to both initial claims and continued claims with a continued trend-up shaping up for initial claims while traditional continued claims appears to be trending down.

Seasonally adjusted “initial” unemployment declined by 16,000 to 453,000 claims from last week’s revised 469,000 claims while “continued” claims declined by 83,000 resulting in an “insured” unemployment rate of 3.5%.

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 4.87 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.93 million people that are currently counted as receiving traditional continued unemployment benefits, there are 8.815 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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Wednesday, September 29, 2010

U.S. vs Canadian Housing Price Mashup!: July 2010

Teranet/National Bank of Canada produces a complete line of Canadian home prices indices using the same repeat sale methodology as the S&P/Case-Shiller allowing for an interesting comparison against home prices hear in the US.

Mashing-up the Teranet/NBC Composite-6 index to the S&P/CSI Composite-10 both rebased to the year 1999 provides a pretty decent “apples-apples” comparison as both the Teranet/NBC Composite-6 and S&P/CSI Composite-10 share the purpose of narrowly including just the top largest metros for their respective country.

Looking at the chart (click for full-screen dynamic version) you can see that while the Teranet/NBC index is currently showing a pretty exceptional rebound with annual percentage increases of nearly 12.36%, it still has a ways to go in order to match the pre-bust US levels.

Further, both series are showing a notable slowdown to price appreciation on a year-over-year basis.

Browse the full catalog of Canadian home price indices provided by Teranet/National Bank of Canada.

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Reading Rates: MBA Application Survey – September 29 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 declined 6 basis points since the last week to 4.38% while the purchase application volume increased 2.40% and the refinance application volume declined 1.60% 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 has been trending down precipitously despite continued declining interest rates.

The purchase application volume remains near the lowest level seen in well over a decade.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages as well as one year ARMs since 2006 (click for larger dynamic full-screen version).

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



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Tuesday, September 28, 2010

Fraud and the Fraudulent Fruadsters That Defraud

The world is awash in fraud.

North Korea’s Kim Jun Il just promoted both his own sister and 20-something year old son to the rank of generals (“four star” for the sister) in what’s reported to be preparation of the dictator’s transition of power to his heir apparent.

Raul, brother of Fidel has been dictating over Cuba for a while now.

Dyanastic power at the top of these large “peoples” movements?… what a fraud… good luck with that fools.

They get what they deserve.

Here in the U.S. we had Fannie, Freddie, FHA, the Federal Home Loan banks and a host of other federal initiatives to make homeownership more affordable and accessible for all.

Billed as “democratizing” access to homeownership through subsidized (“insured”) and highly financialized debt markets, these long trending scams worked to lower the bar to the point that virtually anyone could get their piece of the American dream…. at least temporarily.

Of course, this fraud went the way they all do eventually collapsing and resulting in huge collateral damage, millions of foreclosures, bad debts, skyrocketing unemployment and a global economy in shambles.

But we pay taxes for a slew of social services… the “social safety net”, as it’s called… that many in Washington (and elsewhere) proudly declare work to guard Americans against the hazards and vicissitudes of life.

At over 55% of the federal budget (Social Security, Medicaid, Medicare, federal extended unemployment insurance, food stamps, disability, section 8 housing, etc. etc. etc.) or $1.95 trillion (that’s roughly $6,450 that could simply be given to every man, woman and child… or $25,800 for a typical family of four… more than half the US real median household income!), you would figure that this size net would cover quite a number of vicissitudes… yet… what’s covered are fairly common hazards… temporary loss of employment, getting old, over-spending, not earning enough.

These aren’t the worst hazards I can imagine someone randomly encountering in their life, yet these are the ones that most of us encounter most of the time so they drive votes.

The elites in Washington merely dole out prescriptions for the public’s most popular dilemmas not the really hard, difficult or distressing ones.

Washington is a fraud.

Suppose the endgame for most of these policies runs similar to that of the Fannie Freddie debacle… that is, far larger distress coming from the unintended consequences created by government meddling then from the actual problems government elites were trying to “solve” in the first place… Wouldn’t the government have swindled it's citizens?

Shouldn’t you feel defrauded as a taxpayer when you are asked to backstop eons of bad policy ideas, many of which you are mostly powerless to amend, may never be able to gain benefit from or like Fannie-Freddie, have already caused you direct financial distress?

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S&P/Case-Shiller: July 2010

Today’s release of the S&P/Case-Shiller (CSI) home price indices for July 2010 (browse the dashboard) reported that the non-seasonally adjusted Composite-10 price index increased 0.79% since June further indicating that the government's housing tax gimmick worked to lift prices into the expiration.

It's important to recognize that as we continue to move away from the government's tax sham expiration, the home sales and price movement fueled by that epic monstrosity are left further and further behind.

Yet, it will be some time before the effects are completely expunged from the CSI as its methodology uses a three month rolling average of the source data and further, as BostonBubble points out, since Congress moved to extend the closing deadline for the credit until September, the CSI data may not be free of the distortion until the February 2011 release!

In any event, you can see from the latest CSI data that the price trends are starting to decelerate and, as I recently pointed out, the more timely and less distorted Radar Logic RPX data is already capturing notable price weakness nationwide.

The 10-city composite index increased 4.05% as compared to July 2009 while the 20-city composite increased 3.18% over the same period.

Topping the list of regional peak decliners was Las Vegas at -57.02%, Phoenix at -51.50%, Miami at -47.35%, Detroit at -43.98% and Tampa at -41.94%.

Additionally, both of the broad composite indices show significant peak declines slumping -28.29% for the 10-city national index and -27.90% 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).


