Paper Economy - A US Real Estate Bubble Blog

Monday, January 31, 2011

Ticking Prime Bomb!: Fannie Mae Monthly Summary December 2010

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

In November, 3.42% of non-credit enhanced loans went seriously delinquent while the level was 10.54% of credit enhanced loans resulting in an overall total single family delinquency of 4.50%.

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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Friday, January 28, 2011

Comparing New and Pending Home Sales

Reader JGBHimself picked up on the fact that Wednesday’s New Home Sales report showed an exceptional monthly sales surge of 71.9% in the West region while Thursday’s Pending Home Sales report indicated that the West region experienced a notable decline dropping 13.2% from the prior month.

Seeing that the surge in West region new homes sales accounted for the majority of the strength of the New Home Sales report one has to wonder what’s going on here?

First, let’s consider that the government considers a new home sale to occur at the signing (and taking of deposit) of the contract for a new construction single family home while the National Association of Realtors (NAR) considers a pending home sale to occur at the signing of the contract to buy an existing single family, condo or coop.

So while directly comparing these two leading contract-signing based indices should be possible, it’s important to note that they each are effectively reporting on different products which could strongly contribute to their correlation (or lack thereof).

Still, the numbers were so far out-of-whack that one must consider what could have contributed to the disparity.

First, NAR asserts that the new home sales data only accounts for 15% of the home sales stock and thus the series is prone to volatility and revision.

We have seen this first hand over the years as the new home sales series is highly revised and often paints a completely different picture months or even years down the road with benchmark revisions.

Another possible cause for the West region new home sales surge is that California implemented its own “first time homebuyer” tax gimmick that was set to expire on January 1 2011 and included a separate plan for new home purchases.

This program seems to have been extended and applications for the credit appear to have picked up throughout December and January… possibly the new home sales number is more directly reflecting this activity.

In any event, we will have to wait a few more months to get a more firm understanding of the trend but for now consider the following chart that compares the national new home sales index to the national pending home sales index.

As you can see from the following chart (click for full-screen dynamic version), in recent years there have been large disparities between to two indices.

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University of Michigan Survey of Consumers January 2011 (Final)

Today's release of the Reuters/University of Michigan Survey of Consumers for January indicated a decline in consumer sentiment with a reading of 74.2 declining 0.27% below the level seen last year.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) increased to 69.3, and the Current Economic Conditions Index declined to 81.8.

It's important to recognize that while consumer sentiment is still higher than the panic laden trough level seen in late 2008, the current sentiment level is far lower than any level seen during the 2001 tech recession and roughly equivalent to the worst seen during the early 1990s and second dip 1982 recessions.

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Bull Trip!: GDP Report Q4 2010 (First Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their first "estimate" of the Q4 2010 GDP report showing that the economy continued to expand with real GDP increasing at an annualized rate of just 3.2% from Q3 2010.

On a year-over-year basis real GDP increased 2.79% while the quarter-to-quarter non-annualized percent change was 0.78%.

The latest report reveals an unexpected increase for housing with residential fixed investment increasing at a rate of 3.4% from the third 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 which 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.

Non-residential fixed investment in structures supposedly eked out a slight gain rising 0.8% from the third quarter while the "change in real private inventories" began to bear down subtracting some 3.7% from real GDP after having worked to prop the value for five consecutive quarters.

Both imports and exports of goods and services worked to contribute positively to GDP with exports of services increasing at a rate of 10% while imports of goods declined at a rate of 15.5% (counted as a contribution to GDP) from the third quarter.

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Thursday, January 27, 2011

Pending Home Sales: December 2010

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for December showing continued improvement with the seasonally adjusted national index increasing 2.0% since November but remaining 4.2% below the level seen in December 2009.

On a non-seasonally adjusted basis, the national index declined 19.8% since November and remained 3.6% below the level seen in December 2009.

Meanwhile, the NARs chief economist Lawrence Yun appears to be smartening up and portraying the situation for housing with a bit more of a realistic outlook.

"The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year."

Frankly, the mere fact the the NAR now commonly refers to the period before 2006 as the "bubble years" is a notable improvement from the epic level of propaganda they were spinning during the worst of this ongoing housing decline.

Make no mistake, housing still has a long way to go... double dipping prices, shadow inventory, years more of foreclosures, red tapped up foreclosure process... the market clearing mechanisms are functioning but this process will take some time to reach a discernible resolution.

The following chart shows the national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).


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The Chicago Fed National Activity Index: December 2010

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity climbed further out of contraction in November with the index strengthening to 0.03 while the three month moving average climbed to -0.22.

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 -0.22, the current three month average index value is indicating extremely weak growth.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims January 27 2011

Today’s jobless claims report showed notable increases to both initial unemployment claims and continued unemployment claims as a declining trend continued to shape up for both initial and traditional continued claims.

