Bubble Meter

December housing starts down 4.1% month-over-month; up 8% year-over-year

2012-01-19T12:12:00.000-05:00

Housing starts fell in December compared with November. (FYI, housing starts numbers are usually seasonally adjusted.) However, they are up about 8% year-over-year. Keep in mind that we've had abnormally good weather this winter, which is great for home building.

It wasn’t exactly a banner December for the home-building industry.

The nation’s builders started construction on 4.1% fewer homes compared with a month earlier. Construction decreased to a seasonally adjusted annual rate of 657,000 in December, the Commerce Department said Thursday.

But the news wasn’t all gloomy. The main reason for the monthly decline was a more than 20% drop in construction of multifamily homes with at least two units, a part of the market that tends to swing around a lot.

Other data were more positive. Analysts often pay more attention to the single-family sector, which made up more than 70% of housing starts in December. Single-family construction was actually up 4.4% from a month earlier and reached the highest level since April 2010 – a time when builders were ramping up construction in response to a government tax credit for first-time home buyers.

The housing sector is gradually, tentatively, slowly healing after a collapse in prices that started 5 1/2 years ago. There have been some encouraging signs of late, and builders have been growing more optimistic.

But it’s clear that there’s a long way to go. Since 1959, there have been about 1.5 million new homes started per year, on average. Last year, construction was started on only 607,000 homes – the best year since 2008, but still the third-worst year since the government began keeping records.

The clueless Fed

2012-01-16T06:06:00.040-05:00

The release of Federal Open Market Committee (FOMC) meeting transcripts from 2006 show how little America's top economic minds understand how leveraged asset bubbles harm the economy:

As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers.

The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was “rising through the roof.”

But the officials, meeting every six weeks to discuss the health of the nation’s economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.

“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they gathered in Washington in December 2006. ...

The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.” ...

The committee consists of the governors of the Federal Reserve and the presidents of the 12 regional banks.

“The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said in September.

One builder she spoke with, she said, “toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied — with curtains, things in the driveway, and so forth — so as not to discourage potential buyers.” ...

But the Fed’s chairman, Ben S. Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.

The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications. “We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” he said at the September meeting.

Mr. Bernanke initially agreed, telling colleagues at his first meeting as chairman, in March, “I think we are unlikely to see growth being derailed by the housing market.”

As the year rolled along, however, Mr. Bernanke increasingly took the view that his colleagues were too sanguine.

”I don’t have quite as much confidence as some people around the table that there will be no spillover effect,” he said. ...

One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become. They also were convinced that financial innovations, by distributing the risk of losses more broadly, had increased the strength and resilience of the system as a whole.

So, for all the criticism you might give Ben Bernanke, apparently he's the least incompetent of the bunch.

I'll admit I didn't know that the housing bubble would cause a financial crisis. The best I can say for myself is that I expected a failure of Fannie Mae and Freddie Mac, but also expected more diversified financial institutions to be OK.

However, I expect people with Ph.D.s in economics to know a lot more about this stuff than I do. (After all, I'm a software developer, not an economist.) I especially expect it of economists who are supposedly so good at what they do that they get appointed to a post at the U.S. Federal Reserve.

DC-area homes of the 2012 presidential candidates

2012-01-13T07:54:00.003-05:00

A bunch of websites are posting photos of the 2012 presidential candidates' homes, probably sparked by this Zillow Blog post. Here are the homes the candidates have in the DC area:

Newt Gingrich
7410 Windy Hill Ct, McLean, VA 22102
Value: $1,284,400

Rick Santorum
10607 Creamcup Ln, Great Falls, VA 22066
Value: $1,305,100

Jon Huntsman
2121 Leroy Pl NW, Washington, DC 20008
Value: $3,303,100

Immediately prior to his purchase of the home, it was used as the residence for contenders on the Bravo reality TV show "Top Chef: Season 7".

Barack Obama
1600 Pennsylvania Ave. NW, Washington, DC 20500
Value: $261,632,300

The deadbeat hasn't paid rent in three years! Zillow.com gets the zip code wrong. It's 20500, not 20006.

Ron Paul
I don't know were Ron Paul lives in the DC area, but he's trying to sell his Texas home over the internet for $63,500 more than Zillow thinks it's worth.

Zillow CEO on housing market

2012-01-05T04:01:00.000-05:00

S&P/Case-Shiller Index falls yet again

2012-01-02T03:57:00.002-05:00

I was on Christmas vacation last week. Here's some housing news that was released while I was gone:

Home prices fell for the sixth straight month in October, down 1.2% compared with September and 3.4% a year ago, according to the latest S&P/Case-Shiller 20-city index.

The decline was disappointing in light of several other recent reports, which painted a more positive picture of the housing market. ...

tight lending standards and a glut of foreclosures continue to weigh on the housing market, said Pat Newport, a housing market analyst for IHS Global Insight.

With so many homes for sale at distressed prices, the home price numbers come as no surprise, he said.

"The numbers are pretty bad and will get even worse over the next two years," he said.

The 20-city index has dropped every month since April. Since the housing bust began in mid-2006, homes have lost nearly 33% of their value.

CNN Money isn't clear about this, but they are referring specifically to the S&P/Case-Shiller 20-city seasonally-adjusted index.

The Wall Street Journal has a nice little graphic showing the year-over-year home price change measured by different sources:

National Association of Realtors overstated existing home sales by 16.7%

2011-12-22T06:02:00.022-05:00

Last week I blogged about the National Association of Realtors overstating existing homes sales over the past five years. At the time we didn't know how much the Realtors overstated the numbers. Now we know they overstated them by 16.7%:

Existing home sales during the housing bust were actually 14.3% worse than previously reported, a revision to Realtors' group numbers shows.

On Wednesday, the National Association of Realtors (NAR) revised home sale counts back to 2007 due to flaws in their original data analysis.

In 2007, there were actually just 5.04 million existing home sales, 11% less than the 5.65 million originally reported. Even worse were 2008 and 2009, when there were 16% fewer sales than originally reported. Sales in 2010 were 15% lower.

"The errors started in 2007 and continued to accumulate over time," said Lawrence Yun, NAR's chief economist. ...

The data is "key to the economic outlook," said Mark Zandi of Moody's Analytics, "and the revisions help to explain the severity of the housing crash." ...

Some industry sources had been critical of the organization's data. In February, CoreLogic charged that NAR data was overestimating sales by 15% to 20%.

When NAR investigated, it found a "notable upward drift" in the numbers compared to other measurements such as courthouse deeds records, said Yun.

For anyone confused about where the 16.7% in the title comes from, the first sentence of the quoted article says sales were 14.3% worse than previously reported, and 100 / (100-14.3) = 16.7.

Updated housing graph

2011-12-21T07:17:00.002-05:00

I have updated my national housing graph. My metropolitan area graphs are still nine months out of date.

Housing starts spiked in November

2011-12-20T13:09:00.001-05:00

Housing starts are up 24.3% year-over-year:

Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity.

Housing starts shot up to an annual rate of 685,000 in the month, up 9.3% from October and 24.3% higher than a year earlier. Building activity easily topped predictions of 627,000 starts economists surveyed by Briefing.com were expecting.

Building permits, a closely-watched reading that is less affected by weather than actual starts, also shot up, rising 5.7% from October and 20.7% from the year before to 681,000 homes annually. ...

Both permits and starts were the strongest readings since the spring of 2010, the original deadline for a homebuyer tax credit that sparked a temporary rebound in building and home sales.

I'd like to post some graphs, but the St. Louis Federal Reserve website hasn't updated their data. When they get around to it, the new housing starts graph will be here and the new housing permits graph will be here. The official Commerce Department press release is here.

Mortgage lenders suspend evictions for the holidays

2011-12-19T07:00:00.006-05:00

Merry Christmas, delinquents! You get a free pass for about two weeks:

Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae and Freddie Mac, the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

"No family should have to give up their home during this holiday season," said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo will also suspend evictions during that period, but will not shut down its eviction machinery entirely. ...

Bank of America said that it would "avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays."

The caveat is that these temporary suspensions only apply to loans in a bank's own portfolio. For loans the banks service for others, evictions will still occur.

Realtors overstated home sales for 5 years

2011-12-15T05:28:00.000-05:00

The National Association of Realtors has admitted that it overstated existing homes sales numbers for the past five years:

If you thought the U.S. housing market couldn't get much worse, think again.

Far fewer homes have been sold over the past five years than previously estimated, the National Association of Realtors said Tuesday.

NAR said it plans to downwardly revise sales of previously-owned homes going back to 2007 during the release of its next existing home sales report on Dec. 21.

NAR's existing home sales numbers, released monthly, are a closely followed gauge of the health of the housing market.

While NAR hasn't revealed exactly how big the revision to home sales will be, the agency's chief economist Lawrence Yun said the decrease will be "meaningful."

"For the real estate business, this means the housing market's downturn was deeper than what was initially thought," Yun said.

Senators propose easier visas for foreign home buyers

2011-12-08T09:07:00.000-05:00

I am a strong supporter of immigration. There's no way America would have grown from a sparsely-populated wilderness to the world's sole superpower without it. However, this seems to me like yet another lame attempt by politicians to re-inflate the housing bubble they loved so much:

Two senators, Charles Schumer, a Democrat, and Mike Lee, a Republican, recently introduced legislation to fast-track visas for foreigners spending $500,000 on residential property. Their Visit USA Act would allow purchasers and their families to live in America for as long as they owned their houses, though not to work there or receive any federal benefits.

The senators envisage wealthy jet-setters and well-heeled retirees boosting America’s weak housing market. As buyers would have to live in their new homes for at least 180 days a year, they would also (very handily) be liable to pay American tax on any foreign earnings.

