Question of The Day - Three Big to Fail?

Citigroup is in serious trouble… Bank of America is in serious trouble… Now… AIG is in trouble AGAIN to the tune of $60 billion…

The S&P and DOW closed down below the November 20th closing lows… the feeble rally is now completely over.

Brace Yourselves… This is about as bad a set of financial circumstances as you can get.

Anyone see any way out?

Is this the Perfect Storm?

More Pain, No Gain: S&P/Case-Shiller Preview for December 2008

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

The current Radar Logic data reported on residential real estate transactions (condos, multi and single family homes) that settled as late as December 19 2008 appears to indicate that price declines are continuing in every market while accelerating notably in some.

Clearly, the impact of the recent stock market crash and ongoing economic crisis is bearing down on both consumer sentiment and, more fundamentally, credit availability resulting in a significant pullback in spending on homes and other costly purchases.

As the economic fallout continues, look for more markets to experience a re-acceleration of price declines.




Phoenix, Miami, San Francisco, and Los Angeles are clearly continuing their historic price slide as the number of distressed sales climb and buyer sentiment relents under the weight of the recessionary conditions.



Boston, Denver and Chicago all appear to be following the typical seasonal pattern of increasing prices during the high transaction months of the spring and early summer and price declines during the fall and winter but it is important to note that prices are clearly trending and even, most notably for Boston, accelerating lower.


The Washington DC and New York regions are nearly perfect examples of markets that have broken down under the strain of the housing bust and wider economic turmoil showing consistent price declines throughout spring and summer months where normally strong seasonal sales patterns typically brings increasing prices.

Like Sands Through the Hourglass

Folks, the DOW financials are quickly running out of time…

Here are another couple of great posts from expert analyst Ira Artman.

Ira points out that not only have the DOW financials (AMEX, BofA, Citigroup and JPMorgan) been on course for an April 10th touchdown of ZERO (essentially a complete wipeout of common stock value) they have, as of last Friday as an aggregate average, dropped below $10 for the first time.

Further, two of the DOWs four financials (I think you can guess them by now) have common stock prices that are well below $10 threshold which should trigger them to be de-listed based on the DJIAs “unwritten” rule for the price weighted average.

These are truly the days of our lives… Look out below!

The Almost Daily 2¢ - A Petition for Accountability and True Responsibility

“The plan I’m announcing focuses on rescuing families that played by the rules and acted responsibly…” – From President Obama’s February 18th announcement of the proposed “homeowner” rescue plan.

I’d like to strongly disagree with the premise of the rescue plan as stated by president Obama.

The overwhelming majority of “homeowners” who are now experiencing financial stress did NOT act responsibly.

Although many current financially strapped “homeowners” acted illegally in securing the financing with which to purchase their dream homes, just having stayed within legal bounds does NOT mean you acted responsibly.

Stated simply… if you cannot now afford your home and are falling behind on your payments, you made some sort of irresponsible mistake.

Further, many millions of Americans who may not be guilty of any specific instance of legally defined financial fraud are still at fault for defrauding our nation by living above their means when times were booming and becoming a serious liability when things went bust.

In this way they damaged our society at both ends and deserve neither rescue nor respect.

But, this is an overly forgiving nation that seems to need to discern the difference between fraud and foolishness and like it or not (I certainly don’t) appears bent on attempting a rescue.

So, with a true spirit of community and the ethic of transparency, I’d like to suggest two simple stipulations be added to president Obama’s plan.

First, I’d like to propose that every person that receives a federal mortgage bailout be clearly and publicly identified through a searchable database hosted at the Obama administrations Recovery.gov website.

Details listed should include the person’s full name, state and town of residence and the cost to the taxpayers of their individual rescue.

Second, all bailed-out persons should be required to perform community service proportionate to the cost of their rescue.

In order for our country to truly recover from this sorry delusional era we need real accountability and to strongly uphold the democratic ideal of equality.

No individual should be allowed to benefit from acts that are tantamount to fraud and so injurious to our society and although the truly responsible among us will more than likely graciously interpret most of these individuals as only fools, we need reciprocal gestures from them in order to reaffirm their worthiness to be rescued.

If you agree with the proposal outlined in this post please consider signing my online petition and please pass it around to others who may be sympathetic.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey February 2009

Today, the Federal Reserve Bank of Philadelphia released the results of their Business Outlook Survey for February showing a continued deterioration of the regions manufacturing sector with the current activity index indicating substantial contraction at –41.3.

The survey of the Philadelphia regions manufacturing sector has been a pretty solid leading indicator of the overall strength or weakness and recession experienced by general economy.

