Paper Economy - A US Real Estate Bubble Blog

Wednesday, December 29, 2010

Ticking Prime Bomb!: Fannie Mae Monthly Summary November 2010

The Latest release of the Fannie Mae Monthly Summary for October indicated that for data through October, total serious single family delinquency continued to declined though at a slower pace than in recent months.

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 October, 3.43% of non-credit enhanced loans went seriously delinquent while the level was 10.58% of credit enhanced loans resulting in an overall total single family delinquency of 4.52%.

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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Tuesday, December 28, 2010

10 Markets Down

Looking at the seasonally adjusted results from today’s S&P/Case-Shiller home price report you can see quite clearly that home prices are showing a fundamentally weak trend.

In fact, ten markets are now setting new lows having seen a temporary boost coming from the government housing boondoggles and then completely reverting once the scams were complete.

These markets provide fairly solid evidence that the housing is still a pariah among asset classes and that buyer sentiment is likely still on the decline as the “organic” (non-stimulated and non-distressed) sales trend leans further in the favor of caution and thrift.

As we get further and further from the mania days of the early aughts, it’s likely that attitudes toward housing as a vehicle for wealth accumulation and investment will continue to wane.

As buyer enthusiasm and confidence continue to erode and distressed properties still abound, prices will likely continue to slide.

Keep watching these data series in order to draw your own insights into the nation’s housing dilemma.

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S&P/Case-Shiller: October 2010

Today’s release of the S&P/Case-Shiller (CSI) home price indices for October (browse the dashboard) reported that the non-seasonally adjusted Composite-10 price index declined a whopping 1.24% since September indicating that in the wake of government's housing tax gimmick, prices continue to follow sales down.

It's important to recognize that as we continue to move away from the government's tax sham, 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 slump 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 just 0.22% as compared to October 2009 while the 20-city composite increased 0.80% over the same period.

Topping the list of regional peak decliners was Las Vegas at -56.99%, Phoenix at -53.40%, Miami at -48.72%, Detroit at -45.80% and Tampa at -43.21%.

Additionally, both of the broad composite indices show significant peak declines slumping -29.72% for the 10-city national index and -29.63% 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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Friday, December 24, 2010

How The Bear Popped The Bubble!

Gather 'round all ye bubble-sitting families and partake in a reading of this warm old holiday classic by Dr. SoldAtTheTop! (Originally posted Christmas 2006!)

***

Every Bull
Down in Bull-ville
Liked the Housing Bubble a lot...

But the Bear,
Who lived just South of Bull-ville
Did NOT!

The Bear hated the Bubble!
He blamed the Fed, rates and lending!
But the Bulls didn't care, they just kept right on spending.
It could be that Bulls were just very trendy.
It could be, perhaps, they were whipped into a speculative frenzy.
But I think the most likely reason of all
May have been that their noggins were two sizes too small.

But,
Whatever the reason,
Their heads or the craze,
They continued to spend, for days upon days.
And the Bear, staring up from his cave down below
Sensed the limit had been reached, things were going to BLOW!
For he knew every Bull up in Bull-ville that night
Had stretched every dollar, squeezed their finances tight.

"And they're going back for more!" he could see to his dismay
"This just cannot last, not for one more day!"
Then he ran to his closet to fetch a loud-speaker
"I MUST warn them all, before they get in any deeper!"
For, the Bear knew...

...All the Bull girls and boys
Who had been flipping, and borrowing and buying up toys
Were all skirting the edge, sitting perfectly poised
For collapse that once realized... oh, the noise! Noise! Noise! Noise!

Then the Bulls, young and old, will be in a terrible fix.
And they'd have to hunker down and stop all their mad tricks!
And the economy... oh what a mighty deep-six!
It will sink faster than boat load of bricks!

And THEN
Something would happen that he liked least of all!
Every Bull up in Bull-ville, the tall and the small,
Would all start to panic, when home prices stop swelling.
They'd reverse the craze… they'll all begin selling!

They'd sell! And they'd sell!
AND they'd SELL! SELL! SELL! SELL!
And the more the Bear thought of the Bull-Panicky-Sell
The more the Bear thought "This is NOT going to end well!"
"Why for almost a decade I've watched the bubble inflate!
I MUST warn them now!
Before it's TOO LATE!"

THEN
He mounted the loud-speaker
To the top of his car
And a siren with flood lights
That were blazing like stars

Then the Bear said, "I’m off!"
And he drove forty blocks
Toward the homes that the Bulls
Had been trading like stocks.

