The following is a post from Diana Olick's CNBC blog on the implications of higher interest rates and the resulting cliff dive of mortgage applications. I agree with her argument that this does not bode well for a housing recovery. Here's why:
… Last week total (mortgage) applications fell 15.8 percent with the refi index falling 23.3 percent. I don’t like to look at one week, so I’ll go with the four-week moving average, which tells me that the purchase index (applications to buy a house) is basically flat and the refi index is down nearly 20 percent.
During the early spring, refinances were making up close to 80 percent of total mortgage application volume. The numbers were huge, implying that borrowers were able to either take money out to help meet other expenses or at least lower their monthly payments to avoid default. Today refis make up a little over half of total application volume and that percentage is falling every week.
Suffice it to say anyone arguing that the bump up in mortgage rates isn’t a big deal, your answer is pretty clear: It is a big deal. Yes, I realize that historically 5.5 percent on the 30-year fixed is low, but history doesn’t mean anything in today’s housing market. 70 percent of all loans in existence are from the bubble years, when 5.5 percent to 6.25 percent was common, according to Mark Hanson of the Field Check Group. This is a market unlike any other, where potential buyers are used to lower interest rates, and borrowers in trouble are in need of lower interest rates to avoid foreclosure.
Refis that were in the pipeline are falling out, due to the higher rates, and fence-sitters are clearly keeping the pole up their you-know-what while the rates stay higher. Given the macro-economic picture right now, without some kind of government intervention (unlikely again due to the macro forces), mortgage rates aren’t going to go down. So where does that leave housing?
Yes, there are investors out there, paying cash and bidding up some of the lowest of the low-end properties. But the mid to higher end is dead, thanks to far higher jumbo rates. So what’s the Administration to do? They like the economy coming back of course, but a comeback will inevitably mean higher mortgage rates. It’s a double-edged sword that slices right through Obama’s housing recovery plan, half of which is all about refinancing borrowers out of danger.
Watch the mortgage apps numbers as we get into summer. They are the real indicator of where this market is going. Sales are skewed by distressed properties. Yes, we’re seeing sales increases in the worst areas of California, Nevada, Florida and Arizona, but these, again, may not involve mortgages. I’m not saying investor sales are bad, I’m just saying that some of these investors are still looking to flip the properties, which means these are not real organic sales, i.e. the kind we need for true recovery.
June 19, 2009
The following is a post from Diana Olick's CNBC blog on the implications of higher interest rates and the resulting cliff dive of mortgage applications. I agree with her argument that this does not bode well for a housing recovery. Here's why:
June 16, 2009
According to the Commerce Department’s new housing data for May, it appears that the builders who are still standing are making a brave showing with a small increase in single-family housing starts. May’s seasonally adjusted starts were at 401,000, 7.5 percent above April and respectably above the record low of 357,000 in January and February.
It is encouraging that builders are starting new homes, although filtered with the sales data of new single-family homes in April (352,000 contracts), the industry is still chasing its tail of oversupply. One explanation is that builders are building a different product, more suitable and profitable for a contracting market, while selling off older inventory, often at a loss. The May new homes sales data will be available for overlay on June 24th.
Single-family building permits for May numbered 408,000 (7.9 percent above April) suggesting single-family starts will remain at about the same level in June.
Multi-family starts were up substantially for May (26% in the West) driving the total number of housing starts up 17.5 percent above the revised April estimate. May's housing starts of 532,000 (seasonally adjusted), represents a rebound from the all time record low in April of 454,000. Compared year-over-year however May’s starts were off 45.2 percent.
Total building permits in May, including both single- and multi-family, were four percent above April’s revised rate of 489,000, but at 518,000, starts were 47 percent below May 2008's estimate of 978,000.
Regional total housing starts:
- The West posted a 26.6% increase with only an 8.6% in single family.
- The Northeast, much of which has been suffering wet weather all spring, was up only 2%, with single family down 12.5%.
- All starts were up 11.1% in the Midwest, with single-family up 9.4%.
- The South was up 16.8% overall and 10.6% for single family.
Single-family permits increased in all regions led by the Midwest (16.1%) and the Northeast (13.5%). Single family permits rose 4.5% in the South and 7.5% in the West.
Click here for the complete housing report on Permits, Starts and Completions.