As you can see by the following chart (click for larger version), during the past three post-recession expansion periods, the “current” diffusion index generally vacillated between 0 and 35 while the “future” index left the period of contraction at an elevated level and eventually joining the “current” index.

Finally, as the economy pushes closer to contraction, both indices decline dramatically with a breach of -20 by the “current” index generally indicating that recession is upon us.

As you can see from the charts below, and now having been officially confirmed by the NBER, the business outlook survey again very accurately predicted the start of the current recession and further continues to indicate contraction.


Also, today’s results now certainty show that any recent parallel to the stagflationary eras of the 70s and early 80 have given way to a stronger stag-deflationary force bringing down prices, new orders and employment simultaneously.

The following chart shows the latest results of the “current new orders” “current prices paid” and “future employment” components (click for larger versions).

Notice that that current orders, future employment and current prices paid are all now trending down.

The following chart (click for larger) shows these measures during the last stagflationary era seen between 1976 – 1980. Notice the clear divergence of rising prices and falling growth.

Follow The Leader: Index of Leading Economic Indicators January 2009

Today’s results of the Conference Board’s Leading Economic Indicators continue to indicate troubled times ahead increasing .4% from December 2008 but declining 2.55% compared to January 2008, leaving the index at 99.5.

Mid-Cycle Meltdown?: Jobless Claims February 19 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims remained unchanged at 627,000 from last week’s revised 627,000 claims while “continued” claims surged 170,000 resulting in an “insured” unemployment rate of 3.7%.

It’s important to note that although the last several reports have indicated a slight decrease in the seasonally adjusted initial jobless claims, the non-seasonally adjusted numbers are showing very large increases.

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.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a “monthly” average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.

As you can see, acceleration to claims generally precedes recessions.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke surly did) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and now has we have fully entered, instead, a mid-cycle meltdown.

The Almost Daily 2¢ - Banned by Zippy Realtors!

UPDATE: ZipRealty has contacted me and kindly offered to reinstate my account...

UPDATE #2: ZipRealty has graciously re-instated my account.. the ban is now OVER!

For a long while now I have argued that the multiple listing service (MLS) should be, in effect, nationalized.

I’m generally not big on “big government” but it’s very obvious that the National Association of Realtors (NAR) has, among other things seriously detrimental to our economy, culture and society, used their control of the MLS to stifle competition and strong-arm buyers and sellers.

The MLS is not simply a database (actually a collection of regional databases) of current and historical home listing information.

It is, in a sense, also the primary service through which the overwhelming majority of home sale transactions initiate… truly a dominant force for the Realtors.

To put it in perspective a bit, imagine that in order to access any information (availability, pricing, etc.) related to available new or used automobiles you (and every other source, magazine, newspaper etc.) had to either pay for or otherwise get permission to use data sourced only in a database controlled by the National Association of Auto Dealers.

A ridiculous scenario indeed BUT even more ridiculous is the fact that we are not talking about autos… these are our homes.

This data is too important and fundamental to be controlled by a single private trade organization.

So my proposal is as follows…

Simply require all real estate brokerages to file EVERY listing (all data … both residential and commercial) with The Department of Commerce which would host a master property listing service.

I firmly believe that if this data were freely available to anyone (the Commerce Department would supply the data to consumers and to third party services) you would see superb internet applications immediately spring forth and the NAR put in its proper position as a private trade organization of relatively powerless salesmen.

To demonstrate the power that Realtors have with the current MLS arrangement consider my recent experience with ZipRealty, a popular web-based broker and MLS search site.

Last week I received the following UNSOLICETED email from a Realtor associated to ZipRealty who shall (for now) remain nameless:

***

Hi there!

When you get a minute could you please let me know if you are planning to buy, and or sell, property in the next few months. Since there are a lot more buyers out there looking now(and actually buying!), a sure sign of Spring, I want to be sure to set aside time for you when you're ready. If you could just send me your estimated time line, I will appreciate the info.

Thank you very much,
Realtor Name
REALTOR (R)
ZipRealty, Inc.
Licensed in MA

***

In response to this email I promptly replied:

***
HA!... Yea... get ready I'm sure this spring will be just fantastic!

Why don't you just get real and admit that nothing is selling out there... be serious... just say "I'm hurting and need a sale... bad!"

Good luck,
Sold

***

Well to that I was very shortly thereafter banned (my account was deactivated) by ZipRealty.

Just consider that for a moment… I received an unsolicited email from a Realtor… I simply replied snarkely and they shut me out of their service permanently.

Frequent users of ZipRealty will know that the primary reason I used that service was that they are one of the only (possibly the only) MLS site that allows you to see the property address as well as all price reductions and the days on the market.