Occupy Wall Street comes to your neighborhood

2011-12-08T06:52:00.002-05:00

The OWS movement is now protesting foreclosures:

In more than two dozen cities across the nation Tuesday, an offshoot of the Occupy Wall Street movement took on the housing crisis by re-occupying foreclosed homes, disrupting bank auctions and blocking evictions.

Occupy Our Homes said it's embarking on a "national day of action" to protest the mistreatment of homeowners by big banks, who they say made billions of dollars off of the housing bubble by offering predatory loans and indulging in practices that took advantage of consumers.

Hopefully the OWS protesters used the occupation of homes as an opportunity to take a shower. I've heard from several sources that these people, unshowered for months, smell like rotten eggs.

S&P/Case-Shiller National Home Price Index declines 3.9% year-over-year

2011-12-01T14:29:00.001-05:00

For the third quarter of 2011, the S&P/Case-Shiller National Home Price Index was flat quarter-over-quarter, but fell 3.9% year-over-year:

Data through September 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that nationally home prices did not register a significant change in the third quarter of 2011, with the U.S. National Home Price Index up by only 0.1% from its second quarter level. The national index posted an annual decline of 3.9%, an improvement over the 5.8% decline posted in the second quarter. Nationally, home prices are back to their first quarter of 2003 levels. ...

The chart [above] depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 3.9% decline in the third quarter of 2011 over the third quarter of 2010. In September, the 10- and 20-City Composites posted annual rates of decline of 3.3% and 3.6%, respectively. Eighteen of the 20 MSAs and both monthly Composites had negative annual rates in September 2011, the only exceptions being Detroit and Washington DC.

U.S. government goes after mortgage scammers

2011-11-28T09:25:00.000-05:00

It sickens me to see that some people will happily screw over people who are already in trouble:

The federal government is cracking down on scammers who target struggling homeowners looking to lower their monthly mortgage payments.

Hundreds of con artists have been taking advantage of victims through online advertisements on search engines Google, Bing and Yahoo!, promising to help homeowners modify their mortgages through the government-run program known as the Home Affordable Modification Program (or HAMP).

Last week, the agency that investigates fraud, waste and abuse in the government's Troubled Asset Relief Program, announced that it has shut down 85 scams that were advertising on Google. Then, on Monday, it announced it had halted another 125 shady advertisers on Yahoo and Microsoft's Bing search engine. ...

Ever since HAMP and other federal aid programs aimed at helping struggling homeowners were launched, scam artists have been finding ways to exploit them.

Government auditor: FHA at financial risk

2011-11-16T01:06:00.000-05:00

I previously posted about an American Enterprise Institute (AEI) report claiming that the Federal Housing Administration (FHA) could be at financial risk. Now it's not just partisan think tanks making the claim. It's the FHA's own government auditor:

Chances are nearly 50 percent that the Federal Housing Administration will need a bailout next year if the housing market deteriorates further, the agency’s independent auditor said in a report released Tuesday.

The F.H.A., which offers private lenders guarantees against homeowner default, has just $2.6 billion in cash reserves, the report found, down from $4.7 billion last year.

The agency’s woes stem from the national foreclosure crisis. In the last three years, the F.H.A. has paid $37 billion in insurance claims against defaulting homeowners, shrinking its cash cushion.

The auditors determined the agency’s level of supplemental cash reserves by projecting losses on its mortgage portfolio and counting them against expected premium revenue. This year, the audit found that the F.H.A. supplemental reserve was less than one-quarter of a percentage point of its current portfolio: $2.6 billion against a $1.1 trillion mortgage portfolio, as of Sept. 30. Legally, the housing agency is required to keep a 2 percent cash buffer, a target it has not met since 2008.

The FHA is paying out $37 billion per year, but they only have $2.6 billion in cash reserves? That $2.6 billion of cash reserves insures a $1.1 TRILLION mortgage portfolio? Really? What could possibly go wrong?

Politicians are as reckless with money as Wall Street bankers

2011-11-15T12:34:00.000-05:00

Congress wants to give a near-bankrupt agency a larger role in the housing market:

Taxpayers are finding that there may be a bill to pay one day for the government’s role in backing low down payment mortgages, even as Congress appears ready to double down on the agency backstopping those loans.

On Tuesday, the Federal Housing Administration is set to report annual finances showing that the agency barely has enough cash to cover anticipated losses. Meanwhile, Congress looks poised to take steps that will increase FHA’s role in the housing market.

This can't possibly go wrong!

Federal Housing Administration at financial risk

2011-11-11T12:37:00.001-05:00

The American Enterprise Institute worries that the Federal Housing Administration could be headed for financial trouble:

Concerns are rising that the Federal Housing Administration could run out [of] money if the economy doesn't recover soon, raising the risk the agency would seek a taxpayer bailout for the first time in its 77-year history.

Since the mortgage crisis erupted five years ago, the FHA has played a critical role in housing finance as private lenders retreated. It backs about a third of all new mortgages originated for home purchases, up from around 5% in 2006.

But, as the FHA prepares to release its annual financial report next week, a forthcoming study by Joseph Gyourko, a real estate and finance professor at the University of Pennsylvania's Wharton School, estimates that the FHA faces around $50 billion in losses in the coming years.

The study says only a "quick and substantial economic and housing market recovery" can avoid "substantial losses for American taxpayers." The paper was commissioned by the American Enterprise Institute, a conservative think tank.

The study says the losses will be spread over a period of many years and are unlikely to bankrupt the agency this year or next.

The study isn't the first to predict the FHA's insolvency.

While reports from partisan think tanks should always be taken with a grain of salt, I have long worried that the federal government's attempts to prop up housing prices could be causing it to under-price the risk of government-insured loans.

The theory is simple: In the first half of the last decade, midsize banks like Countrywide Financial, Washington Mutual, and IndyMac supported a bubble by making bad mortgage loans. After the bubble burst and the financial crisis began, the federal government stepped in to prop up housing prices by... making bad mortgage loans.

Foreclosure filings down 31% year-over-year; up 7% month-over-month

2011-11-10T08:51:00.000-05:00

The number of foreclosure filings rose 7% in October vs. September. This could mean foreclosures are starting to pick up again, but it's hard to know for sure because month-to-month numbers are naturally volatile.

The number of foreclosures climbed in October, as mortgage lenders started to work through the paperwork problems that had delayed new filings for much of the last year.

Foreclosure filings were reported on 230,678 properties nationwide in October, a 7% increase from September, reported RealtyTrac, an online marketplace for foreclosed properties. Despite the increase, filings were still 31% below year-earlier levels, though.

RealtyTrac said one in every 563 U.S. homes had either a default notice, a scheduled auction or a bank repossession filing during the month.

"The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we've been in for the past year as lenders corrected foreclosure paperwork and processing problems," said James Saccacio, RealtyTrac's CEO.

CoreLogic: home prices down 4.1% year-over-year

2011-11-08T12:53:00.001-05:00

According to CoreLogic, home prices have fallen 4.1% from September 2010 to September 2011. Fitch Ratings predicts another 10% drop in U.S. home prices.

Prices fell 1.1% month to month, according to CoreLogic, both in seasonally adjusted and unadjusted terms. This is the second consecutive month of monthly drops, as we head into the slower fall season.

The more concerning aspect of the report is that while home prices including foreclosures and short sales fell 4.1 percent from September of 2010, they still fell 1.1 percent when you exclude distressed sales. ...

While the unemployment picture has weighed heavily on home prices all year, the new uptick in foreclosure starts will likely have a more drastic effect. Foreclosure start rates on severely delinquent loans have increased to over 10 percent a month in the private-label RMBS (residential mortgage backed securities) sector, according to Fitch, which is now estimating another 10 percent decline in home prices before they fully stabilize.

Home-ownership rate ticked up in Q3 2011

2011-11-04T09:54:00.000-04:00

The U.S. home-ownership rate had a surprise quarter-over-quarter rise in the third quarter of the year. The year-over-year trend is still down, however:

The nation's home-ownership rate ticked up in the third quarter, suggesting a three-year decline in home ownership may be starting to bottom out. The rental vacancy rate also rose, in a sign that rising rents could be reducing demand.

The Census Bureau reported Wednesday that the nation's seasonally adjusted home-ownership rate stood at 66.1% in the third quarter, up slightly from 66% in the previous quarter, though down from 66.7% a year earlier. The rental vacancy rate was 9.8%, up from 9.2% in the second quarter and down from 10.3% a year earlier.

Industry watchers warn against reading too much into results from a single quarter. The increase is small and the number could begin declining again in the fourth quarter, when colder weather means fewer Americans buy homes.

Paul Dales, a senior U.S. economist with Capital Economics, said he was initially surprised by the increase. "I don't think this alters the long term trends that have been going on," he said. "The overall housing market will remain weak and the rental market will remain strong."

As I've said before, the overall U.S. housing bubble is completely deflated, although we still have large local bubbles in the Northeast and West Coast. With rents rising nationally, I think it won't be long before the U.S. home-ownership rate hits bottom. I don't think we're there yet, though. There is still a large backlog of foreclosed homes we have to get through. Only after we get through the backlog will home builders start building again, and only after builders start building again will we have a true bottom in the U.S. home-ownership rate.

Fiserv: Housing market to fall another 3.6% by June 2012

2011-10-31T06:41:00.000-04:00

Fiserv is forecasting that home prices will experience a "triple dip" and fall to 35% below their 2006 peak by next June:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv (FISV), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv's chief economist.

Should home values meet Fiserv's expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst.

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33%before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

Now that the scandal is mostly resolved, lenders are speeding more cases through the foreclosure pipeline and back onto the market, weighing on home prices even further.

Rents rising in the U.S.

2011-10-29T09:16:00.001-04:00

As the home ownership rate in the U.S. continues to decline, it is pushing up rents:

Strong growth of rents and occupancy levels of rental apartments have pushed some building values to record levels as Americans shift away from home ownership.