June 15, 2009
So that I am not accused of putting aside my self-proclaimed role as real estate industry commentator, I will cough up the pending home sales data for April, then quickly move on …
The National Association of Realtors reported today that the “Pending Home Sales Index, based on contracts signed in April, rose 6.7 percent to 90.3 from a reading of 84.6 in March, and is 3.2 percent above April 2008 when it was 87.5.”
The increase is attributed in part to numerous buyer assistance programs around the country, including the federal $8,000 tax credit for first-time buyers, low interest rates in April, and further declines in home prices. The Index however can be somewhat unreliable in a volatile market such as we’re experiencing.
Current conversion of contracts to closings is taking much longer than before the credit squeeze. Mortgage processing time has increased substantially and can cause contracts to fall out when interest rates are on the rise. Fallout is also greater when so many of the sales, estimated at about 50 percent, is made up of short sales or foreclosures, where bank approvals often drag out so long that sales fall through.
Also the Pending Home Sales Index is based on a national sample, typically representing only about 20 percent of transactions for existing-home sales. The Index is a leading indicator, not a true measure of the market.
What is of note is the increase in contract activity in the Northeast and Midwest:
- The Pending Home Sales Index in the Northeast shot up 32.6 percent to 78.9 in April and is 0.8 percent above a year ago.
- In the Midwest the index rose 9.8 percent to 90.4 and is 11.1 percent above April 2008.
- The index in the South slipped 0.2 percent to 93.0 in April but is 3.5 percent higher than a year ago.
- In the West the index rose 1.8 percent to 94.8 but is 2.9 percent below April 2008.
June 14, 2009
New research from the Wharton School of Business shows that owning your own home may not be the oft expected formula for happiness and financial security.
Grace Wong Bucchianeri, a Wharton professor of real estate, found that while homeownership still brought smiles to the faces of many families, it may not be the panacea for a sense of overall well being.
The data for the study was gathered in 2005, before the housing crash. Just think the pain, agony and stress that could have been saved if the world had been convinced that homeownership was not for everyone. On the other side of the housing bubble Bucchianeri’s research seems particularly relevant today.
Bucchianeri found that homeownership brings with it aggravation, less time for friends and even more excess pounds than renters in comparable homes. Pride may come with the name on the deed but happiness does not necessarily follow any more so than a renter signing the monthly rent check.
The survey used for Bucchianeri’s paper titled, "The American Dream or The American Delusion? The Private and External Benefits of Homeownership," was conducted from some 600 women in Ohio across tax records and census data. "Homeowners report more positive results, but if you control for basic characteristics such as income, how nice the home is and health status, those results go away," explains Bucchianeri.
"This suggests that our perception that homeowners are better off than renters might be fueled only by casual observations. The conventional wisdom might not hold up so well when you look at the data carefully."
Viewing homeownership from the other side of the bubble, her findings may help potential homebuyers take a deeper look at their motives for owning a home. Homeownership is not a key ingredient to a meaningful and successful life. "Overall, I found little evidence that homeowners are happier by any of the following definitions: life satisfaction, overall mood, overall feeling, general moment-to-moment emotions and affect at home," Bucchianeri writes. "The average homeowner, however, consistently derives more pain (but no more joy) from a house and home. I know there are aspects of homeownership that are not so enjoyable. My thought is homeownership might not be financially -- or emotionally -- for everyone."
Bucchianeri cautions that her research should not be used as an argument against homeownership, just as the abstract notion of the American Dream should not be used as an across-the-board endorsement for buying a home. People should balance what they are hoping to get from homeownership itself," she says. "It's really difficult, but more thinking should go into this rather than just accepting the conventional wisdom and going into homeownership by default."
Click here to read Bucchianeri's entire paper including some very interesting tables of research results of homeowners vs. renters.
June 11, 2009
May Foreclosure Report
The May Foreclosure Market Report released today from RealtyTrac showed some improvement from April filings with a decrease of 6 percent. The year-over-year filings however were 18 percent higher than May 2008. Total filings – default notices, scheduled auctions and bank repos – were reported on 321,480 properties for the month which is one in every 398 housing units receiving a foreclosure filing in May.
Click image to enlarge:
“May foreclosure activity was the third highest month on record, and marked the third straight month where the total number of properties with foreclosure filings exceeded 300,000 — a first in the history of our report,” said James J. Saccacio, chief executive officer of RealtyTrac. “While defaults and scheduled foreclosure auctions were both down from the previous month, bank repossessions, or REOs, were up 2 percent thanks largely to substantial increases in several states, including Michigan, Arizona, Washington, Nevada, Oregon and New York. We expect REO activity to spike in the coming months as foreclosure delays and moratoria implemented by various state laws come to an end.”
