Paper Economy - A US Real Estate Bubble Blog

Monday, February 28, 2011

Rosengren’s “Financial Myths”

Today, the Federal Reserve Bank of Boston President Eric Rosengren gave a short presentation entitled “The Role of ‘Financial Myths’ in the Financial Crisis” that very succinctly covered several of the major “myths” behind recent financial turmoil as well as outlining two very important potential “myths” for the future.

In past mega-bubble episodes, key concepts drove enthusiasm and, more importantly, lack of proper evaluation of risk on the part of government and major financial institutions.

The myth of "limited buildable land" worked to fuel a massive property bubble in Japan in the 1980s that, after peaking out in 1990, has been on a steady decline ever since.

The “dot-com” bubble in the late 1990s was pumped primarily by the concept that valuation fundamentals didn’t matter anymore and that all that was important was the popularity of the various internet companies, a myth that was put to rest when tech stocks topped-out in early 2000 and crashed hard literally wiping out all the gains of the prior 5 years.

The Great Housing Bubble was, particularly for financial institutions, driven by the basic concept that nationally, home prices simply don’t decline in the United States.

While that was more or less true for the period before 2006, professional analysts missed the fact that national home prices had seriously overshot any semblance of fundamental valuation leaving open the very real possibility that what was considered impossible would actually come true.

As home prices peaked in the U.S., banks quickly began to realize that they had overestimated the value of diversification of their real estate related holdings and pulled back on lending and other forms of participation further exacerbating an already collapsing situation.

As the above list shows, myths can infect just about any asset class affecting property, equities and likely just about any other market where unusual performance needs to be substantiated in order to maintain the status quo.

Rosengren goes on to cite two myths that may be shaping up in the wake of the financial crisis, namely the plight of European sovereign and U.S. state debt.

Both issues are essentially functioning with the same potential myth, that is, that both insolvent European countries like Greece and Ireland and insolvent states like Michigan and California could fail to meet their debt obligations requiring restructuring WITHOUT causing larger fallout to the global and national economy.

While it would not be unusual for this myth to have widespread faith given the massive rescue operations engineered by the European Central Bank and the Federal Reserve during the worst of the economic crisis, many believing that the authorities would stop at nothing to contain fallout coming from massive “too big to fail” situations, it may inevitably turn out that these cases of massive insolvency have no easy solutions and that widespread fallout is inevitable.

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Pending Home Sales: January 2011

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for Janaury showing continued pullback in home sales with the seasonally adjusted national index declining 2.8% since December and remaining 1.54% below the level seen in January 2010.

It's important to note that with today's release, the NAR revised the seasonal factors affecting all data from January 2008 resulting in some notable downward revisions of past seasonally adjusted values including five downward revisions in just the past six months.

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.

"While home buyers over the past two years have been exceptionally successful with historically low default rates, there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system, ... We should not expect the recovery to be in a straight upward path – it will zig-zag at times."

The following chart shows the seasonally adjusted 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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Friday, February 25, 2011

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

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q4 2010 GDP report showing that the economy continued to expand, though at a notably slower pace than originally reported, with real GDP increasing at an annualized rate of just 2.8% from Q3 2010.

On a year-over-year basis real GDP increased 2.70% while the quarter-to-quarter non-annualized percent change was 0.69%.

The latest report reveals an unexpected increase for housing with residential fixed investment increasing at a rate of 2.8% 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 increased at 4.5% 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 9.6% while imports of goods declined at a rate of 14.1% (counted as a contribution to GDP) from the third quarter.

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Thursday, February 24, 2011

FHFA Monthly Home Prices: December 2010

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices declined 0.30% since November and dropped a notable 3.35% below the level seen in December 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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New Home Sales: January 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing a notable decline of 12.6% in sales nationally since December dropping very near the lowest level on record and falling 18.62% below the level seen in January 2010.

As I noted last month, the December sales level was pumped up by a California first-time homebuyer program that worked to dramatically pump up the West region's sales lifting the overall national figure.

Now with the program more or less complete, the West region has fallen back down the level seen prior to the program expiration.

As a result of the slower sales pace, the monthly supply increased in January to 7.9 months while the median selling price increased 5.68% and the average selling price declined 8.15%.