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, September 27, 2010

Beantown Bust: Boston Home Sales and Prices August 2010

This week, the Massachusetts Association of Realtors (MAR) will release their Existing Home Sales Report for August showing that single family homes sales increased just 3.1% on a month-to-month basis from July (a slight reprieve from the hideous 38% collapse seen from June to July) leaving sales 18.35% below the level seen in August 2009.

Similarly, condos bounced up 13.2% in August from July after a collapse which saw sales plummet 42.9% between June and July.

The single family median home value increased 4.8% on a year-over-year basis to $330,000 while condo median prices increased 9.2% to $304,700.

Obviously the government's sham tax gimmick worked to drive sales this spring and further, in the absence of this scam, scores of hapless Bostonians have crept back to the sidelines all downhearted, empty pockets... no deposit... no government freebie... no phony baloney house purchase.

Where the trends will go from here should be pretty obvious... back to the weak "organic" trend that preceded the government's malfeasance... subdued home sales and lower prices.



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.

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 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.

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More Pain, Less Gain: S&P/Case-Shiller Preview for July 2010

As I demonstrated in prior posts, given their strong correlation, the home price indices provided daily by Radar Logic, averaged monthly, can effectively be used as a preview of the monthly S&P/Case-Shiller home price indices.

The current Radar Logic 25 MSA Composite data reported on residential real estate transactions (condos, multi and single family homes) that settled as late as July 26 and averaged for the month indicates that in the wake of the expiration of the government's final housing tax gimmick prices started to decline sliding slightly since June and dropping 0.74% below the level seen in July 2009.

The latest daily RPX data is indicating that the price decline picked up steam throughout July and is currently down roughly 1% on a year-over-year basis.

This trend is likely telling us that as transactions collapse down to the weak "organic" level post-housing tax scam, prices will follow.

Look for tomorrow's S&P/Case-Shiller home price report to reflect an equivalent flattening to declining trend for prices as the source data moves further through months affected by the tax credit activity and into reality.

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The Chicago Fed National Activity Index: August 2010

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity weakened notably in August with the index declining to -0.53 from a revised -0.11 in July while the three month moving average declined to -0.42.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

It’s important to note that at -0.43 the current three month average index value is indicating extremely weak growth near the recessionary level of -0.70.

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Friday, September 24, 2010

Hey Big Spender: Discretionary Durable Goods Orders August 2010

Today’s Durable Goods Manufacturers’ Shipments, Inventories and Orders report indicated that total new orders declined 1.3% from July to $191.2 billion while excluding transportation new orders increased 2.0% to $148.422 billion.

Stripping durable goods orders of defense orders AND non-defense aircraft orders yields an effective measure of orders coming as a direct result of typical discretionary consumer durable goods spending on items such as motor vehicles, furniture, consumer electronic devices and home appliances.

Looking at the August release, discretionary durable goods orders appears to have slowed notably compared to earlier in the year increasing just 0.80% since July and 11.84% above the level seen in August 2009.

Though the trends in discretionary new orders still remain positive, the recent slowing trend warrants tracking this measure closely in coming months.

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New Home Sales: August 2010

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for August showing continued stunning weakness with sales remaining flat at an all-time low of 288K annualized units, the lowest level on record.

New single family home sales stayed flat since July and plunged a whopping 28.9% below the level seen in August 2009 while the monthly supply declined slightly to 8.6 months and the median months for sale declined to 10.3 months.

These results provide even more evidence that the government's housing tax scam policy was ultimately a complete and total failure accomplishing nothing but creating a temporary distortion of the underlying "organic" housing trends.

With numbers this weak, it could even be argued that the government's tax gimmick ultimately destabilized the nation's home markets by injecting a substantial amount of uncertainty, sponsoring feeble home buyers and preventing the natural market clearing mechanism from playing out.

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

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Thursday, September 23, 2010

Existing Home Sales Report: August 2010

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for August showing a slight bump-up in sales coming on the back of July's truly epic collapse in demand as the government's phony baloney tax credit sponsored surge in home sales activity waned.

Single family home sales increased 7.4% since July but declined 19.2% compared to August 2009 while prices declined slightly since last month remaining 1.2% above the level seen last year.

It's important to note that inventory is continuing to mount with the latest level rising 2.7% above the level seen in August 2009 which, in light of the current slow sales pace, resulted in a massive monthly supply of 11.3.

Clearly, all can now see that the government's housing tax credit was not only a gimmick... it was a complete failure, a massively wasteful and expensive handout to the housing industry and a futile and likely very dangerous exercise in market manipulation.

More importantly, today's results demonstrate that the Keynesian trickery of targeted "stimulus" is simply failed policy and has revealed those who have preach its benefits as chumps and fools.

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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Massive Unemployment: Mass Layoffs August 2010

The August release of the Bureau of Labor Statistics (BLS) Mass Layoff Report indicated a decline in large-scale layoffs with 1546 mass layoff events resulting in an increased 150,192 initial unemployment claimants on a seasonally adjusted basis.

It's important to note that this increase in mass layoff claimants appears to be contributing to a flattening of the series that is, more or less, consistent with a similar flattening trend currently shaping up for the weekly unemployment initial 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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 23 2010

Today’s jobless claims report showed an increase to initial claims and an decrease to continued claims with a continued trend-up appearing to shape up for initial claims while traditional continued claims appears to be trending down.

Seasonally adjusted “initial” unemployment increased by 12,000 to 465,000 claims from last week’s revised 453,000 claims while “continued” claims declined by 48,000 resulting in an “insured” unemployment rate of 3.5%.

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 5.17 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.93 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.10 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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