Other pertinent report data:
- Nevada continued to document the nation’s highest foreclosure rate, with one in every 64 housing units receiving a foreclosure filing during the month — more than six times the national average.
- With one in every 144 housing units receiving a foreclosure filing during the month, California posted the nation’s second highest state foreclosure rate despite a 4 percent decrease in foreclosure activity from the previous month.
- Florida posted the third highest state foreclosure rate in May, with one in every 148 housing units receiving a foreclosure filing during the month.
- Arizona posted the fourth highest state foreclosure rate in May, with one in every 158 housing units receiving a foreclosure filing, and Utah posted the fifth highest state foreclosure rate, with one in every 316 housing units receiving a foreclosure filing.
California (92,249), Florida (58,931), Nevada (17,157), Arizona (16,865), Michigan (13,891), Ohio (11,360), Illinois (10,942), Georgia (10,516), Texas (9,813) and Virginia (5,385). The top 10 states accounted for nearly 77 percent of total properties with foreclosure filings nationwide.
Click here to read the entire press release and see the individual state foreclosure statistics.
Interest Rates Rise - Mortgage Applications Fall
The Mortgage Bankers Association reported today:
- The Market Composite Index, a measure of mortgage loan application volume, was 611.0, a decrease of 7.2 percent on a seasonally adjusted basis from 658.7 one week earlier.
- The Refinance Index decreased 11.8 percent to 2605.7 from 2953.6 the previous week and the seasonally adjusted Purchase Index increased 1.1 percent to 270.7 from 267.7 one week earlier.
- The average contract interest rate for 30-year fixed-rate mortgages increased to 5.57 percent from 5.25 percent.
The Purchase Index is now at the level of the late '90s.Click on graph for larger image in new window.
30-year fixed mortgage rates were at 4.81% two weeks ago, and are now at 5.57%. With the 10 year yielding 3.9%, mortgage rates will probably rise again this week.
This graph shows the MBA Purchase Index and four week moving average since 2002.
Although we can't compare directly to earlier periods because of the changes in the index, this shows no pick up in overall sales activity.
Beige Book - Less bad is the new good.
From the Fed Beige Book:
Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.
One reason mall giant General Growth Properties filed for Chapter 11 in April was a tax rule that makes it difficult for borrowers who are current on their mortgage payments to hold restructuring talks with the servicers of commercial mortgages that were packaged and sold as bonds. In many cases, the only way for property owners and investors to force the servicer to come to the table is to allow the loan to go into default.
The frustrating tax rule has been the bane of many commercial borrowers who have attempted to act proactively in restructuring at-risk debt. As I’ve discussed before, the complicated nature of bundled mortgage backed securities creates a difficult working environment in which to maneuver. Combine this problematic framework with the tax rule stymieing pre-cliff diving workouts associated with CMBS bundled in bonds, and you have one more unintended consequence of the unraveling of the credit crisis.
Tax rules make it difficult for borrowers who are current on their payments to hold restructuring talks with the servicers of commercial mortgages that were packaged and sold as bonds.CMBS servicers are forced to take a hard line with property owners and investors seeking to restructure troubled mortgages prior to default. “We can't talk to you unless you first fall behind on payments.” The tax rule underlying this position is that when CMBS offerings are created, the supporting mortgages are legally held by tax-free trusts. The current tax consequence is triggered and the trust forced to pay taxes if the underlying loans are modified before they become delinquent.
With hundreds of billions of dollars in maturing loans looming on the horizon, “informed sources” tell the Wall Street Journal that Treasury is “considering easing those tax rules so current debt in bundled CMBSs can engage in discussions to restructure debt prior to default without triggering tax consequences.” Treasury, however, is not talking – yet – but there is hope to believe that guidance will be released within a couple of weeks.