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

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The Chicago Fed National Activity Index: Janaury 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that national economic activity slowed in January with the index weakening to -0.16 while the three month moving declined to -0.10.

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 -0.10, the current three month average index value is indicating extremely weak growth.

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Hey Big Spender: Discretionary Durable Goods Orders January 2011

Today’s Durable Goods Manufacturers’ Shipments, Inventories and Orders report indicated that total new orders increased 2.7% from December to $200.5 billion while excluding transportation, new orders declined 3.6% to $150,092 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 latest release, "discretionary" durable goods orders declined 2.02% since December but still remaining 9.03% above the level seen in January 2010.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 24 2011

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

Seasonally adjusted “initial” unemployment declined by 22,000 to 391,000 claims from last week’s revised 413,000 claims while seasonally adjusted “continued” claims declined by 145,000 resulting in an “insured” unemployment rate of 3.0%.

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 4.44 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.57 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.01 million people on state and federal unemployment rolls.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 2007.

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Beantown Bust: Boston Home Sales and Prices January 2011

Recently the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for January showing that single family homes sales declined 32.4% from December but increased 13.1% above the level seen in January 2010 with detached single family median home prices falling 5.2% below the level seen last year.

Condo sales, on the other hand, declined on both a monthly and annual basis dropping 35% from December and 5.2% from January 2010 while median selling prices declined 3.9% below the level seen a year earlier.

The S&P/Case-Shiller (CSI) Boston index indicated that area single family home prices declined 0.14% between November and December 2010 and registering a year-over-year decline of 0.81%, the third consecutive annual decline.

As for condos, the Boston condo CSI indicated area unit values declined 0.75% between November and December 2010 with values showing a year-over-year decline of 1.20%.

Single family home inventory rose 4% over the level seen in January 2010 with the monthly supply sitting at a whopping 11 months while condo inventory declined 5% but showed an even worse 11.1 months of supply.

Single family homes stayed on the market for an average of 143 days while condos stayed an average of 151 days, both values significantly higher than the level seen last year indicating that the sales pace is continuing to slide.

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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Wednesday, February 23, 2011

A Better Alternative to NARs Existing Home Sales Data

There has been a lot of scuttlebutt recently about the veracity of the National Association of Realtors (NAR) existing home sales data and while the NAR has promised to review its procedures and release revised numbers later this year, this might be as good a time as any to cut over to a new and better quality measure of home sales.

As I have been suggesting for almost two years now, the S&P/Case-Shiller Sale Pair Counts can be used as a high quality “organic” existing home sales index and an excellent alternative to the NARs volatile (and apparently incorrect) existing home sales numbers.

Given that the S&P/Case-Shiller methodology in constructing their home price indices seeks to constrain the source data down to organic “arms-length” transactions, vetting out “flips”, new construction and even most distressed sales, the sale pair counts associated to each price index (S&P publishes the price index and the associated counts of sale pairs used to construct each price index) capture a unique picture of existing family home sales and one that is more compatible with the trends seen for new home sales and clearly less fraught with the distortions apparently present in the NAR data.

The only slight down side of using the sale pair counts is that S&P does NOT seasonally adjust this data so their published data shows very strong seasonal movement which can make analysis difficult.

But never fear reader … I have taken it upon myself to download the Census Bureau’s X12 ARIMA seasonal adjustment software application and created seasonally adjusted series for both the Composite-10 and Composite-20 sale pair counts… I will adjust all other sale pair indices including the condo sale pair counts later the week and post the results.

Looking at the latest data, the seasonally adjusted Composite-10 sale pair count is indicating that sales are near all time lows while increasing 0.78% between November and December 2010 but remaining 27.56% below the level seen in December 2009.

Looking at the chart (click for full-screen dynamic version) it’s clear that while the worst of the home sales slide is likely behind us, the market is far from healed and likely still some way off of defining a bottom.

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Existing Home Sales Report: January 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for January 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 2.4% since December rising 4.92% above the level seen last year while prices declined 2.7% below the level seen in January 2010.

Further, inventory remains high climbing 4.6% above the level seen in January 2010 which, combined with the relatively slow pace of sales, resulted in a monthly supply of 7.5.

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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Reading Rates: MBA Application Survey – February 23 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 as well as the volume of 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 12 basis point to 5.00% since last week while the purchase application volume increased 5.1% and the refinance application volume jumped 17.8% over the same period.