While concerns about the economy are cooling the market for most other types of commercial real estate, apartment rents and occupancies continue to be boosted by demand from millions of people who are victims of foreclosure or are unwilling or unable to buy their own homes.

At the end of the third quarter, 5.6% of the nation's apartments were vacant, down from 5.9% in the second quarter, and the lowest level since 2006, according to Reis Inc., a real-estate data service.

My own rent got jacked up more than usual this year. Perhaps it's time to do the contrarian thing and become a homeowner. Nah!

New home sales flat year-over-year

2011-10-28T06:21:00.001-04:00

New home sales for September were up a decent amount month-over-month, but down very slightly year-over-year:

Sales of new homes, a benchmark indicator both for the housing market and the overall economy, rose slightly but remained slow in September.

Sales reached a 313,000 annual rate in September, 5.7% more sales than the revised estimate for August, according to a monthly report from the Census Bureau released Wednesday. But sales were off 0.9% compared with 12 months earlier.

New-home sales have been hovering around the 300,000 mark for many months, a shadow of the activity of the boom years, when monthly sales peaked at an annual rate of 1.4 million units.

August Case-Shiller numbers up slightly month-over-month

2011-10-27T09:05:00.000-04:00

...but down year-over-year:

S&P/Case-Shiller home-price data showed sideways movement in August, as prices were boosted from a month earlier thanks to seasonal factors but remained below year-ago levels.

The composite 20-city home price index, a key gauge of U.S. home prices, posted a 0.2% increase from July but fell 3.8% from a year earlier. Ten cities posted monthly declines, while the other 10 showed gains. Las Vegas was the only city that posted a new index level low and is 59.5% below its August 2006 peak.

Eighteen of the 20 cities posted annual declines in August, with just Detroit and Washington D.C. notching gains. On a seasonally adjusted basis, which aims to take into account the stronger spring-summer selling season, just six cities — Boston, Charlotte, Chicago, Dallas, Minneapolis and Washington, D.C. — posted monthly increases. The overall 20-city index was flat on a seasonally adjusted basis.

Regulators seize PMI Group!

2011-10-24T09:30:00.001-04:00

I was wondering how private mortgage insurers were remaining in business. Now I guess I know. They're not!

Arizona regulators have taken over a big mortgage insurer and put restrictions on its claims payments, the latest indication that the housing bust is not finished taking casualties—and that lenders and investors are likely to suffer more losses.

PMI Group Inc.'s mortgage-insurance unit had been paying about $1.5 billion a year in claims to reimburse lenders and mortgage investors such as Fannie Mae, Freddie Mac and Wells Fargo & Co. for some of their losses when homeowners default.

Now, the insurer will pay just 50% of claims in cash, and the remainder will be deferred, the company said in a posting on its website. ...

PMI was the third-biggest private-sector mortgage insurer as measured by insurance in force at the end of June, according to Inside Mortgage Finance, a trade publication. PMI joins Triad Guaranty Inc., a much smaller rival, in facing regulatory restrictions on payments since the mortgage meltdown began.

The Arizona Department of Insurance, which regulates the insurer because it initially was licensed in the state, now has "full and exclusive power of management and control of PMI," according to an Oct. 20 order posted on PMI's website.

That's what you get for insuring people who put nothing down.

Existing home sales up 11.3% year-over-year; prices down 3.5%

2011-10-21T06:51:00.033-04:00

Existing home sales for September were down slightly month-over-month, but up big year-over-year. One reason for the big year-over-year rise in existing home sales may be that prices are lower than they were a year ago. As I often say, "drop prices, sell houses."

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010. ...

All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases.

Investors purchased 19 percent of homes in September, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010.

The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010.

Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August.

Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago.

Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 in September, which is 1.0 percent below September 2010.

I have long believed that the best way to get the housing market thriving again is to drop prices to the point where supply equals demand. Home sellers might not like it, but it's good for buyers and it's great for Realtors. For Realtors, the best way to make more money is to sell houses quickly. The best way to sell houses quickly is to convince the seller to drop the price.

Housing starts up big; permits fall

2011-10-19T10:10:00.001-04:00

U.S. housing starts were up 15% from August to September:

Housing starts rose 15 percent, or a seasonally adjusted rate of 658,000. That blew away analysts' forecasts of an increase to a 590,000-unit rate.

Starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell.

Building permits dropped 5 percent to 594,000.

Housing starts for buildings with two or more units rose 51.3 percent to a 233,000-unit rate. Single-family home construction — which accounts for a larger share of the market — increased 1.7 percent to a 425,000-unit pace.

Economists look to both housing starts and building permits as leading indicators, but building permits forecast further ahead than housing starts do.

Home ownership rate declined over the past decade

2011-10-18T06:41:00.006-04:00

Despite a home ownership boom in the first half of the last decade, the overall trend for the decade was down:

The percentage of Americans who owned their homes has seen its biggest decline since the Great Depression, according to the U.S. Census Bureau.

The rate of home ownership fell to 65.1% in April 2010, 1.1 percentage points lower than it was in 2000. The decline was the biggest drop since the 1930s, when home ownership plunged 4.2%.

The most recent decade-over-decade drop, however, only tells half the story.

Home ownership during the 2000s "was really high in the middle of the decade, up to almost 70% at one point around 2004," said Ellen Wilson, a survey statistician with the bureau.

The crash from that peak was more than 4 percentage points in just about five years -- a far more dramatic decline than the 1.1% drop over the 10-year period.

This last bit is for Partisan:

Among the states, New York had the lowest home ownership rate of 53.3%, but the District of Columbia's home ownership rate was below that at 42%.

Consumers pessimistic about home prices

2011-10-15T05:22:00.006-04:00

U.S. consumers expect home prices to fall slightly over the next year:

Consumer expectations for U.S. home prices worsened significantly in September to register their weakest outlook in more than a year, according to a monthly survey from mortgage market enterprise Fannie Mae.

For its September reading, Fannie Mae said respondents now expect home prices to decline 1.1% over the next year, a steeper drop than the 0.5% decrease predicted in the August survey and the biggest decline expected to date.

Housing spending as a percentage of GDP

2011-10-14T05:19:00.001-04:00

Warren Buffett: New recession unlikely

2011-10-03T17:00:00.001-04:00

Billionaire investor Warren Buffett thinks the likelihood of a new recession is low:

Warren Buffett says Berkshire Hathaway has been buying stocks at bargain prices, including shares of his own company. ...

The Omaha billionaire isn't worried his new purchases will be caught up in a 'double-dip' for the U.S. economy. He thinks "it's very, very unlikely we'll go back into a recession... We're coming out of a recession."

I agree with him. I track eight specific leading indicators on the St. Louis Federal Reserve website. Of the eight, five are in positive territory, one is negative, and two are borderline. (For most of these indicators, I find the year-over-year percentage change to be a better leading indicator than the current level.)

Positive

Initial jobless claims (YoY)
Interest rate spread between 3-month and 10-year Treasuries
Manufacturer's new orders of capital and durable goods (YoY)
Money supply growth (YoY)
New housing permits (YoY)

Negative

St. Louis & Kansas City financial stress indices

Borderline

ISM Manufacturing Index
S&P 500 (YoY)

The two borderline indicators have a history of producing lots of false positives. As the saying goes, "The stock market has predicted nine of the past five recessions." The financial stress indices are probably negative because of what's happening in Europe, rather than because of what's happening here.

This graph shows the Leading Index for the United States through August. Notice that while it normally dips during or prior to recessions, there is no dip this time.

Pending home sales declined in August

2011-09-30T05:40:00.000-04:00

Pending home sales, a leading housing market indicator, fell in August:

A gauge of future home sales fell in August to the lowest level in four months, underscoring the challenges facing the hobbled housing industry.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes decreased 1.2% on a monthly basis to 88.6, the industry trade group said Thursday.

The decrease is the second in a row, following a 1.3% drop to 89.7 in July, and it dragged the index to the lowest point since April. For the month of August, pending sales fell in three of four regions: Only the South saw a gain.

The index tracks agreements to purchase homes, making it a good indicator of what’s to come in the market. A sale is considered pending when the contract has been signed but the transaction hasn’t closed; Pending sales typically close within a month or two. (A score of 100 equals the average activity level in 2001.)

New home sales fell in August

2011-09-28T07:55:00.026-04:00

New home sales fell 2.3% in August compared with a month earlier:

New-home sales fell for the fourth-straight month in August to the lowest level in a half year as the bursting of the housing bubble continued to weigh on the U.S. economic recovery.

Sales fell 2.3% from a month earlier to a seasonally adjusted annual rate of 295,000, the Commerce Department said Monday. The pace was the weakest in six months, and the month was the seventh-worst on records dating to 1963. ...

Turmoil in financial markets after Standard & Poor's unprecedented downgrade of U.S. debt, fears of a renewed recession and Hurricane Irene all combined to keep buyers away in August. ...

New-home sales are down nearly 80% from their peak in July 2005. They remain far below healthy levels, which would be more than double August's rate.

Consumers have slowed their spending this year, pulling down economic growth and preventing unemployment from falling. Many people also can't get financing amid tight lending standards.

The Wall Street Journal didn't mention how sales compared with a year ago. The Los Angeles Times reports that new home sales were up 6.1% year-over-year, as if that's a bad thing:

The August read on new home sales showed properties selling at a seasonally adjusted annual rate of 295,000, down 2.3% from a revised July rate of 302,000 and just 6.1% above August 2010, according to the Commerce Department.

Meanwhile, MSNBC reports that 2011 is shaping up to be the slowest year on record for home sales:

Sales of new homes this year could hit the lowest levels in the nearly 50 years the government has been tracking the data. ...

Based on the trend for the first eight months of the year, sales this year are on track for about 302,000 units, which would be even lower than last year's record-low 321,000, said Patrick Newport, economist for IHS Global Insight.