“At a hearing Tuesday on the Obama administration's bank-rescue program, some lawmakers warned that commercial real estate could deal a punishing blow to lenders and the economy. "I am very concerned about the ticking time bomb we face," said congressional Joint Economic Committee Chairwoman Carolyn Maloney (D., N.Y.).”A combination of lack of credit, declining cash flows and plunging property values are creating the perfect storm for commercial mortgage defaults in a $6.5 trillion market. CMBS delinquency rates have more than tripled in just six months. The delinquency rate in May stood at 2.7 percent, their highest point in a decade. Considering the already fragile financial system an additional loss of hundred of billions of dollars in losses from commercial defaults and foreclosures could result in dire consequences.
“Of particular concern is $154.5 billion of CMBS loans coming due between now and 2012. About two-thirds of that likely won't qualify for refinancing, according to a recent report by Deutsche Bank. The bank projected that the default rates on the $700 billion of outstanding CMBS eventually could hit at least 30%, and loss rates, which take into account the amounts recovered by lenders, could reach as much as 13%, more than the peak seen during the commercial-real-estate collapse of the early 1990s.” Wall Street Journal
Source: Wall Street Journal
Side Note from Reuters:
"U.S. commercial real estate mortgage servicers are seeking to extend maturing loans for up to five years in a bid to prevent borrowers from defaulting and giving up office, retail and apartment buildings at distressed levels, an industry executive said on Tuesday."
June 10, 2009
Southeastern developer, Crescent Resources, LLC announced today they have filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court. Crescent plans to conduct business as usual with insignificant interruptions during their restructuring.
Existing lenders will provide enough funds for Crescent’s ongoing business activities through a Debtor-in-Possession financing facility of $110 million. In a press release the company announced that CEO, Art Fields, has retired from his position but will continue to work in an advisory capacity through the restructure.
The company’s quality assets could not save it in the face of a non-operative real estate market and too-recent and too-much debt. Saddled with excess debt, Crescent was forced to restructure.
With the backing of Duke Energy, Crescent flourished as a real estate developer from the mid 1980s. By the 1990s, the company was one of Duke’s most profitable subsidiaries.
When Crescent seemed at its height of triumph, Duke decided to transfer much of its focus back to its core business, energy. The trouble started in 2006 when Duke sold a 49 percent interest in Crescent to Morgan Stanley Real Estate.
Duke took in $1.6 billion before taxes from the sale, while Crescent took on $1.2 billion in debt. Last year Crescent was liquidating at a loss properties in Arizona, Florida and Texas to raise capital.
According to the SEC, Crescent reported in 2008 a net loss of $420 million on $407 million in revenue, compared with a net income of $76 million the year before.
Staggering debt service left from a restructure of its debt last summer crippled the company. The developer was facing $50 million due by the end of 2009, $75 million in 2010 and $100 million in 2011, with the rest of a $1.2 billion loan due in 2012.
And so, a new chapter begins for Crescent ...
Andrew Hede will lead the organization through the restructure as Crescent’s chief restructuring officer and he will immediately assume CEO duties as well. Hede, a managing director with Alvarez & Marsal North America, LLC, has more than 15 years of financial restructuring and business experience. Mr. Hede has worked with numerous companies, including national and regional homebuilders and real estate developers, to develop and implement financial and operational restructurings and recapitalization strategies.
“We have been in active discussions with our lenders and other stakeholders as we work towards an agreement that will bring our capital structure in line with the current economic environment,” said Andrew Hede. “Despite the unprecedented challenges facing the real estate industry, we believe Crescent's underlying business model is solid, and our assets remain very attractive. We are encouraged that our lenders have agreed to provide additional funding to support our continued operations and allow us to maintain the high level of service and amenities our customers have come to expect. We intend to reach an agreement on our new capital structure and emerge from bankruptcy quickly.”
Crescent enjoyed a sterling reputation through the years with interests in 10 states in the Southeast and Southwest. The Charlotte-based developer, established in 1969, creates mixed-use developments, award-winning country club communities, single-family neighborhoods, apartment and condominium communities, Class A office space, business and industrial parks and shopping centers.
June 08, 2009 — Bankruptcy filings for the 12-month period ending March 31, 2009, were up 33.3 percent over bankruptcy filings for the 12-month period ending March 31, 2008, according to statistics released today by the Administrative Office of the U.S. Courts. March 2009 bankruptcy filings totaled 1,202,503, compared to the total 901,927 bankruptcy cases filed in the 12-month period ending March 31, 2008. The largest percentage increase occurred in Chapter 11 filings, a 69.1 percent increase over March 2008 Chapter 11 filings.