In effect, by banning my access to the data they literally took my right to see essential market details away.

ZipRealty is a very internet savvy service which even sports a popular blog dedicated to real estate market conditions but in this case they are simply the same old thing… Realtors crossing the line.

Production Pullback: Industrial Production January 2009

Today, the Federal Reserve released their monthly read of industrial production showing simply stunning declines to the aggregate production and widespread declines across many industries, particularly those related to consumer spending, construction and business vehicles, resulting in a significant year-over-year decline to the total index of 9.98% as compared to January 2008 and a 1.82% decline since December 2008.

“Final product” consumer durable goods continue to show weakness falling 28.56% as an aggregate on a year-over-year basis, with particularly significant declines coming specifically from home appliances, furniture and carpeting which declined by 21.86% on a year-over-year basis.

Construction supply production has been showing the most severe contraction seen in at least the last 20 years with wood products falling 25.84%.

Although automotive production has been showing weakness since the middle of 2004, business vehicle production is now showing a stark contraction.

The following charts (click for larger) show the overall consumer durable component along with the Home Appliances, Furniture and Carpeting sub-component on both a time series and year-over-year basis, construction supply production with the wood products sub-component, and general and business related vehicle production all overlaid with the last two recessions for comparisons purposes.

New Residential Construction Report: January 2009

Today’s New Residential Construction Report continues to firmly demonstrate the intensity and completeness of the washout conditions that now exist in the nation’s housing markets particularly for new residential construction showing tremendous declines on both a peak and year-over-year basis to single family permits both nationally and across every region.

It’s important to note that today’s results strongly indicate that a new leg in the housing decline commenced between October and December with permit activity falling at the most significant rate seen in this decline.

Single family housing permits, the most leading of indicators, again suggests extensive weakness in future construction activity dropping 50.37% nationally as compared to January 2008 and an astonishing 79.75% since the peak in January 2005.

Moreover, every region showed significant double digit declines to permits with the Northeast declining 38.2%, the Midwest declining 53.6%, the South declining 51.2%, and the West declining 51.5% on a year-over-year basis.

Keep in mind that these declines are coming on the back of last year’s record declines.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values on a year-over-year basis as well as compared to the peak year of 2004.

Declines to single family permits have contracted measurably in terms of monthly YOY declines, and the fact that we are now seeing declines of roughly 30%-50% on the back of 2006, 2007 and 2008 declines should provide a an unequivocal indication that the housing markets are by no means stabilizing.




Here are the seasonally adjusted statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits down 50.4% as compared to January 2008.

Regionally

• For the Northeast, single family housing down 38.2% as compared to January 2008.
• For the Midwest, single family housing permits down 53.6% as compared to January 2008.
• For the South, single family housing permits down 51.2% compared to January 2008.
• For the West, single family housing permits down 51.5% as compared to January 2008.

Housing Starts

Nationally

• Single family housing starts down 53.7% as compared to January 2008.

Regionally

• For the Northeast, single family housing starts down 77.7% as compared to January 2008.
• For the Midwest, single family housing starts down 60.5% as compared to January 2008.
• For the South, single family housing starts down 51.9% as compared to January 2008.
• For the West, single family housing starts down 33.6% as compared to January 2008.

Housing Completions

Nationally

• Single family housing completions down 43.3% as compared to January 2008.

Regionally

• For the Northeast, single family housing completions down 37.5% as compared to January 2008.
• For the Midwest, single family housing completions down 45.0% as compared to January 2008.
• For the South, single family housing completions down 43.0% as compared to January 2008.
• For the West, single family housing completions down 44.7% as compared to January 2008.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

Reading Rates: MBA Application Survey – February 18 2009

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 decreased 20 basis points since last week to 4.99% while the purchase application volume increased 9.07% and the refinance application volume jumped a whopping 64.28% compared to last week’s results.

It’s important to note though that although the steady decline in mortgage rates has likely played a significant role in the large increases in refinance application volume, it’s also altogether possible that the MBAA has some difficulty in seasonally adjusting their numbers around the November to January periods.

As you can see on the charts below, November through January usually brings some erratic spikes to the volume indices but the cause, at least in some part, is likely the result of troubles seasonally adjusting a noisy weekly series and not an actual spontaneous doubling of refinance activity.

As was noted last year, it’s probably sensible to wait until February to draw a final conclusion.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


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

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings February 2009

Yesterday, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing dramatic new lows and continued evidence that the new home market is experiencing a prolonged bout of depression.

Each component of the NAHB housing market index remain WELL BELOW the worst levels ever seen in the over 20 years the data has been being compiled strongly suggesting that the current severe contraction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.