Home prices continue seasonal rise; down 4.1% year-over-year

2011-09-27T10:51:00.000-04:00

The S&P/Case-Shiller 20-City Index is down 4.1% from a year ago, but up 0.9% month-over-month. Adjusted for seasonal factors, the index was flat month-over-month:

Home prices in July climbed for the fourth month in a row, but are still down from a year ago.

According to the latest S&P/Case-Shiller home price index of 20 major cities, prices rose 0.9% in July compared with June, but they're still 4.1% lower than 12 months ago.

"We are far from a sustained recovery" said S&P spokesman David Blitzer. "Continued increases in home prices through the end of the year . . . must materialize before we can confirm a housing market recovery,"

Indeed, adjusted for seasonal differences, the 20-city index was flat month-over-month.

Some cities have shown surprising strength recently. In Detroit, prices jumped 3.8% month-over-month, after spiking 5.8% in June. Minneapolis prices increased 2.6% and Washington recorded a 2.4% rise.

Weakness continued in Las Vegas, which was down 0.2% month-over-month and in Phoenix, which edged 0.1% lower.

Since the bounce is entirely seasonal, I expect falling prices in the fall.

Existing home sales spike

2011-09-23T06:17:00.002-04:00

Existing home sales jumped in August, but it is likely just a temporary blip:

Sales of existing homes took an unexpected and rare jump in August, rising 7.7 percent from July. Realtors say it's the result of delayed sales from the spring market, which they previously characterized as disappointing. The results were unexpected because the usual indicators no longer apply.

Mortgage applications have been falling steadily, down again over four percent this week, even though interest rates are hovering near record lows. But mortgage volume doesn't tell us much because fewer buyers are using mortgages. 29 percent of home sales in August were all-cash purchases, largely by investors who returned to the market after a brief respite. 22 percent of buyers were investors, up from 18 percent in July. ...

The bump from leftover Spring sales does not appear to have much mojo heading into the Fall, given the dip in consumer confidence and a change in the conforming loan limits that will push some housing markets into the jumbo range next month. Sales contract cancellations also jumped, with 18 percent of Realtors surveyed reporting at least one canceled sale. That's up from 16 percent in July and a norm of around 4 percent.

Here in Centreville, things are going swimmingly

2011-09-20T17:15:00.004-04:00

I live on the ground floor of a three story apartment complex. Last night, the sprinkler system in the apartment above my neighbor went off, flooding the apartment. My neighbor's apartment also got flooded. The flooding went above my neighbor's baseboard and some of it spilled into my apartment. I was mopping up my kitchen and bathroom at about 5 A.M. To assist in the drying, maintenance has torn out much of the padding underneath my carpet. Now I've got an industrial fan running all day trying to get the water out of the carpeting. Tomorrow maintenance will bring in a second fan. The work to recover from the flooding is expected to take all week.

I like the warning on the fan being used to dry out the carpeting:

Household incomes fall to 1996 levels

2011-09-15T06:30:00.000-04:00

The U.S. Census Bureau reports that median household income has fallen to 1996 levels:

The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.

The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.

Bank of America foreclosure rate surged in August

2011-09-14T06:11:00.001-04:00

Diana Olick points out that new foreclosure notices by Bank of America doubled in August, compared to previous months:

Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge.

The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called "robo-signing" processing scandal and the sheer volume of troubled loans. ...

RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans.

Will this push prices lower?

Labor Dept. investigating home builders

2011-09-08T15:14:00.000-04:00

The U.S. Department of Labor is apparently probing the pay practices of home builders:

The Labor Department is investigating pay practices at many of the top companies in home building, hitting them with a broad demand for records that has led to complaints of regulatory overreach.

Recipients of the letters include PulteGroup Inc., Lennar Corp., D.R. Horton Inc. and KB Home, according to people familiar with the matter. A Labor Department spokeswoman confirmed the investigation but declined to discuss details.

A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers.

The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year. The letter didn't allege any specific violations of law. ...

Many larger home builders, while acquiring land for homes and marketing them, entrust much of the construction to carpenters, electricians and others employed by contractors. The contractors rarely are unionized.

Unions have for years complained about pay and working conditions in the industry, alleging pay scales below minimum wage and failure to pay overtime. The Laborers International Union of North America in 2008 issued a study that called employees at home builders the "newest victims" of the housing market crisis because of "underpayment." ...

"There has been a movement afoot in many instances fueled by the unions to force the subcontractors to be employees of the builders, because the next step is to unionize them," said Mr. Howard of the National Association of Homebuilders.

Federal Reserve cracks down on Goldman Sachs

2011-09-06T11:36:00.001-04:00

Apparently a unit of Goldman Sachs engaged in robo-signing of foreclosure documents:

The Federal Reserve announced an enforcement action against Goldman Sachs Group Inc., saying the company's mortgage-servicing unit had engaged in "a pattern of misconduct and negligence" in its handling of home-mortgage loans.

The Fed's action on Thursday seeks changes in mortgage-servicing practices and unspecified monetary damages. ...

The Goldman Sachs order is modeled after a series of consent orders issued by federal banking regulators in April to 14 of the nation's largest mortgage servicers that require them to clean up their practices. Federal regulators began looking at other mortgage-servicing companies, including Goldman Sachs's Litton unit, after the initial reviews were completed.

In its order Thursday, the Fed said Litton employees engaged in robo-signing and took actions in foreclosure and bankruptcy cases "without always confirming that documentation of ownership was in order." The company also failed to staff up appropriately to handle a surge in delinquencies or to sufficiently oversee outside lawyers and establish "adequate internal controls," the order said.

The Fed action requires Goldman Sachs to retain an independent consultant to review foreclosures that were pending at any time in 2009 and 2010, and "to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies" identified by the review, the Fed said in issuing the order.

Economic podcast

2011-09-05T16:57:00.001-04:00

Friday's Wells Fargo weekly economic podcast has a discussion of last week's economic news, including a four-and-a-half minute discussion of construction and housing from 1:38 - 5:58.

Federal government to sue banks for bad mortgage loans during bubble

2011-09-02T03:00:00.000-04:00

The bad news for banks just keeps coming:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Speed up foreclosures; don't slow them down

2011-09-01T07:09:00.006-04:00

CNN Money says the U.S. should speed up foreclosures, rather than the current approach of slowing them down:

If the Obama administration really wants to save the housing market, it should speed up the foreclosure process — not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

I have long opposed the Obama administration's attempts to artificially keep delinquent borrowers in their homes (unless we are talking about currently unemployed borrowers, who may well have bought responsibly).

That said, I am also opposed to artificially increasing the speed of foreclosures if it weakens private property rights. Banks should still have the burden of proving their right to foreclose on a property.

Theoretically, however, if it could be done without weakening private property rights, I believe getting the pain over quickly is better than dragging it out as long as possible.

Updated housing chart

2011-08-31T06:20:00.007-04:00

I have updated my national housing graph to reflect the new S&P/Case-Shiller numbers.

S&P/Case-Shiller national index down 5.9% YoY; up 3.6% QoQ

2011-08-30T11:29:00.000-04:00

In the second quarter (Q2) of 2011, the S&P/Case-Shiller National Home Price Index was down 5.9% since Q2 2010, but up 3.6% since Q1 2011:

Data through June 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index increased by 3.6% in the second quarter of 2011, after having fallen 4.1% in the first quarter of 2011. With the second quarter’s data, the National Index recovered from its first quarter low, but still posted an annual decline of 5.9% versus the second quarter of 2010. Nationally, home prices are back to their early 2003 levels.

As of June 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up versus May – Portland was flat. However, they were all down compared to June 2010. Twelve of the 20 MSAs and both Composites have now increased for three consecutive months, a sign of the seasonal strength in the housing market. None of the markets posted new lows with June’s report. Minneapolis posted a double-digit 10.8% annual decline; Portland is not far behind at -9.6%. Thirteen of the cities and both composites saw improvements in their annual rates; however; they all are in negative territory and have been so for three consecutive months. ...

The chart [above] depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. ...

S&P Indices has introduced a new blog called HousingViews.com. This interactive blog delivers realtime commentary and analysis from across the Standard & Poor’s organization on a wide-range of topics impacting residential home prices, homebuilding and mortgage financing in the United States. Readers and viewers can visit the blog at www.housingviews.com, where feedback and commentary is certainly welcomed and encouraged.

Keep in mind that Q2 is the traditional spring buying season, when home prices typically rise. The seasonally adjusted numbers from Q1 to Q2 were basically flat (up 0.08%).

Pending home sales up 14.4% YoY

2011-08-30T06:37:00.004-04:00

From the National Association of Realtors:

Pending home sales declined in July but remain well above year-ago levels, according to the National Association of Realtors®. All regions show monthly declines except for the West, which continues to show the highest level of sales contract activity.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said sales activity is underperforming.

Thank the government, in part, for the high unemployment rate

2011-08-29T06:25:00.002-04:00

Sometimes when politicians try to help people, they hurt people:

The painfully slow rate of job growth can be blamed at least in part on home mortgage modifications that reduce house payments for struggling homeowners, because such policies incentivize people to stay where they are instead of moving to better job markets, according to a new paper by researchers Kyle F. Herkenhoff and Lee E. Ohanian, both at UCLA.

The paper is one among a growing number papers that explore why mobility has decreased so drastically through the recession, and what the effects have been. Most economists would agree that reduced mobility increases unemployment: When people don’t move, they deny themselves the chance to find work in a city or state where jobs are more plentiful.

The week in summary

2011-08-27T06:20:00.004-04:00

On Monday, the Mortgage Bankers Association reported that mortgage delinquencies are rising again:

In another hit to the beleaguered housing market, a report out Monday found that the number of delinquent mortgage borrowers -- those who have missed at least one payment -- rose during the second quarter.

The delinquency rate grew only slightly, up 0.12 percentage points to 8.44%, but that reverses the steady improvement of the past two years.