The majority of bankruptcy filings are filings involving predominantly non-business debts. Non-business filings (also called personal or consumer filings) for the 12-month period ending March 31, 2009, totaled 1,153,412, up 32.4 percent from the 871,186 bankruptcies filed in the 12-month period ending March 31, 2008.
Filings involving predominantly business debts also rose. They totaled 49,091, up 59.7 percent from the 30,741 business bankruptcies filed in the 12-month period ending March 31, 2008.For the 12-month period ending March 31, 2009, filings rose for all bankruptcy chapters.
- Chapter 7 filings rose 46.3 percent to 819,362, compared to the 560,015 Chapter 7 filings in the 12-month period ending March 31, 2008.
- Chapter 13 filings rose 10.9 percent to 370,875, from the 334,551 bankruptcies filed in the 12-month period ending March 31, 2008.
- Chapter 11 filings rose 69.1 percent, to 11,785, compared to the 6,971 Chapter 11 filings in the same time period in 2008.
- Chapter 12 filings rose 7.0 percent to 367, from the 343 filings for the 12-month period ending March 2008.
June 9, 2009
The Congressionally-appointed panel overseeing TARP is recommending running another stress test on large US banks. The committee chair and Harvard professor Elizabeth Warren tells CNBC today that we've already "blown past" the worst-case scenario on unemployment.
Her other concern is that the Treasury's stress test covers less than two years and there are many commercial mortgages coming due in the years 2011-13.
Click here to read the CNBC interview with Warren or watch the CNBC video below.
See the commentary from CR here including a comparison of Case-Shiller Index and GDP. CR graph below illustrates the unemployment argument. Click graph to enlarge.
The level of the Treasury's stress test was scoffed at by many. Too easy said many critics. Can't you hear the groans from the banks? It will be a race to get the TARP funds back to the Feds.
June 8, 2009
For the time being Angelo Mozilo still maintains a Hollywood smile, a Riveria tan and exactly one-half inch of cuff protruding beyond his superbly tailored Bironi suit.
Angelo Mozilo, the founder and former CEO of Countrywide, doesn’t have to fear the Big House. But he is definitely going to feel the heat, not only from the Securities and Exchange Commission but from public and professional opinion as well. The SEC filed fraud allegations against Mozilo last week. But Mozilo will never don the orange jumpsuit, at least under the current charges, as the civil suit can only levy financial penalties.
Still, life for Mozilo, as well as other credit crisis constructionists, is about to change. The SEC will also charge the company's former chief operating officer, David Sambol, and former financial chief, Eric Sieracki, with securities fraud for failing to disclose the firm's relaxed lending standards in its 2006 annual report.
A lawyer representing one of the Countrywide executives has accused the SEC of bringing the case after political pressure to revive its reputation. No doubt that lit a fire under their feet. The SEC has plenty of ground to make up, particularly after the Madoff fiasco. They will be looking for the bad guys for a long time, and I’ll wager their nets will not come up empty. As for Mozilo, they’re going for insider-trading as well as securities fraud.
Who else is going to go down?
“Federal prosecutors and state attorneys-general, meanwhile, are working on dozens of cases, including one alleging fraud against the managers of a Bear Stearns hedge fund whose demise in the summer of 2007 precipitated the crisis,” reports The Economist.
The SEC alleges Mozilo, and the two other former Countrywide executives also named, deliberately misled investors about the level of risk on mortgage loans already going bad as they were building market share. There were two persona at work here.
The public Mr. Mozilo praised the quality of the firm’s loans referring to Countrywide as a model of responsible lending. Mozilo’s Mr. Hyde side (sorry) “became increasingly alarmed at the poor quality of the mortgages and their chances of blowing up, issuing ‘dire’ assessments to colleagues.” No disclosures were made to investors as it was required to do in SEC filings.
Mr. Mozilo made the mistake of properly referring in e-mails to the loans his company was making as "toxic." And the SEC awoke long enough from its slumbers to charge him with fraud.
Countrywide’s reputation was strong prior to 2005 when the firm loosened its underwriting standards so as to compete with the sloppiest of lenders. In hindsight no one really understood the scale of subprime loans being made under the aegis of Countrywide, but were they pumping the loans out. A veritable machine.
By the time prices started to fall, Countrywide’s reputation was looking tarnished. I never understood why Bank of America wanted to buy them. Because BofA instantly became the largest lender in the country? I asked a financial expert how the inherited liabilities would be handled and was told BofA had priced that into the purchase price. Maybe not.