All their windows were bright. Flat panel glow filled the air.
All the Bulls were all carrying-on without even a care
When he came to a stop in the Bull-ville town square.
"This is the best place," the Bear thought as he reached
For the microphone that he would use when he preached.

THEN
Click! On went the siren, the lights and the speaker!
Then the Bear started yelling! "Things are looking bleaker and bleaker!
You all must come out, listen to what I have to say
Give me a chance to appeal to your senses today!"

Then one Bull emerged through his front door.
Then another came out, and some more... then still more.
Soon the square was abuzz with a large crowd of Bulls
All grumbling and muttering about association rules.

But the Bear went on "You are all in grave trouble!
I have come here to warn you of the Great Housing Bubble!
You see it's been inflating, stretching thinner and thinner..
If you don't stop now, there will be almost no winners!"

"This is the greatest Ponzi-scheme ever devised
Where all of you have been convinced to not question your eyes.
Just go right on speculating... pushing prices up higher
And assume there will always be a greater fool buyer!"

"But Things are now not looking so hot...
Home sales are plunging, The builders are shot!
Inventory is rising, there is no place to hide.
Soon you will be in for a vicious price slide!"

Then he clicked off the speaker and he heard not a sound.
The Bulls all looked puzzled, just standing around.
Then one Bull, an Economist named David Lereah (Pronounced Le-ray)
Stood up and he shouted, "I have something to say!"

"You are a very foolish Bear!" He said with a sigh
"This is a GREAT time to SELL or to BUY!
Yes prices are moderating, that much is sure true.
But that is a HEALTHY sign that the market will pull right on through.
I've seen all the numbers, I release them you know...
And what I've seen is STABILIZATION as we level off at the low"

"So pack up your things and head off down the hill!
We don't need your type of hype in Bull-ville!"

So the Bear did as he was told, all downhearted and grim.
He silently opened his car door and stepped in.
And he backed down the hill and then crawled into his cave.
And he thought about the Bull-ville that he failed to save.

But just then the Bear heard a horrible sound!
A massive explosion that sent shock waves through the ground!
As he looked from his window, he could not believe either eye...
The whole of Bull-ville had been blown to the sky!

And what happened then...?
Well, in Bear-ville they say
That although he was sad...
His pride grew three sizes that day!
And the minute his heart stopped feeling so blue
He published a book titled "What To Do and Not To Do If a Bubble Finds You!"

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Thursday, December 23, 2010

New Home Sales: November 2010

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for November showing a tepid increase of 5.5% in sales since October to a historically weak seasonally adjusted annualized value of 290K annualized units.

On a year-over-year basis, new single family home sales plunged a whopping 21.2% while the monthly supply increased 6.5% to 8.2 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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 23 2010

Today’s jobless claims report showed a continued decline to both initial and continued unemployment claims as a declining trend shaped up for initial claims and traditional continued claims continued to trend down.

Seasonally adjusted “initial” unemployment declined by 3,000 to 420,000 claims from last week’s revised 423,000 claims while seasonally adjusted “continued” claims declined by 103,000 resulting in an “insured” unemployment rate of 3.2%.

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 4.67 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.06 million people that are currently counted as receiving traditional continued unemployment benefits, there are 8.74 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, December 22, 2010

FHFA Monthly Home Prices: October 2010

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices increased 0.66% since September but falling a notable 3.67% below the level seen in October 2009.

The FHFA monthly HPI are formulated from home purchase information collected from mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.

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Massive Unemployment: Mass Layoffs November 2010

The November release of the Bureau of Labor Statistics (BLS) Mass Layoff Report indicated a continued decline in large-scale layoffs with 1586 mass layoff events resulting in 152,816 initial unemployment claimants on a seasonally adjusted basis.

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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Existing Home Sales Report: November 2010

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for November showing a slight bounce in sales coming in the wake of the now obviously phony baloney government tax credit sponsored surge in home sales activity seen earlier in the year.

Single family home sales increased 6.7% since October but remained a whopping 27.32% below the level seen last year while prices declined 0.12% since October but climbed 1.18% above the level seen in November 2009.

It's important to recognize that the annual pace of sales is currently well below the lows seen even during the worst months of 2008 and early 2009.

Further, inventory remains high climbing 6.7% above the level seen in November 2009 which, combined with the slow pace of sales, resulted in a large monthly supply of 9.3.

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.