The increase, as reported by the Mortgage Bankers Association (MBA), may not sound like much, but it could mean that the recovery in the housing market will take even longer than thought.

On Tuesday, the Commerce Department reported declining new home sales for the third month in a row:

U.S. sales of new homes declined in July for the third straight month, a sign of continued woes in the housing market.

Sales fell 0.7% in July to a seasonally adjusted annual rate of 298,000, the slowest pace since February, the Commerce Department reported Tuesday. Sales had reached 316,000 in April before slipping.

New home sales were still up 6.8% year-over-year.

On Wednesday, the FHFA reported that home prices fell 5.9% year-over-year:

Home prices in the U.S. fell 5.9 percent in the second quarter from a year earlier, the biggest decline since 2009, as foreclosures added to the inventory of properties for sale.

Prices dropped 0.6 percent from the prior three months, the Federal Housing Finance Agency said today in a report from Washington.

Also on Wednesday came news that Australia's housing bubble may be popping:

One of the few bright spots in real estate amid a three-year global slump, Australia now faces falling home prices and fears of overbuilding.

A downturn in Australia's real estate market will add to concerns of a two-speed economy in the resource-rich nation. Mining profits are surging due to heavy demand from China and other fast-growing Asian countries, but consumer businesses and manufacturing have faltered under the weight of the swollen Australian dollar, which is trading near 30-year highs to the U.S. currency.

On Thursday, RealtyTrac reported that 31% of homes sold were in some stage of foreclosure:

Nearly one-third of all U.S. homes sold in the second quarter of 2011 were in some stage of the foreclosure process or had been repossessed by a lender, according to numbers released today by RealtyTrac, an Irvine, Calif.-based real estate data provider.

Also on Thursday, the National Association of Realtors says it's really a landlord's market:

NAR expects vacancy rates in multifamily housing will drop from 5.5% to 4.6% in the third quarter of 2012. Vacancies below 5% generally are considered a landlord’s market, the trade group noted.

On Friday, another reason not to be a homeowner: Hurricanes

As Hurricane Irene bears down on the East Coast, many Americans are preparing for the worst. But whether they are covered for the ensuing damage is another matter entirely.

Between Wilmington N.C. and Boston, there are nearly 1.9 million residences and businesses that are at risk of storm surge flooding, according to CoreLogic, the financial analytics company. And nearly half of those properties lie outside of a designated flood zone and are likely to lack flood insurance.

Mortgage lenders require homes that lie within designated flood zones to be covered by flood insurance. This low-cost coverage — which runs as low as $129 a year — is provided by the federal government and purchased through insurers like Allstate Insurance and Farmers Insurance Group.

But homes outside of flood zones often go uncovered, mainly because homeowners don't realize that their existing policies don't cover floods or because they don't feel their home are at risk.

If you rent and your place gets flooded, you may lose your belongings, but the landlord takes the expensive structural damage losses.

Was it worth it?

2011-08-26T09:21:00.000-04:00

Via Paul Krugman, here is the Congressional Budget Office's forecast of the output gap—the difference between potential real GDP and actual real GDP:

That looks to me like seven years of subpar economic performance in exchange for about five or six years of rising housing bubble. But Krugman thinks the seven years may be optimistic:

No, I don’t know where that recovery in 2015 is supposed to come from; my guess is that it’s basically the CBO unwilling to project a depressed economy more or less forever.

He adds:

The CBO also projects unemployment staying above 8 percent until late 2014 — again, with no clear explanation of why it should fall sharply in 2015. This translates into a human catastrophe for the long-term unemployed.

Bubble Meter was created to try to warn people of the housing bubble, but many didn't want to listen.

So here's the question: Was the party really worth the hangover?

I'm back from vacation

2011-08-26T00:09:00.001-04:00

Funny thing: I just checked the web stats and Bubble Meter's readership hasn't declined at all in the past two weeks.

As compensation for the lack of blogging while I've been gone, I have temporarily disabled the requirement that people must log in to post comments.

Bits bucket

2011-08-11T06:18:00.000-04:00

I'm on summer vacation for the next two weeks. Consider the comments section of this post an open discussion forum.

Prospects for a housing recovery are declining

2011-08-10T06:36:00.001-04:00

According to CNN/Money, the prospects for a housing recovery have slipped "out of sight":

Any glimmer of hope that the housing market will stage a recovery in the upcoming months has vanished, thanks to the recent spate of bad economic news that has been making headlines over the past several weeks.

According to the latest analysis of home price trends in 384 markets based on the Fiserv/Case-Shiller Indexes, it will be well into the first quarter of 2013 before median home prices across the nation will even be on par with prices from the first quarter of this year.

And that's not saying much. During the first quarter of 2011, prices fell in 302 of the 384 housing markets tracked by the Fiserv/Case-Shiller index, dropping by an average of 5.1% year-over-year.

As a result of continued weakness on the jobs front and the debt ceiling fiasco, Fiserv pushed back its projections of a housing market turnaround by three months. Now, it doesn't expect home prices to start gaining any ground until the second quarter of 2012.

Instead, Fiserv expects median home prices to continue to fall by an average of 3.1% between March 31 of this year and March 31, 2012. After that, it expects to see prices increase by 2.7% until the first quarter of 2013.

So, Fiserv expects the 5-year-old housing bust to continue for another year.

Mortgage giants downgraded

2011-08-09T12:48:00.000-04:00

This was briefly mentioned in yesterday's post, but I'm giving it its own post for emphasis. The credit ratings of Fannie Mae, Freddie Mac, and other federal entities were downgraded by S&P yesterday:

Standard & Poor's on Monday downgraded the credit ratings of Fannie Mae, Freddie Mac and several other U.S. government entities, reflecting their dependence on federal support.

Included in S&P's latest downgrade were the senior issue ratings on debt issued by Fannie and Freddie, the giant mortgage-finance firms. Ten of the 12 Federal Home Loan Banks, which also provide funding for home loans, also received downgrades.

WSJ: S&P downgrade could discourage home buyers

2011-08-08T18:17:00.000-04:00

Do the recent downgrades of Treasuries and the fall in the stock market discourage home buyers? The Wall Street Journal seems to think so:

When all is said and done, borrower psychology—and not mortgage rates—could face the bulk of any housing-market damage that stems from the Standard & Poor’s rating downgrades.

S&P downgraded the credit ratings of Fannie Mae and Freddie Mac on Monday morning to AA+ from AAA. That, of course, followed Friday’s rating cut for the United States. ...

At this point, it seems the downgrades are likely doing far more damage to consumer psychology than to mortgage rates, which have fallen to around 4.37% for a 30-year fixed rate loan, near historic lows.

The rout in the stock market, new worries about layoffs, and the euro-zone crisis will not help consumer confidence. “Who wants to get out of bed today, let alone buy a house?” says Lou Barnes, a mortgage banker in Boulder, Colo.

Bin Laden Group to construct world's tallest building

2011-08-04T07:43:00.002-04:00

Oh, the irony:

Saudi Arabia's Prince Alwaleed bin Talal announced plans to build the world's tallest building in Jeddah less than two years after the Burj Khalifa opened in Dubai at a height that many thought wouldn't be surpassed for years.

The planned tower will soar to 3,281 feet (1,000 meters) and will include a hotel, luxury condominiums and offices. It would dwarf the Burj Khalifa, which is 2,717 feet (828 meters), and would also be the world's tallest man-made structure.

Prince Alwaleed at a news conference Tuesday said his company, Kingdom Holding Co., had signed a 4.6 billion Saudi riyal ($1.23 billion) deal with Bin Laden Group to build the tower, which is expected to take more than five years to complete. Bin Laden Group is the largest construction firm in Saudi Arabia and is owned by the bin Laden family, which in the 1990s distanced itself from Osama bin Laden.

Since a member of the Bin Laden family destroyed our 2nd and 3rd tallest buildings, should we... hmm... no... well... perhaps... no... payback would be a bitch, though.

Housing inventories declined in the second quarter

2011-08-03T07:26:00.002-04:00

From The Wall Street Journal:

The number of homes listed for sale declined sharply in a number of U.S. cities during the second quarter, offering glimmers of hope that some housing markets are starting to recover.

At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to Realtor.com. In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago.

Shrinking inventory often is seen as a positive sign for housing because it usually means demand is rising, which often leads to higher prices. But in the current environment, the decline in inventory may instead reflect how the market remains anything but healthy. While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures.

Home vacancies cause long-term damage. Luckily, they are declining.

2011-08-02T08:32:00.000-04:00

CNBC's Diana Olick four days ago:

A new study by an economist at the Cleveland Federal Reserve finds today's foreclosures stay vacant far longer than the historical norm. Studying one Ohio county, Stephan Whitaker found, "foreclosed homes go through more than a year of very high vacancy rates following the auction and are substantially more likely to be vacant up to 60 months after the foreclosure." The higher the poverty rate in the area, the longer the property stays vacant.

Foreclosed homes obviously lower the value of surrounding homes, but Whitaker says the damage can go on much longer than we might think. "The data suggest that foreclosure may permanently scar some homes," he writes in his research.

The Wall Street Journal yesterday:

Fewer homes in the U.S. are sitting empty than earlier in the year. Residential vacancy rates ticked down during the second quarter from the first quarter as well as the year-ago period, to 9.2% for rental properties and 2.5% for privately owned homes. Both are below their recession-era levels but reflect continued weakness in the housing market.

Ten cities virtually untouched by the housing bust

2011-08-02T07:06:00.006-04:00

Here's an interesting slideshow on CNBC.com.

A summary of last week's housing data

2011-08-01T07:41:00.031-04:00

I've been distracted by the real world recently, so I haven't been blogging much. Here are a few items I missed from last week.

According to S&P/Case-Shiller, year-over-year home prices fell 4.5% in May while seasonally-adjusted month-over-month home prices were flat:

May home prices in 20 major cities dipped 4.5% from one year ago, marking a continued decline in the already battered housing market.

