Paper Economy - A US Real Estate Bubble Blog

Friday, December 30, 2011

Fannie Mae Delinquencies: November 2011

The latest release of the Fannie Mae Monthly Summary indicated that total serious single family delinquency went flat in November while remaining at distressed levels.

In November, 3.13% of non-credit enhanced loans went seriously delinquent while the level was 9.32% of credit enhanced loans resulting in an overall total single family delinquency of 4%.

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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Kansas City Fed Manufacturing Survey: December 2011

The Federal Reserve Bank of Kansas City, like other district FRBs (New York, Philadelphia, Richmond and Dallas), tracks its region’s manufacturing activity by surveying a number of important indicators such as general activity, production, shipments, orders, employment and prices for raw materials and finished products.

The latest results are indicating that the manufacturing activity fell to a contraction level of -4 in December with virtually every component measure turning negative while prices paid for raw materials increased notably to 28.

It's important to note that although this data-set has a history that only runs as far back as mid-2001, the composite index never fell below 10 during the "recovery" that followed the tech-wreck of the early aughts.

Today, we see the composite index not only remaining depressed but actually turning notably negative, clearly indicating the internal weakness of our current economic expansion and possibly presenting a strong signal of recession to come.

The following chart plots the seasonally adjusted Composite index since 2001 with the solid red line indicating the threshold between expansion and contraction.

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Pending Home Sales: November 2011

Yesterday, the National Association of Realtors (NAR) released their Pending Home Sales Report for November showing that home sales increased with the seasonally adjusted national index jumping a notable 7.3% since October and increasing 5.93% above the level seen in November 2010.

Meanwhile, the NARs chief economist Lawrence Yun suggests that the rice in contract activity should portend an equivalent rise to existing home sales though purchase failures have been running unusually high.

"Housing affordability conditions are at a record high and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high... November is doing reasonably well in comparison with the past year. The sustained rise in contract activity suggests that closed existing-home sales, which are the important final economic impact figures, should continue to improve in the months ahead,..."

Also, it's important to note that the NAR reports that the pending home sales numbers were apparently not affected by the recent and dramatic existing home sales benchmark revisions.

"Pending home sales are not affected by the recently published rebenchmarking of existing-home sales because the index uses a different methodology based directly on contract signings, and is adjusted for seasonality."

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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Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 29 2011

Yesterday’s jobless claims report showed increases to both initial and continued unemployment claims as seasonally adjusted initial claims remained below the 400K level for the fourth consecutive week.

Seasonally adjusted “initial” unemployment increased 15,000 to 381,000 claims from last week’s revised 366,000 claims while seasonally adjusted “continued” claims increased by 34,000 resulting in an “insured” unemployment rate of 2.8%.

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 3.49 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.62 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.12 million people on state and federal unemployment rolls.


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Wednesday, December 28, 2011

The Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey: December 2011

Yesterday, the Federal Reserve Bank of Dallas released their latest read on manufacturing in their region indicating that manufacturing activity worsened slightly with the current general business activity index declining to a contraction level of -3 while the future general business activity index increased to 10.3.

These results are coming, more or less, inline with the other regional manufacturing survey all indicating that business activity has slowed sharply in 2011 and may possibly indicate recession is upon us.

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The Richmond Fed Survey of Manufacturing Activity: December 2011

Yesterday, the Federal Reserve Bank of Richmond released their Survey of Manufacturing Activity for December showing that the composite index, the broadest measure of manufacturing activity, improved 3 points to a weak level of 3.

The most notable component measures also showed similar results with the new orders improving to 7, shipments increasing to 3 and backlog of orders climbing to a weak 1.

The following chart plots the composite index with the red line marking a level of 0, or the threshold between increasing and declining activity.

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S&P/Case-Shiller: October 2011

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

The latest release of the S&P/Case-Shiller (CSI) home price indices for October reported that the non-seasonally adjusted Composite-10 price index declined 1.09% since September while the Composite-20 index declined 1.23% over the same period with both measures continuing to decline notably since last year.

The latest CSI data clearly indicates that the price trends are experiencing a declining trend into the typically less active summer and fall season and as I recently pointed out, the more timely and less distorted Radar Logic RPX data is starting to capture notable falling prices driven primarily by seasonality.

The 10-city composite index declined 3.02% as compared to October 2010 while the 20-city composite declined 3.40% over the same period.

Topping the list of regional peak decliners was Las Vegas at -60.66%, Phoenix at -55.79%, Miami at -50.80%, Tampa at -46.78% and Detroit at -44.12%.

Additionally, both of the broad composite indices show significant peak declines slumping -31.90% for the 10-city national index and -32.06% 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 charts (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 as well as annual and monthly changes.