Seasonally adjusted “initial” unemployment jumped by a whopping 51,000 to 454,000 claims from last week’s revised 403,000 claims while seasonally adjusted “continued” claims increased by 94,000 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 4.62 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.65 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.27 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, January 26, 2011

New Home Sales: December 2010

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for December showing an unusually strong increase of 17.5% in sales nationally since November as a direct result of a strikingly errant 71.9% monthly increase in sales in the West region.

Clearly, we will have to wait a month or so to see how this truly shakes out but the report indicated that sales in the Northeast slid while sales in the South and Midwest moved up only slightly.

Typically, the first quarter brings the most active sales for the new home market while December is marginal at best.

What is responsible for this explosive sales level in the West will have to be determined but for now let's take the 90% confidence interval of + or - 31.2% for what it's worth and wait for the revisions.

On a year-over-year basis, new single family home sales declined 7.6% while the monthly supply declined 11.5% to 6.9 months.

The following chart show the extent of sales decline to date (click for full-larger version).

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Reading Rates: MBA Application Survey – January 26 2011

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 3 basis point to 4.80% since last week while the purchase application volume declined 8.7% and the refinance application volume slumped a whopping 15.3% over the same period.

It's important to note that rates have been, more or less, trending up for about three months 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, January 25, 2011

FHFA Monthly Home Prices: November 2010

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices were flat at 0.06% since October but dropped a notable 4.42% below the level seen in November 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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S&P/Case-Shiller: November 2010

Today’s release of the S&P/Case-Shiller (CSI) home price indices for November (browse the dashboard) reported that the non-seasonally adjusted Composite-10 price index declined a notable 0.79% since October indicating that housing is continuing to remain weak.

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.

Further, both composite indices are now showing notable year-over-year declines, the first such annual declines registered in ten months, a weak sign indeed.

The 10-city composite index declined 0.41% as compared to November 2009 while the 20-city composite declined 1.59% over the same period.

Topping the list of regional peak decliners was Las Vegas at -57.16%, Phoenix at -53.90%, Miami at -48.80%, Detroit at -47.06% and Tampa at -43.70%.

Additionally, both of the broad composite indices show significant peak declines slumping -30.32% for the 10-city national index and -30.35% 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, January 24, 2011

More Pain, Less Gain: S&P/Case-Shiller Preview for November 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 November 22 and averaged for the month indicates that in the wake of the expiration of the government's final housing tax gimmick prices remain sluggish going flat since October and declining 2.14% below the level seen in November 2009.

The latest daily RPX data is indicating that the price decline picked up steam throughout November and is currently down roughly 2.25% 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 declining-to-flattening trend for prices as the source data moves further through months affected by the tax credit activity and into reality.

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

The latest release of the Moody’s/REAL Commercial Property Index showed another notable monthly increase of 0.6% since October suggesting that the nation’s commercial property markets are continuing to slump through a tremendous downturn that has seen prices down some 38.54% 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 third consecutive 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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Friday, January 21, 2011

Recession Redux?: January 2011

With much of the econ-finance talk these days still centered around the possibility of a looming “double-dip” let’s take a closer look at two particularly sensitive and accurate leading indicators of our economic health to see if we can tease out the future trends.

First, the Federal Reserve Bank of New York is known to use the yield curve (or more specifically the spread between the 10 year and the 3 month treasury yields) to calculate a probability of recession.

This method appears to have been spearheaded by Professor Arturo Estrella of the Rensselaer Polytechnic Institute and Professor Frederic Mishkin of the Columbia Business School as outlined in the June 1996 issue of Current Issues in Economic and Finance, a journal published by the Federal Reserve Bank of New York.

The yield curve probability method is said to have a nearly perfect track record at predicting recessions some two to six quarters ahead with only one false positive, a period in 1967 that many economists, most notably the late Milton Friedman, considered to have been a credit crunch/mini-recession even though the NBER does not officially recognize it as such.

Another important leading indicator with a solid track record is the Economic Cycle Research Institutes (ECRI) weekly leading indicator (WLI).

When the growth component of the WLI turns strongly negative (< -6) it generally means a notable slowdown or recession is in the offing. So what are these two important indicators saying about our current economic situation? The yield curve spread indicator is indicating that the probability of recession is nearly zero while the ECRI leading index is showing some strengthening signs with the growth component currently at a tepid level of 4.1.

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Thursday, January 20, 2011

Existing Home Sales Report: December 2010

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for December showing a continued increase in sales coming in the wake of the now obviously phony baloney government tax gimmick sponsored surge in home sales activity seen earlier in 2010 and 2009.

Single family home sales increased 11.8% since November but remained 2.5% below the level seen last year while prices declined 0.2% since November and fell 0.18% below the level seen in December 2009.

Further, inventory remains high climbing 9.4% above the level seen in December 2009 which, combined with the relatively slow pace of sales, resulted in a monthly supply of 7.8.

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims January 20 2011

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

Seasonally adjusted “initial” unemployment declined by a whopping 37,000 to 404,000 claims from last week’s revised 441,000 claims while seasonally adjusted “continued” claims declined by 26,000 resulting in an “insured” unemployment rate of 3.1%.

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 4.77 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.45 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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