The S&P/Case-Shiller report posted declines in both its 20-city composite and its 10-city index, which declined 3.6% year-over-year.

But housing did show some signs of life in May. Home prices ticked higher for the second consecutive month following an eight-month slide.

In May the 20-city index gained 1% compared with a month earlier, while the 10-city index rose 1.1% month-over-month.

David Blitzer, a spokesman for S&P, was cautious in detailing the index gains. ...

Blitzer attributed much of the home price increase for May to seasonal effects. Spring is the hottest time of year for home buying and the added demand usually drives prices higher.

Taking those seasonal factors into account, the 20-city index was flat and the 10-city showed a gain of just 0.1%.

Meanwhile, new home sales in June rose 1.6% year-over-year, but fell 1% month-over-month:

Sales of new homes slipped for a second straight month in June, unexpectedly falling 1%, as homebuilders remained reluctant to boost production.

The Census Bureau reported an annual sales rate of 312,000 new homes last month, down slightly from a revised rate of 315,000 homes in May. Compared to new home sales a year ago, June sales were up 1.6%.

Despite the year-over year uptick, the results disappointed. Economists had forecast a sales rate of 320,000 new homes, according to consensus estimates from Briefing.com.

After falling to an all-time low of 278,000 in February, new home sales have been one of the weakest sectors of the economy.

The number of foreclosures fell 84% in the first half of 2011:

Foreclosures declined in more than 84% of U.S. metro areas during the first half of the year, according to the latest report from RealtyTrac, an online marketer of foreclosed properties. But that doesn't mean these markets are staging a turnaround.

"These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country," said RealtyTrac CEO, James Saccacio, whose firm reported earlier this month that the national foreclosure rate fell 29% over the past 12 months.

Much of that backlog, he explained, is due to a glut of already-foreclosed properties that the banks are having a hard time selling and to the slowdown in the processing of foreclosures following the "robo-signing scandal" of 2010.

As a result of the scandal, in which the banks were accused of mishandling paperwork and failing to follow proper protocols, banks are being much more careful and many filings have been delayed.

The biggest decline in the number of foreclosures have come in judicial foreclosure states where defaults go through the courts and paperwork is scrutinized by judges.

And, finally, pending home sales—a leading indicator—rose in June:

Pending home sales increased in June following a wide swing down in April and then up in May, according to the National Association of Realtors®. Activity increased in the West and South but declined in the Midwest and Northeast; all regions show strong double-digit gains from a year ago.

What happens if U.S. debt gets downgraded?

2011-07-30T13:15:00.005-04:00

In this Wall Street Journal video, note the effect on the housing market:

Realtors fear a national debt default will hurt the housing market

2011-07-29T13:13:00.004-04:00

...because it will. In fact, they claim the housing market is already being hurt:

The National Association of Realtors®, on behalf of its 1.1 million members, their clients and customers, and the nation’s 75 million homeowners, urges Congress to resolve the mounting debt ceiling crisis before the August 2 deadline.

Until a resolution is reached, Congress will be unable to address the myriad issues facing the nation’s families, communities, and economy. The indecision in Congress is paralyzing progress on other fronts, and it is harming home buyer confidence and negatively affecting home sales.

Typically bearish economist Paul Krugman puts it this way:

Just to make a point that could be overlooked in the confusing discussion about the effects of default on financial markets: It’s true that nobody really knows what effect failure to make full payment on the debt will have. It could produce calamity, or it could be contained, with borrowing rates for the private sector barely affected.

But what we do know is that if the government is forced to slash spending when the money runs out — if it stops sending out Social Security checks, or stops paying vendors, or whatever — this will have a huge negative impact on the economy. We’ll be doing a 1937 squared.

And yes, it will hurt the Washington, DC metro area.

Home sales cancellations spiked in June

2011-07-21T08:49:00.005-04:00

The existing home sales cancellation rate, usually under 10%, spiked to 16% in June:

Forecasters expected sales of existing homes to rise in June because the pending home sales index, which measures signed contracts, rose in May. If you consider it takes 1-2 months to close, then there's your indicator.

But that was not the case. Sales fell, not by much...

What Realtors and prognosticators did not even consider was a strange phenomenon: June saw a spike in the contract cancellation rate to 16 percent. Existing home cancellation rates usually run under ten percent, and, in fact, in May were at just 4 percent. Cancellation rates for new home construction usually run higher than that, as buyers of newly built homes tend to be more volatile and put less (often nothing) down when signing a contract.

"I think it's the broader, very slow economic activity," said Lawrence Yun, the National Association of Realtors' chief economist, who earlier told a room full of reporters that he was still trying to find the source of the spike. "The economy is expanding at a very slow pace, job creation is very slow, the consumer confidence has certainly taken hit in the second quarter, so there could have been some buyers who had some second thoughts and just decided to pull out of the contract, but at the moment it's still unclear as to why there was a measurable rise in cancellations."

Real estate fraud is alive and well

2011-07-15T12:58:00.008-04:00

It appears fraud didn't just exist on the up side of the bubble, it exists on the down side as well. CNN Money explains short sale fraud:

The scam artists, usually real estate agents, will secure a legitimate bid on a home, one where the borrower owes far more on the mortgage than the home is worth. Then they arrange for an accomplice investor to make a lower offer on the home.

The agent then presents the lower bid to the lender and asks them to forgive any remaining balance owed — without disclosing that there was a higher bid made on the home. Once the short sale is approved, the scammer then sells the home to the higher bidder, often on the same day. ...

Such transactions are expected to cost lenders more than $375 million this year, up more than 20% from last year, according to CoreLogic. ...

To get the banks to approve low bids, appraisals or broker price opinions are manipulated. ... Sometimes, said Hagberg, fraudsters bribe appraisers or brokers to get the prices they want but they can employ sneakier methods as well. ... Sometimes an agent will point out every defect in the home to get appraisers to reduce their values, according to Hagberg.

The impact of short sale fraud goes well beyond the direct losses to banks. These frauds have become so common, it has become more difficult for legitimate short-sale transactions to go through. That hurts sellers because it forces more of them into foreclosure.

Just one more reason not to trust Realtors^®.

Bubble Illusion

2011-07-11T09:52:00.004-04:00

University of Oregon economics professor Mark Thoma writes:

A couple of recent conversations have convinced me that many people have "bubble illusion." When they talk about how much they have lost on their houses and in the stock market, and how that has affected their feelings of economic certainty, etc., the losses are almost always expressed relative to the peak bubble value rather than to a realistic assessment of what the house or stock was actually worth during the bubble years.

It does seem to me that whenever asset values are below their peak, people compare them to the peak. When the peak was a bubble, they're not thinking rationally.

More government help for homeowners

2011-07-08T13:30:00.006-04:00

The Obama administration has yet another plan to help homeowners:

The Obama administration has announced yet another initiative to help struggling homeowners avoid foreclosure.

Earlier this week, the Department of Housing and Urban Development announced it would extend the period of time unemployed homeowners with Federal Housing Authority-backed mortgages could skip or make smaller mortgage payments to a minimum of 12 months, up from a minimum of four.

The extension should help solve a persistent problem with FHA's existing forbearance program: Even though servicers of FHA-insured loans were able to offer borrowers longer grace periods before, most opted to limit offers to the minimum period of four months, an inadequate timeframe, according to HUD Secretary Shaun Donovan.

"Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home," he said. Under the program, borrowers are expected to make up the skipped payments once they return to work.

I don't mind this plan nearly as much as Obama's earlier plans, because this plan focuses only on people who are actually unemployed. Most previous plans were designed to help people whose hopes of getting rich quick through real estate didn't pan out. Most previous plans focused on the value of the house, rather than the employment status of the homeowner.

That said, there are two things I don't like about this plan:

It sounds like homeowners under the plan will have higher mortgage payments after they return to work than before they lost their jobs. Although it's better than having to pay a mortgage when unemployed, homeowners may still have a financial burden that is too difficult to handle. Thus, they may still end up losing their homes.
The utter unfairness that homeowners are still treated better than renters by the government. A homeowner who loses his job gets to stop paying his mortgage, but a renter who loses his job still has to pay his rent. America's poor are much more likely to be renters than homeowners, so this is a regressive plan.

Where the price declines are (and aren't) in the DC area

2011-07-06T09:05:00.004-04:00

Click on the map to see the full-size version. Each circle represents a zip code. Red circles show places that fell more than the DC metro area average since the peak. Green circles show places that fell less than the DC metro area average.

Source.

Where not to invest your money

2011-07-01T06:28:00.000-04:00

From David Leonhardt, via Greg Mankiw:

The Hamilton Project, a research group in Washington, has just finished a comparison of college with other investments. It found that college tuition in recent decades has delivered an inflation-adjusted annual return of more than 15 percent. For stocks, the historical return is 7 percent. For real estate, it’s less than 1 percent.

The U.S. national housing bubble has COMPLETELY DEFLATED

2011-06-30T06:06:00.006-04:00

When I updated my inflation-adjusted real estate charts early this morning I was shocked at what I saw. The U.S. national housing bubble is finally gone.

That said, there are still many local bubbles, especially in the Northeast (D.C. and up) and the West Coast. In contrast, other regional markets such as many of those in the Rust Belt and the Sun Belt are now either fairly valued or undervalued.

I have argued in the past that real estate prices don't overshoot to the downside. The next few quarters will reveal whether I was right or wrong about that.

S&P/Case-Shiller down 4% YoY; Down 0.1% MoM

2011-06-29T07:35:00.009-04:00

The new S&P/Case-Shiller indices are out:

According to the S&P/Case Shiller 20-city index, prices rose 0.7% compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year.

"In a welcome shift from recent months, this month is better than last — April's numbers beat March," said David Blitzer, S&P's spokesman, in a statement. "However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season."