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

While early scuttlebutt about QE2 measures worked to depress mortgage rates in early 2010, it appears that its actual implementation is having the reverse effect resulting in continued poor trends for purchase and refinance activity.

Now it appears more likely that QE2 worked to improve confidence or at least created the perception that the Fed will stop at nothing to prop the ailing stock market and, in turn, the entire macro-economy.

Thus improvements in equity prices and macro-trends are now coming in-line with a notable increases in lending rates.

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

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




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Tuesday, February 22, 2011

NAR Needs Congressional Investigation

The National Association of Realtors (NAR) has been one of the least scathed of the complicit actors coming out of the Great Housing Collapse.

The financial industry was decimated with millions losing their jobs and hundreds of firms and institutions going bust, the government sponsored enterprises went belly-up with equity investors taking a ferocious haircut, Angelo Mozilo, former CEO of Countrywide Financial, got a $67.5 million fine (small slap on the wrist for him and so far beat a criminal investigation) and even the once mighty Alan Greenspan was knocked down many pegs for his lack of leadership during the bubble years.

But what of the NAR?

They had their hands all over the housing game… in fact, in many ways they were the most responsible for whipping up the frenzy that drove housing parabolic during the bubble years.

From sponsoring the “flipping this and that house” shows on cable television, to consistently running newspaper, TV and radio ads designed to pump the financial benefits of home ownership, to lobbying for pro-housing and pro-homeownership initiatives through their Realtor political action committee (RPAC), to just plain old spin control of the important data points they release every month (existing home sales, pending home sales, etc.) the Realtors worked tirelessly to control as much of the housing PR as possible and their efforts were extremely effective.

But yet, what price have they paid for their notable contributions to the housing bubble and subsequent collapse that nearly brought down the entire global financial system?

Sure, tens of thousands of Realtors are out of work but frankly the agent population was way over the top during the peak years with most of the job losers having only been in the business for at most a few years prior to the collapse.

Shouldn’t the organization itself be held accountable in some way for its action during the housing mania?

Shouldn’t there be a congressional investigation into the matter?

If an investigation revealed the Realtor organization as firmly complicit in the buildup of the nation’s housing distortion, wouldn’t that work to rein-in this self interested and irresponsible private industry group?

Finally, the NAR controls some of the most important monthly housing data releases and with them the privilege of interpreting the housing trends for nation of media organizations that all but “cut and paste” the verbatim transcripts into their “articles”… shouldn’t the Census Bureau take over that important responsibility… they already release the new homes report, the housing starts and new residential construction report, the residential vacancies and homeownership report, retail sales, e-commerce sales, manufacturing and trade inventory and sales… why not the existing and pending home sales reports?

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S&P/Case-Shiller: December 2010

Note... be sure to bookmark the overall S&P/Case-Shiller Dashboard or the Dashboard of the weakest markets for a real-time view of all the markets tracked by the S&P.

Today’s release of the S&P/Case-Shiller (CSI) home price indices for December reported that the non-seasonally adjusted Composite-10 price index declined a notable 0.85% since November indicating that housing is continuing to remain weak.

The latest CSI data clearly indicates that the price trends are continuing to slump and, as I recently pointed out, the more timely and less distorted Radar Logic RPX data is continuing to capture notable price weakness nationwide.

Further, both composite indices are now showing notable year-over-year declines, a weak sign indeed.

The 10-city composite index declined 1.20% as compared to December 2009 while the 20-city composite declined 2.38% over the same period.

Topping the list of regional peak decliners was Las Vegas at -57.63%, Phoenix at -54.67%, Miami at -49.05%, Detroit at -48.11% and Tampa at -45.30%.

Additionally, both of the broad composite indices show significant peak declines slumping -30.95% for the 10-city national index and -31.04% 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.

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, February 21, 2011

Too Proud to be a Realtor

For the last year or so the National Association of Realtors (NAR) has been a bit cagier about their blind devotion to home-ownership, the use of their primary political tool of increasing home ownership rates, and their soulless lack of respect for anything other than their own private industry interests but now, with the looming restructuring of the nation's housing finance scheme, they are back at it again.