As the house of cards collapsed, Mozilo walked away with $130 million after he unloaded a stash of company stocks at a very opportune time. The insider-trading charges stem from the sale of those Countrywide shares. “The complaint portrays him as a gambler, betting his investors’ chips on ever-crazier hands while quietly pocketing his own,” says The Economist. Others have far exceeded a mere $130 million for making a mess, but it's still quite a heist.
Mozilo obviously felt insulated to personal liability. But once the SEC started looking under the hood, it was a puzzle that came together easily thanks to internal emails.
“In one, Mr. Mozilo described one of Countrywide’s subprime-mortgage products as 'toxic'. Another of the firm’s offerings was 'the most dangerous product in existence.' In a 2006 e-mail, he expressed concern that loans requiring scant documentation were allowing borrowers to lie about their finances. He also wrote of 'flying blind' when trying to assess whether the firm’s option-ARM loans—a particularly risky type of mortgage—would survive a downturn. Damningly, if proved true, Mr. Mozilo was keen to sell the ARM portfolio long before he stopped praising it in public.”Just for the record, all three Countrywide executives deny wrongdoing. Their underwriting was undeniably shoddy, but if they can convince the court there was no intent to deceive they may just be found innocent. Poor business practices and bad risk management, though deplorable, are not necessarily illegal. But three creators of all the pain the economy is going through? I think they are going to find little sympathy in the courtroom. “In civil cases three rulings by the Supreme Court have made fraud harder to prove. Some aggressive tactics used by prosecutors in criminal cases after the bursting of the dotcom bubble have been curbed.”
Bank of America paid $4.1 billion for Countrywide in January 2008 and is now defending the price. BofA recently dropped the Countrywide brand and is now operating under Bank of America Home Loans.
“It is one of the safest bets in finance that Mr. Mozilo will not be the last big name hauled into court. The SEC, bruised by criticism of its failure to catch Mr. Madoff and fighting to prove its relevance as a regulatory overhaul approaches, is itching to expose more white-collar criminals. Under Mary Schapiro, its new chairman, enforcement is being beefed up. Indeed, Mr. Mozilo is hardly alone in having stood in the doorway of his own business, talking up its credentials, even as large cracks began to spread across the back wall. If he is found guilty, others on Wall Street will have reason to lose their colour.”
June 7, 2009
You might think by the tone of this post that I’m a little out of sorts today - that my sometimes benignly sarcastic tone has a bit more edge. If that is the case, perhaps it explains why I was drawn to a biting, rambling article in Barron’s by Alan Abelson. Yes that is the same Barron’s that has declared time and time again that the housing market has hit bottom.
So I find it somewhat ironic that this latest tome carries the headline “NO BOTTOM IN HOUSING.” Each journalist to his own I suppose. What immediately got my attention were the first couple of paragraphs which I quote here. It has nothing to do with real estate, that comes well into the article. But first let's blow off a little steam …
LAST WEEK, MR. OBAMA VOYAGED TO EGYPT and delivered a truly remarkable speech. It wasn't so much the nicely crafted rhetoric or deftly glossed content that stirred our admiration. Rather, it was that he could speak for nearly an hour and verbally cover the globe, with its profusion of combustible hot spots threatening conflagrations that might consume continents, without once uttering the word "terrorist."This got me going because I just got off a two week binge researching the Afghanistan/Pakistan terrorist mess, which explains my somewhat spotty appearance on Real Concepts in the last few days. After a few weeks of sorting bad guys, guns, poppies, goats, and nuclear bombs from 1947 to ’09, I now understand at least a microcosm of what we are up against in South Asia.
Guess from now on, we'll have to call those guys in Iraq and Pakistan who get up the in morning, brush their teeth and proceed to blow up themselves and everyone else who happens to be within spitting distance "misguided pyrotechnists" and the 9/11 bunch "malign tourists."
I also realize that not many people really care a flip about understanding the problems other than to accuse Obama (I didn’t vote for him so don’t think of me as a Dem or necessarily a dove) of being on an Apology Tour last week. I suppose his critics would rather see him in front of the Spinx beating his chest and shouting “I’m going to kick your ass!” He should definitely take Charles Barkley with him next time.