These Case-Shiller numbers really represent March more than April. The S&P/Case-Shiller indices are trailing 3-month indices. The "April" numbers really represent the combined average of February, March, and April.

I think you guys all know I much prefer year-over-year numbers to month-over-month numbers. The longer time span makes them far less volatile, plus they are automatically seasonally adjusted.

That said, the non-seasonally-adjusted uptick suggests that spring home sales picked up like clockwork. It also suggests that the whole stock market freakout about a possibly weakening U.S. economy over the past two months may be a bit misplaced. I expect to see the month-to-month non-seasonally-adjusted housing numbers to continue rising over the next 5 months or so.

Lowest tier of housing falling the most

2011-06-28T07:22:00.003-04:00

The new S&P/Case-Shiller numbers come out later this morning. In the meantime, I thought I'd show you guys this little graph from CNBC. It shows that since the peak, the lowest tier of homes have fallen the most. But, the reason they have fallen the most is because they rose the most during the bubble.

More housing graphs

2011-06-24T06:08:00.008-04:00

Stephen Gordon, of the Worthwhile Canadian Initiative blog, has some interesting housing graphs. U.S. inflation-adjusted per capita housing assets are back to 2000 levels:

U.S. inflation-adjusted per capita housing equity is through the floor:

Stephen Gordon writes:

I was able to check the last time the real, per capita value of US housing equity was at its current level. Even after looking at all of these graphs, the answer astonished me: 1978. Nineteen seventy-freaking-eight.

While the rise and fall is obvious from these two graphs, the thing I notice is that they were both basically flat prior to 1998. In fact, that's what Robert Shiller's research says: Inflation-adjusted housing values tend to be flat over time. The only way per capita real housing assets should rise is if people build larger houses.

Economic outlook: blah

2011-06-23T06:29:00.001-04:00

This should be good for the housing market:

Ben Bernanke and the rest of the Federal Reserve have grown more pessimistic about the state of the U.S. economy.

At the conclusion of a two-day policy meeting, the central bank said that while the recovery is continuing at a moderate pace, growth is somewhat slower than expected. It also said the jobs market is "weaker than anticipated."

It also issued new economic projections that call for slower economic growth, higher unemployment and higher inflation in 2011 and 2012 than in its previous forecast. At a press conference Wednesday afternoon, Fed chairman Bernanke referred to the new forecast as a significant revision.

The Fed said in its statement that it believed some of the headwinds would be short-lived, including supply disruptions from the Japanese earthquake, and the "effect of higher food and energy prices on consumer purchasing power."

But Bernanke said he and other Fed policymakers aren't certain how much of the weakness is due to those temporary factors and how much is due to longer-lasting problems.

He said continued problems in the housing market, excess private sector debt and weakness in the financial sector might be more serious than previously thought. And he suggested the labor market is a long way from being healed.

Existing home sales hit a 6-month low

2011-06-21T17:23:00.006-04:00

In another sign that the housing market (and broader economy) are weakening, existing home sales hit the lowest level since November:

Whoa. Sales of previously occupied homes in the U.S. fell in May to the lowest level in six months, the National Association of Realtors reports. That’s not good news, given we’re all waiting for the long-awaited recovery to finally arrive.

Sales of existing homes fell 3.8% from a month earlier to a seasonally adjusted annual rate of 4.81 million. As we report, it was the weakest showing since November. To be sure, unusually weak weather hurt sales. But housing’s pain will persist until the employment market and housing prices stabilize.

For now, prices continue falling: The median sales price was $166,500, down 4.6% from $174,600 a year earlier. The inventory of homes listed for sale, meanwhile, slipped slightly at the end of May to 3.72 million, representing a 9.3-month supply. A healthy market has a roughly six-month supply.

Sorry about the lack of blogging over the past week. I've been busy building a new feature for my website. I expect it will be ready to go live by July 1st and I will announce it here on Bubble Meter.

You're a sucker if you pay your mortgage

2011-06-14T05:18:00.002-04:00

It takes a year-and-a-half to foreclose on a delinquent homeowner:

Some 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auctions, according to LPS Applied Analytics. Of those, two-thirds have made no payments at all for at least a year, and nearly one-third have gone more than two years.

These cases can go on and on. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction. In New York, the average is 800 days and in Florida, where the "robo-signing" issue is particularly combative, it's 807.

If they want to fight evictions hard, borrowers can remain in their homes even longer while their cases are being worked through.

Apparently, the housing bubble was a one-way bet for some home buyers. If prices went up forever, they got rich. If prices fell, they got to live rent-free for 18 months.

NAHB chief economist pessimistic on housing

2011-06-13T17:05:00.002-04:00

As I've said before, the National Association of Home Builders (NAHB) economists are far more honest than the National Association of Realtors (NAR) economists:

Even the National Association of Home Builders’ top economist is sounding a bit gloomy these days.

David Crowe, the trade group’s chief economist has lowered his forecast for home construction this year. ...

In an interview, Mr. Crowe said the start of the year was “much worse than I expected,” noting that overall economic growth was weak, the labor market grew less than forecast and consumer confidence hasn’t picked up. High gasoline prices, he said, are “just a joy-killer” that makes consumers less interested in purchasing a new home.

Shiller: Up to 25% further drop in housing prices possible

2011-06-09T18:21:00.005-04:00

From CNN Money:

In an off-hand remark before cameras and microphones, economist and housing market guru Robert Shiller opined earlier this year that he would not be shocked if there was another 10% to 25% in the nation's home price plunge — and he's not backing down from that statement.

At a S&P Housing Summit in New York, Shiller on Thursday reiterated his fears of falling home prices. It's not a forecast, he said, just a comment on his understanding of housing market trends.

He explained that speculative markets, like stocks or commodities, act like random walks. They go up and down all the time. Housing market direction tends to be more consistent.

"I worry that this is a real and continuing downturn, like in Japan," Shiller said. "It had a boom in the 1980s that peaked in 1991. Prices declined in the major cities for 15 straight years after that."

Graph: The real 30-year mortgage rate

2011-06-06T07:02:00.003-04:00

The above graph shows the real (inflation-adjusted) 30-year conventional mortgage interest rate since 1971.

Government confirms weak job market

2011-06-03T09:20:00.003-04:00

As a follow up to yesterday's blog post about the interdependency between employment and housing, today's government employment data confirms a weakening job market:

After several months of strong job growth, hiring slowed sharply in May, raising concerns once again about the underlying strength of the economic recovery.

The Labor Department reported on Friday that the United States added 54,000 nonfarm payroll jobs last month, following an increase of 232,000 jobs in April. May’s job gain was about a third of what economists had been forecasting.

The unemployment rate ticked up to 9.1 percent from 9.0 percent in April.

A recovering economy is dependent on a recovering housing market, and vice versa

2011-06-02T18:31:00.008-04:00

The economy and the real estate market are caught in a Catch-22 situation:

Home prices won't rebound until jobs come back. But jobs won't come back until the housing mess gets fixed.

That's a problem because both the housing market and the broader economy are having trouble getting back in gear. Hiring is losing steam, and after home values hit a post-boom low, many are projecting further price declines.

"The economy can move forward without housing," said Mark Zandi, chief economist with Moody's Analytics. "But I don't think it can flourish and create enough jobs to bring down unemployment in a significant way without a revival of the housing market." ...

Housing typically helps lead the way in an economic recovery not only through a surge of construction and the hiring that goes with it, but though demand for goods and services that go into forming a new household. ...

Doug Duncan, chief economist of mortgage finance giant Fannie Mae, is focused on the impact of jobs on housing — and vice versa.

"Our mantra all along has been employment, employment, employment," Duncan said. "Until you see employment growth and then income growth and then household formation, you don't get to the bottom of this." ...

On Wednesday, payroll processor ADP reported that hiring by businesses ground to a halt in May, raising concerns about the recovery in employment.

Here's more on the weak job market:

"The ADP Employment report coughed up a hairball in May," Robert Dye, senior economist with the PNC Financial Services Group, said in a research note, referring to a report by payroll processing company ADP released Wednesday.

That report showed private sector employers added only 38,000 workers in May, far lower than the revised 177,000 jobs added in April and much weaker than economists had expected.

That level of job growth is the weakest number since September. ...

The ADP report followed on the heels of an already disappointing jobs number released by outplacement consulting firm Challenger, Gray & Christmas on Wednesday morning.

According to that report, the pace of planned job cuts edged higher in May, as 37,135 jobs went on the chopping block — a 1.8% increase from April's planned job cuts.

But government sector layoff announcements dominating those numbers.

Case-Shiller national index down 5.1% YoY

2011-05-31T13:06:00.009-04:00

This housing chart shows the year-over-year percentage change in the 20-city index, which is down 3.6% since March 2010:

The S&P/Case-Shiller national index is down 5.1% year-over-year:

U.S. home prices fell 4.2% in the first quarter, hitting their lowest levels since mid-2002 after falling 3.6% in the fourth quarter, according to the S&P Case-Shiller home-price indexes.

"This month's report is marked by the confirmation of a double-dip in home prices across much of the nation," said David Blitzer, chairman of S&P's index committee. "The National Index fell 4.2% over the first quarter alone, and is down 5.1% compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight," he added. ...

Once federal home-buyer tax credits expired last year, the indexes — based on the three-month averages of home prices — started to fall again in August, increasing fears of a double dip in the home-buying market.

While other parts of the economy have started to show improvement, the housing market continues to sputter as U.S. unemployment remains high and a steady supply of foreclosures weigh on home sales and prices.

And The Wall Street Journal gives us this little reminder:

The National Association of Realtors said earlier this month that existing home sales eased 0.8% in April from March, while prices dropped 5%.

Yep, that's right, "eased," which means journalists are parroting the Realtors' spin verbatim.

And this is for you, Partisan:

Only the Washington, D.C., and Seattle markets saw month-to-month growth of 1.1% and 0.1%, respectively.