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 and normalized 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 side-by-side (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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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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Friday, December 23, 2011

New Home Sales: November 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for November showing a monthly increase with sales climbing 1.6% since October and 9.8% above the level seen in November of 2010 but remaining at an epically low level of 315K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 158K units, lowest level seen in in at least 47 years while the median number of months for sale going flat at 7.4.

The monthly supply remained declined to 6.0 months while the median selling price declined 2.5% and the average selling price declined 13.77% from the year ago level.

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

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Thursday, December 22, 2011

FHFA Monthly Home Prices: October 2011

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that, nationally, home prices declined 0.21% since September and declined 3.16% below the level seen in October 2010.

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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University of Michigan Survey of Consumers December 2011 (Final)

Today's final release of the Reuters/University of Michigan Survey of Consumers for December indicated improvement in consumer sentiment with a reading of 69.9 but falling 6.17% below the level seen last year while one year inflation expectations declined slightly at 3.1%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 63.6, and the Current Economic Conditions Index climbed to 79.6.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.


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The Chicago Fed National Activity Index: November 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) continued to indicate weakness in national economic trends with the index remaining in contraction territory for a fourth consecutive month at -0.37 while the three month moving average went flat at -0.24.

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.

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Bull Trip!: GDP Report Q3 2011 (Third Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q3 2011 GDP report showing that the economy continued to expand but at a notably slower pace than originally estimated with real GDP increasing at an annualized rate of just 1.8% from Q2 2011.

On a year-over-year basis real GDP increased 1.46% while the quarter-to-quarter non-annualized percent change was 0.45%.

The latest quarterly results indicate that the most notable source of weakness in the economy came from the change in private inventories component resulting in an overall contribution of -1.35% to GDP while government expenditures with non-defense spending declined 3.8% and state and local spending declined by 1.6%.

Fixed investment purportedly made notable contributions to Q3 GDP with non-residential fixed investment increasing 15.7% from Q2 2011 while residential fixed investment increased 1.3% over the same period.  

Keep in mind that these results are likely very poorly estimated and are sure to be revised notably in following quarters and even years to come.

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Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 22 2011

Today’s jobless claims report showed declines to initial unemployment claims and continued unemployment claims as initial claims fell to the lowest level seen since mid-2008.

Seasonally adjusted “initial” unemployment declined 4,000 to 364,000 claims from last week’s revised 368,000 claims while seasonally adjusted “continued” claims declined by 79,000 resulting in an “insured” unemployment rate of 2.8%.

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 3.50 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.53 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.04 million people on state and federal unemployment rolls.


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Wednesday, December 21, 2011

NAR Revises the Great Housing Decline

Today, the National Association of Realtors (NAR) released a major benchmark revision to their existing home sales data resulting in notable downward revisions to all monthly results from 2007 and beyond.

While the Realtors were quick to point out that the “month to month characterizations of market conditions did not change”, the data certainly did with the trends post-bust now looking much more severe and a fair amount more consistent with what was reported for the new home market.

Of course the NAR suggests that there are a number of factors that contributed to the previously inflated results including growth in MLS coverage, FSBO related distortions and geographic population shifts.

Looking at the chart above (click for full-screen version) that compares the data pre and post-benchmark revisions, you can see that what the NAR is purporting to be the trend now looks substantially weaker and shows that the housing decline was notably more severe than previously reported with seasonally adjusted annualize home sales falling from a peak level of 7.25 million units in 2005 to just over 3.45 million in 2010, a level first seen in the early 1990s.

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Existing Home Sales Report: November 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for November showing an increase in sales with total home sales climbing 4% since October and 12.2% above the level seen in November 2010.

Single family home sales increased 4.5% from October and rose 12.9% above the level seen in November 2010 while the median selling price declined 4.0% below the level seen in November 2010.

Inventory of single family homes declined 3.8% from October dropping 16.1% below the level seen in November 2010 which, combined with the relatively slow pace of sales, resulted in an still elevated monthly supply of 7.0 months.

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 – December 21 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 (from FHA and conforming GSE data) declined yet again, dropping 3 basis points to 4.00% since last week while the purchase application volume declined 4.9% and the refinance application declined 1.6% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

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, December 20, 2011

New Residential Construction Report: November 2011

Today’s New Residential Construction Report showed that in November, both single family permits and starts increased from October with both measures continuing to show tepid results when compared on a year-over-year basis.

While the traditional business media jumped on this report as an indicator that housing is on the mend, closer inspection shows that the majority of the "strength" was in multi-unit structures, particularly structures with five or more units while single family activity remains historically subdued.

Single family housing permits, the most leading of indicators, increased 1.64% from last month to 435K single family units (SAAR), increasing 3.57% above the level seen in November 2010 but remaining an astonishing 75.81% below the peak in September 2005.

Single family housing starts increased 2.29% to 447K units (SAAR), but dropped 1.54% below the level seen in November 2010 and a stunning 75.48% below the peak set in early 2006.

With the substantial headwinds of elevated unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling real wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.


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