Tomorrow morning the Brookings Institute is convening a think tank of expert smart guys to …. “address” the Pakistan question and ongoing political policy recommendations for the Obama administration. Their position heretofore has been that "this one" can't be won by force.
Brookings unquestionably states that Pakistan is the most dangerous place on the earth today with more terrorists per square mile than anywhere else. "Nowhere else in the world do you have the combination of Islamic extremism, terrorist groups with a global reach, nuclear weapons, and nuclear proliferation."
The Taliban is getting smarter. They've figured out there's better real estate to be had in Pakistan than Afghanistan. And Pakistan comes replete with a ready-made nuc.
Now that Abelson and myself have that off our chests, lets move on to Angelo Mozilo. This sleaze-bag founded and ran Countrywide Financial and is one of the kingpins for the mess we’re in. His middle name is "subprime." How could a man with a year-round, 24/7 tan be above board? Just look at the guy! "I swear."
…After the roof fell in, he (Mozilo of course) walked away with $130 million, the fruits of opportune stock sales. That's not a record for being compensated for making a mess, but it still represents a decent payday.
Mr. Mozilo made the mistake of properly referring in e-mails to the loans his company was making as "toxic." And the SEC awoke long enough from its slumbers to charge him with fraud.
I think this Barron’s fellow is in as bad a mood as me. At least now we’re talking about housing. This guy is all over the board - very disjointed - and I’m following right behind him.
… with a willful tenacity that we fear approaches obsession, we find ourselves clinging to the notion -- in the face of the mounting insistence in Wall Street, Washington and other seamy precincts that less bad is the equivalent of good -- that the impaired economy is still a long way from anything worthy of being called a recovery. And what's more, it will stay in that sorry state until housing, whose collapse triggered the chain reaction that threatened to all but demolish the economy, pulls itself up from the depths.That definitely reeks of a bad, bad mood. A good friend who is a regional builder told me last night that after selling only seven houses this year, he sold 11 houses in May! Hooray! Anecdotal I know, but fabulous news.
Ah, we can hear the fluttering flocks of cheerful chirpers scolding us for not opening our eyes and catching the luminous signs of a turn in housing's fortunes. Well, our eyes are wide open, and what we see is something quite different: the mother of all head fakes.
Barron’s is climbing on board the T2 recent real estate report (excellent charts by the way).
As any poor soul who has been trying to peddle his abode can mournfully attest, prices are plenty weak already, having declined for 33 months in a row. They're down some 40% from their peak, the T2 pair reckons, and have at least 5%-10% more to go, with a real risk of falling even further than that, owing to homeowner frustration and despair and a continuing ample oversupply of shelter because of the tidal wave of foreclosures, millions more of which they think are in the cards over the next few years.And he concludes on this grim note: "When we look back at the end of 2009, anyone that made positive predictions this year will not believe how far off they were."
... Field Check's data, he says, show "that the mid-to-upper-end housing market is on the precipice of the exact cliff that the market fell off of in 2007, led by new loan defaults. What happens to the economy when you hit the mid-to-upper-end earners the same way the low-to-mid end was hit with the subprime implosion? We will find out soon enough."
I think we're both finished! Thankfully. I hope for normalcy tomorrow. Thanks for your patience.
June 5, 2009
The Less-Bad Unemployment Report:
Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent.This excellent graph from Calculated Risk offers perspective to other recessions showing job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost). Click on graph for larger image.
Dare we hope for a beautiful "V"? Stay tuned.
June 3, 2009
One of the few smart comments I've heard Jim Cramer of CNBC fame (and the dart board face for Baron's) utter is that if you want to invest in real estate buy a house, not a builder stock.
Last year he called a bottom for housing by June 30 '09. Now that that eventuality is not going to happen, he is trying to force the issue. See the video interview below with The Street.com where he calls a bottom because ....
(a) he wants to be right?
(b) if he says it loud enough, long enough it will become fact?
(c) he's made a bet he doesn't want to lose?
(d) all the above.
A housing bottom is "patently obvious" he says. His parting shot calls the media idiots who can't do fractions. That will teach them to report an increase in interest rates.
I agree that it is a good time to buy a house - a really good time, no doubt. But we are not facing a housing bottom yet.
Jim Cramer ... often in error, never in doubt.
Below are three excellent and very interesting charts from Mike "Mish" Shedlock, via his friend, "TC", who has been tracking the Case-Shiller Housing Index. Click on each chart to enlarge.