Let us recount that it was this very organization that spent 2006 and 2007… the two peak years of the housing boom… urging millions of hapless Americans to embrace home-ownership by taking out full page ads in top tier national newspapers and radio and television commercials all pushing messages with themes like “Buy NOW” and “It’s a Great Time to Buy or to Sell”.

Further, recall that during the peak and on into the worst of the housing decline, the NARs own chief economist at the time David Lereah worked tirelessly to spin the conditions of the housing market into the best light continually insisting that the nation’s housing markets were NOT collapsing but simply taking a healthy tepid breather… only deflating slightly.

It’s important to also note that Lereah has since admitted that he was fudging the truth and that he did so because the NAR was his employer earning him a spot in Time magazines lineup of “25 People to Blame for the Financial Crisis”.

Now… why am I drudging all of this up you ask?

The NAR is at it again and this time they appear bent on preventing some of the most important changes to our housing finance system that have been proposed for generations.

The plight of Fannie and Freddie have apparently thrown the NAR into a panic… they are desperate to prevent the loss of sales that would ensue should the Obama administration truly guide our national housing finance scheme away from the failed government-sponsored approach that has been in place since the late 1930s.

The NAR immediately followed the administrations release of the Fannie Freddie proposal with a podcast whereby the current president Ron Phipps cleverly condemns the current Fannie Freddie scheme while simultaneously insinuating that without government sponsored entities there would be no 30-year fixed rate mortgage.

Further, Phipps ridiculously insinuates that holding a pro-housing position is tantamount to patriotism and that supporting the 30-year fixed rate mortgage is essentially a patriotic act.

Finally Phips reframes the NARs position on homeownership pitting the fate of our economy on housing and construction and outlining a plan for a three city bus tour that seeks to “celebrate” homeownership while convincing politicians of Americans devotion to and aspirations for owning a home.

This is precisely the type of nonsense the country needs to seriously distance itself from.

Along with the finance industry, the government sponsored entities (Fannie, Freddie, FHA, etc.), housing speculators and hapless buyers, the NAR was a main agent of destruction that first fueled the housing bubble and then made matters infinitely worse as the collapse ensued by ensnaring millions more into the scheme merely to protect their own private interests.

Now as we move meaningfully closer to a major restructuring the nation’s housing finance scheme, the importance of which cannot be overstated, the NAR shows itself again to be firmly aligned against the best interests of the country.

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And the Housing Decline Slumps On…

NOTE… Be sure to bookmark the Scary Housing Dashboard for a real-time view of all the housing markets discussed in this post.

With interested industry groups and Bullish stock analysts talking up the notion of a “housing recovery” it may come as a surprise to learn that eleven (over half) of the markets tracked by the S&P/Case-Shiller home prices indices are now setting fresh new lows.

With price declines continuing and, in most of these eleven markets, actually declining at a progressively faster rate, it should come as no wonder that homebuilder sentiment and new and existing home sales remain historically weak.

Atlanta takes the number one position as the market with seasonally adjusted prices declining at the fastest rate dropping -7.91% annually with Chicago coming in second at a -7.61% decline, Detroit at a -7.11% decline, Portland at -6.97%, Phoenix at -6.42%, Seattle at -4.74%, Charlotte North Carolina at -4.25%, Tampa at -4.01%, Miami at -3.58%, Las Vegas at -3.53% and finally New York at -1.66%.

Further, it’s important to note that as of the latest data-point, Detroit has seen over 15 years of house price appreciation literally wiped out by the current collapse leaving prices at the same level seen in mid 1994 while both Atlanta and Phoenix prices have fallen back over 10 years to the level of late 1999.

Phoenix has backed up to early 2000, Chicago is back to early 2002, Tampa and Miami are back to early 2003, New York is back to early 2004, Charlotte is back to late 2004 and Portland and Seattle are back to early 2005.

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More Pain, Less Gain: S&P/Case-Shiller Preview for December 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 December 17 and averaged for the month indicates that in the wake of the expiration of the government's final housing tax gimmick prices have continued to decline nationally dropping 3.24% below the level seen in December 2009.

The latest daily RPX data is indicating that the price decline picked up steam throughout December and is currently down roughly 3.54% 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 trend for prices as the source data moves further through months affected by the tax credit activity and into reality.