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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Bull Trip!: GDP Report Q3 2010 (Third Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their third "estimate" of the Q3 2010 GDP report showing that the economy continued to weakly expand with real GDP increasing at an annualized rate of just 2.6% from Q2 2010.

On a year-over-year basis real GDP increased 3.25% while the quarter-to-quarter non-annualized percent change was 0.63%.

The latest report reveals continued weakness in housing with residential fixed investment declining at a rate of 27.3% from the second quarter though additional revisions are needed to get something that resembles accuracy from this figure.

Note that the administration (and the BEA) have yet to take down their estimates for Q2 residential fixed investment with still sits at the lofty level of a supposed 25.7% quarter-to-quarter change... not likely.... look for that figure to be revised down in coming releases impacting the anemic "final" Q2 results.

Both imports and exports of goods and services slowed in the third quarter while investment in equipment and software was revised down to show a slower pace of growth at a still notable 15.4%.

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

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Reading Rates: MBA Application Survey – December 22 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 increased 1 basis point to 4.85% since last week marking the sixth consecutive weekly increase while the purchase application volume declined 2.5% and the refinance application volume collapsed dropping a whopping 24.6% over the same period.

It's important to note that rates have been, more or less, trending up for about nine weeks now and coincidentally somewhat in-line with the Fed making QE2 official.

While early scuttlebutt about QE2 measures worked to depress mortgage rates earlier this year, it appears that the actual implementation of the measures is not currently working to force them down any lower resulting in continued poor trends for purchase and refinance activity.

The purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

Could the Fed have reached a limit on the long end of the rate curve? We will have to wait to find out.

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, December 21, 2010

Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index October 2010

The latest release of the Moody’s/REAL Commercial Property Index showed another notable monthly increase of 1.3% since September suggesting that the nation’s commercial property markets are continuing to slump through a tremendous downturn that has seen prices down some 42.18% since the peak set in October 2007.

It's important to note that while the commercial property markets have seen significant downward price movement, the latest data-point marks the second consecutive (albeit slight) year-over-year gain.

The Moody’s/REAL CPPI data series is produced by the MIT/CRE but is noted to be “complimentary” to their alternative transaction based index (TBI) as it is published monthly and is formulated from a completely different dataset supplied by Real Capital Analytics, Inc and Real Estate Analytics LLC.

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Monday, December 20, 2010

The Chicago Fed National Activity Index: November 2010

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity remained in contraction in November with the index weakening to -0.46 while the three month moving average remained flat at -0.41.

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 -0.46 the current three month average index value is indicating extremely weak growth nearing the recessionary level of -0.70.

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Friday, December 17, 2010

The Fall of Greece: October 2010

Looking at the most recent OECD economic indicators, Greece makes by far the weakest showing in all the Eurozone appearing to have clearly collapsed into recession.

Industrial production remains in severe contraction territory, consumer has fallen off a cliff, business confidence though trending up is clearly depressed and the leading index is turning down fast dropping 0.02% since September and 6.49% below the level seen in October 2009.

For November (more timely data), consumer confidence declined 0.21% since October dropping 6.54% below the level seen in November 2009 while business confidence increased from October and remained 0.57% above the level seen in November 2009.

Industrial production remains weak but jumped a whopping 5.20% since July (much less timely data) remaining near the lowest levels seen since the late 1990s.




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China's Engine: October 2010

Looking at the latest release of the OECD economic indicators for China, it appears that the massive jump in economic activity seen since the panicky period of late 2008 took a notable pause throughout most of 2010 and now appears back on the rise.

China’s leading economic indicator has now increased for two consecutive months with the latest October period showing a notable month-to-month increase of 0.30% bringing the latest level just 0.73% below the level seen in October 2009.

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OECD Composite Leading Indicators: October 2010

The Organization for Economic Co-Operation and Development (OECD) publishes a wealth of data tracking the fundamental economic dynamics of the world’s largest economies.

The OECD leading indicator, industrial production, business confidence and consumer confidence series all disclose important and timely clues to the state of each respective economy or group of economies (bookmark the live dashboard).

The latest monthly results indicate that the global economy has taken a slight turn for the better with the total leading index increasing 0.03% since September and remaining 1.29% above the level seen in October 2009.

Total Business confidence improved notably climbing 0.23% since October (more timely data) and remaining 3.58% above the level seen in November 2009.

Total Consumer confidence for November (more timely data) also jumped notably with the total index increasing 0.22% since October and 0.83% above the level seen in November 2009.



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