The Case-Shiller Current Data is based on the 20-city composite:
Case-Shiller Declines Since Peak Futures Data on 10-city composite:
The following data from the California Association of Realtors is interesting, but devastating, in the magitude of the price declines:
June 2, 2009
There is no denying we’re all ready for a great big bundle of good news. While not a bottom call, the National Association of Realtors (NAR) announced today that the pending home sales index increased for homes contracted for in April by 6.7 percent over March. The index for April is 90.3, up from 84.6 in March. This increase represented the third straight month of gains in the Pending Home Sales Index and the largest monthly jump in nearly eight years.
Comparison to the same time period a year ago is a more reliable indicator, and the news was finally good there as well. Year-over-year, the index was 3.2% above the level of 87.5 in April 2008.
Although pending home sales have been up for three months now, the existing home sales followed suit only twice when February actual sales did not meet the expectation off the pending numbers.
Here is a chart showing the regional scores for Pending Home Sales:
It’s not, however, time to pop the champagne to celebrate a housing recovery. Here’s the issues that are putting a lid on a national housing recovery:
- Distressed sales, either foreclosed properties or short sales, are driving the market based on price.
- The $8,000 tax credit for first-time homebuyers is encouraging lower-priced sales, and while good in itself, it does not make the overall market stable. The tax credit is also scheduled to end November 30. No indication yet whether it will be extended.
- Driven by distressed sales, prices continue to drop with no bottom in sight. At least for the near-term, foreclosures are expected to increase.
- The luxury housing market is stopped dead in its tracks.
- Financing standards are stringent and appraisals have become an impediment to closing transactions under the new HVCC requirements. Interest rates are inching up. Financing for condos near non-existent.
- Unemployment numbers have not started to reverse.
There will be no recovery until there is a halt in the relentless rise in foreclosures. Foreclosures threaten millions of families with financial ruin. By driving prices down, they sap the wealth of all homeowners. They exacerbate bank losses, putting pressure on the still fragile financial system. Lower monthly payments are a balm, but they are no substitute for home equity. And until more Americans can find a good job and a steady paycheck, the number of foreclosures will continue to rise.Unfortunately when you take the distressed sales out of the formula (much of which is being bought up by investors) and the $8,000 tax credit buyers, there are few buyers left standing before the closing table. Without organic sales from bother to fellow brother, the market will remain weak with scant chance of a recovery.
In previous housing busts, foreclosures continued to rise until prices finally bottomed. And prices will fall - and foreclosures rise - for some time. There is no end in sight.
And more importantly, the economy will not fully recover without a stronger housing market and a recommencement of residential construction to boost a reversal of economic fortunes.
One step at a time. Today’s news was good. But, as I've said before, don’t pop the champagne yet.
June 1, 2009
Very good question. And one I had not considered, but I'm sure the thought has been very much on the minds of coastal residents in hurricane-prone areas. Like Florida.
Not only will these vacant, unattended homes face the possibility of complete annihilation, they also stand to be the source of flying deadly missiles in the event of "the big one".
The Associated Press offers some bleak prospective:
The Associated Press Economic Stress Index — a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties — confirms that some of the areas most likely to be stuck by a hurricane are suffering the most in this recession.
In March, there were 281,691 homes in foreclosure in Florida and coastal counties in Alabama, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas and Virginia.
No state laws mandate who prepares buildings before a hurricane; even officials from the Florida Division of Emergency Management say that securing foreclosures isn't a concern. "It's not an aspect that we really deal with," said John Cherry, the agency's external affairs director. "Our No. 1 concern is life safety."
Quick evacuation will be the priority, not securing vacant homes, if a major storm looms, others say. But shutterless homes can be a major safety hazard in a hurricane. And a region full of destroyed or heavily damaged homes would depress real estate values even further.
Of course, protection of lives should be the priority. But the banks don't have the manpower to secure all the vacant foreclosed homes, although they will suffer the losses. And then, who will clean up the mess?
Brought to you by Whitney Tilson, T2 Partners
Mr. Tilson writes a regular column on value investing for the Financial Times and Kiplinger’s, has written for the Motley Fool and TheStreet.com, was one of the authors of Poor Charlie’s Almanack, the definitive book on Berkshire Hathaway Vice Chairman Charlie Munger, and teaches financial statement analysis and business valuation for the Dickie Group.
h/t - Mish