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Friday, February 18, 2011

Fannie and Freddie Must Go

Yesterday’s NPR “On Point” program featured a segment titled “Fannie Freddie and the Sinking Housing Market” which is well worth a listen if only to witness the handwringing that will likely become far more common as the administration moves closer to making real changes in government sponsored housing finance.

Make no mistake, there are many interests that would align firmly against any plan to withdraw government subsidy (which is exactly what mortgage guarantees are) from the nation’s housing finance scheme but most are only now strategizing and determining the best way to position their case in favor of government sponsored housing in light of the fact that Fannie and Freddie are largely viewed as colossal failures.

Longtime readers of this blog should know the drill fairly well at this point… Fannie Mae’s original goal was to help expand and democratize housing finance by creating a secondary mortgage market of insured or guaranteed mortgages but what may have started out as an exercise in basic command-economic policy morphed into a series of reckless actions on the part of the GSEs, multiple administrations, Congress, lobbyists and private financial institutions that ultimately contributed greatly to the collapse of the nation’s housing markets and the major macro-economic decline that ensued.

Let’s recall that while the private label mortgage market (and all the financial engineering involved in the complex synthetic mortgage finance products etc.) was responsible for much of the shoddy underwriting that corroded housing finance during the housing bubble era, many of these private institutions were originating mortgages just to sell to Fannie and Freddie.

For example, in the peak years of 2006 and 2007, Countrywide Financial… probably the poster-boy for shoddy underwriting… was originating 25% of Fannie Mae’s book of business.

In this way, housing finance, in the days building up to the great housing collapse, had become an ever wilder circus of interests and policy with both government-sponsored and private institutions becoming inseparable and mutually responsible for the disaster that ensued.

In proposing the wind-down of Fannie and Freddie, the administration is taking the exact right course… clearly recognizing the mistakes of the past and the inherent weaknesses and instability that is created by having government such a major actor in the nation’s housing finance and restructuring policy to dramatically reduce the government's footprint.

Will this mean that there will be no 30-year fixed rate mortgage or a minuscule private mortgage market with loans directed only at affluent families as was insinuated during the NPR program?

Well… while you will get used to hearing fear-mongering along these lines coming from all the usual organizations (and other lunatics) that have blind interests in simply expanding home ownership at any cost… the reality is that any government guaranteed function in housing finance is simply more of the same and ultimately doomed to disaster.

There is no convincing evidence that the 30-year fixed rate mortgage would fall by the wayside if not guaranteed by a colossal government sponsored train-wreck and, quite to the contrary, there was a very robust market in Jumbo mortgages (primarily 30-year amortizing non-insured non-guaranteed) prior to the massive home price slide that sent investors racing for the sidelines.

When home prices begin a lasting stabilization and the fundamentals of price-income ratio’s rule once more, there will be more than enough investment money for a robust private mortgage market.

Will anyone with a pulse be able to lock-in a 30-year fixed rate mortgage with good terms and a low interest rate? … of course not.

The lending standards by which many millions of Americans (a generation or more) grew to rely on and consider “normal” were simply a distortion created by reckless government policy and overzealous and often fraudulent privateers.

Expanding homeownership at all costs was a failed intuitive embraced by both government and private housing industry groups and we need to recognize it as such.

While zero-entry housing might have been good for home sales and political pandering, its consequences were millions of financially wrecked households struggling through foreclosure and bankruptcy, devastated financial institutions and an economic system teetering on the brink of collapse.

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Thursday, February 17, 2011

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 17 2011

Today’s jobless claims report showed an increase to both initial unemployment claims and continued unemployment claims as a significant declining trend continued to materialize for both initial and traditional continued claims.

Seasonally adjusted “initial” unemployment increased by 25,000 to 410,000 claims from last week’s revised 385,000 claims while seasonally adjusted “continued” claims increased by 1,000 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 4.50 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.60 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.1 million people on state and federal unemployment rolls.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 2007.

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Wednesday, February 16, 2011

Production Pullback: Industrial Production Janaury 2011

Today, the Federal Reserve released their monthly read of industrial production showing a slight decline with total industrial production dropping 0.06% from December and remaining 5.15% above the level seen in January 2010.

This report appears to indicate there December brought another notable improvement bucking the recent weakening trend and likely indicating that the expansion will continue.

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