Finally, here's how the Case-Shiller results compare to other indexes:

What are other price indexes showing?

The CoreLogic index, which is used by the Federal Reserve, shows that prices in March were down 7.5% in March from one year earlier. When excluding distressed sales, prices were down by 1%. A separate repeat-sales index that excludes foreclosure sales from FNC Inc. shows that prices nationally were down 6.3% in March from one year ago.

Zillow’s national home value index, which excludes foreclosures but not short sales, was down 8.2% in March from one year ago and has declined for 57 consecutive months.

Personally, I think this would all be behind us if Congress hadn't artificially propped up the market from 2009-2010.

April pending home sales decline from month earlier and year earlier

2011-05-30T13:35:00.003-04:00

April 2011 pending home sales fell 11.6% since March 2011, and 26.5% since April 2010:

The number of people who signed contracts to buy previously occupied homes in the U.S. tumbled last month, the latest sign that the battered sector is struggling to rebound.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes decreased 11.6% on a monthly basis to 81.9, the industry group said Friday.

March’s reading was revised down to 92.6 from an original reading of 94.1. ...

The pending sales index was 26.5% below its level in April 2010, which is when a tax subsidy for first-time home buyers expired. ...

A sale is considered pending when the contract has been signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

Lawrence Yun, the NAR’s chief economist, said the drop may reflect an economic soft patch in April driven by higher oil prices, severe weather and a bump in unemployment claims.

FHFA reports declining Q1 2011 home prices

2011-05-25T15:35:00.003-04:00

I think I've said this a few times in the recent past, but just to reiterate: Home prices are still falling!

Here’s some more bad news for the housing market: U.S. home prices posted the sharpest quarterly decline in more than two years in the first three months of this year, according to a government index.

On a quarterly basis, home prices adjusted for seasonal factors were down 2.5% in the first quarter from the fourth quarter of 2010 and were down 5.5% from the same quarter a year ago, according to the Federal Housing Finance Agency’s home price index released Wednesday. It was the steepest quarterly decline since the end of 2008. ...

The FHFA’s index is calculated by using the prices of houses purchased with mortgages backed by government-controlled mortgage companies Fannie Mae and Freddie Mac.

New single-family home sales up 7.3% MoM; down 23.1% YoY

2011-05-24T11:33:00.004-04:00

New single-family home sales are up 7.3% in April from a month earlier, but down 23.1% from April 2010:

New U.S. single-family home sales rose unexpectedly in April to notch their second straight month of gains and prices increased, according to a government report on Tuesday that offered some hope for the stagnant housing market.

The Commerce Department said sales increased 7.3 percent to a seasonally adjusted 323,000 unit annual rate, the highest level since December, from a slightly upwardly revised 301,000-unit pace in March. ...

However, compared to April last year sales were down 23.1 percent. ...

While the report cast a positive light on the housing market, it did little to change perceptions the economy remained mired in a soft patch.

Data ranging so far ranging from retail sales to industrial production have painted a picture of an economy struggling to regain momentum as the second quarter started, with employment only the bright spot.

What caused (and didn't cause) the housing bubble: A look at the evidence

2011-05-23T07:16:00.003-04:00

About a month-and-a-half ago, I gave a presentation on the housing bubble in an economics of money and banking class I was taking. I have been meaning to explore some of the parts of the presentation on this blog, but I haven't gotten around to it. Anyway, I thought I'd share the outline of the presentation with you, although it lacks my commentary. I can summarize my commentary as follows: All of the hypotheses about what caused the bubble have problems, although Ben Bernanke's "global saving glut" idea is the best so far.

You can read the outline of my housing bubble presentation here.

Realtors: Existing home sales "eased" in April

2011-05-20T08:13:00.015-04:00

Note that when the Realtors say "eased", they really mean "declined". From their press release:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit. ...

A parallel NAR practitioner survey shows 11 percent of Realtors® report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal. ...

The national median existing-home price for all housing types was $163,700 in April, which is 5.0 percent below April 2010. Distressed homes – typically sold at a discount of about 20 percent – accounted for 37 percent of sales in April, down from 40 percent in March; they were 33 percent in April 2010. ...

Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply at the current sales pace, up from an 8.3-month supply in March. ...

[NAR President] Phipps added that proposals and regulations are being considered in Washington that could further constrain the housing market. “One of the most damaging proposals would effectively raise downpayment requirements to 20 percent, which would slam the brakes on the housing market,” he said. “What we need to do is simply return to the sound standards that were in place before the introduction of risky mortgage products.”

I strongly believe mandatory 20% down payments would have prevented the housing bubble, and thus the financial crisis and recession, because home buyers would have paid more attention to the price of the house rather than just the interest rate (which quite often was just a teaser rate).

Single-family home sales slipped 0.5 percent to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6 percent below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4 percent below a year ago.

Existing condominium and co-op sales fell 3.1 percent to a seasonally adjusted annual rate of 630,000 in April from 650,000 in March, and are 15.0 percent below the 741,000-unit level one year ago. The median existing condo price5 was $167,300 in April, down 2.3 percent from April 2010.

Not a lot of good news for those hoping for an end to the real estate decline—and this is from a NAR press release!

How buyers lost money with the home buyer tax credit

2011-05-19T10:49:00.008-04:00

SmartMoney explains how free money from the government became a money loser for home buyers:

The government's recent $8,000 cash incentive for first-time home buyers has proved even more costly for recipients than for taxpayers. ... Typical buyers have lost twice as much to price declines as they received from the program.

The median home value fell to about $170,000 in March from $185,000 a year earlier, according to Zillow.com. That means a buyer who closed on a house just before the tax-credit program expired in April 2010 collected $8,000 but has since lost $15,000 in value. Those who bought earlier in the program have done worse; the median price is down $20,000 from March 2009. ...

The credit wasn't great for taxpayers, either. IRS says it paid $26 billion in home buyer credits in 2009 and 2010, enough to cover the maximum $8,000 credit for more than 3 million buyers. (It says at least $513 million went for fraudulent claims. Some claimants hadn't bought houses. Some filed twice. Some were under age 18 or incarcerated.)

Spin vs. reality

2011-05-17T11:03:00.010-04:00

The Wall Street Journal reports:

U.S. home builders’ confidence remained stuck at an extremely low level in May as the battered housing market continues limping toward recovery.

The National Association of Home Builders trade group said Monday its closely watched housing-market index was unchanged at 16 this month as expectations for single-family sales over the next six months fell, while traffic from potential buyers and current sales inched up. The index has been at that level for six of the last seven months. Readings at 50 and above indicate a positive view of the market. (The most recent time the home builders’ confidence gauge hit positive territory—that is, 50 or better—was April 2006. The latest 16 reading must mean that builders are pretty down.)

Builders continue fretting about bargain-priced competition from foreclosures and other distressed properties, as well as proposals to scale back government support for housing. Many consumers remain on the sidelines, afraid that home prices have further to fall. Meanwhile, many would-be buyers can’t qualify for a loan.

Regarding the California housing market, they write:

Sales of single-family homes and condominiums were down last month by 3.3% from March and by 6.1% from one year ago, when sales were artificially boosted by federal tax credits, according to a report Monday from DataQuick, a real-estate research firm. Southern California had its worst April in three years.

And CNN Money reports:

New home construction tumbled in April, the government said Tuesday, as the nation's housing market remains weak.

Housing starts, the number of new homes being built, fell 10.6% in April to an annual rate of 523,000 units, down from a revised 585,000 in March, the Commerce Department said.

How did the National Association of Realtors spin the current state of the housing market?

Housing and Economic Forecast Points to Rising Activity

And:

Realtors® Urged to "Seize the Day"

Over the past five years, I have repeatedly noticed that we don't get positive spin from the home builders, just from the Realtors.

Is housing hurting the economic recovery?

2011-05-16T08:54:00.007-04:00

At macroblog, Dave Altig asks whether housing is hurting the economic recovery. He answers with a quote from Atlanta Fed President Dennis Lockhart:

...can we have high-quality growth while the residential real estate and commercial real estate sectors continue to be so weak? Not completely, in my opinion. The recovery will progress, but it will not be robust until we work through the economy's serious imbalances, including those in the real estate sector.

As I look ahead, I think the most reasonable assumption is that improvement of the real estate sector will lag an otherwise improving economy. But I am encouraged by the fact that the economy is increasingly on firmer footing.

Here are more thoughts from Dennis Lockhart on the housing market:

The residential real estate market remains depressed. In my baseline forecast, the housing sector will contribute only modestly at best to economic growth this year and next.

The housing sector impacts economic growth in two basic ways—one direct and one indirect. The direct effect primarily comes through the construction of new homes and production of building materials and household products. Indirectly, the housing sector contributes to growth through its effect on household balance sheets, which can influence consumer spending. Another indirect effect relates to banks' balance sheets and the health of the financial system.

To assess how direct and indirect effects will play out, let me provide some perspective on the state of the residential sector.

Home sales have not shown any clear trend of improvement since the end of the recession, except for a short pick-up during the period of the federal tax credit last year. From the peak five years ago, sales of existing homes are down nearly 50 percent and are close to the 1998 level. New home sales have fallen almost 80 percent from the peak and are at levels not seen since these data were first collected in the early 1960s.

Why such weak sales? There are several explanations. Tougher underwriting standards have shrunk the pool of potential homebuyers. Entry-level homebuyers, who typically have the weakest credit histories, continue to experience the most difficulty in obtaining mortgage financing. And anecdotal information suggests this could be a longer-term issue. At the same time, many potential move-up buyers are blocked because they're either underwater in their current mortgage or don't have enough equity to meet the down payment requirements for a new mortgage. The real estate analytics firm CoreLogic estimates that about 23 percent of residential mortgages are underwater.

On the supply side, existing home inventory levels remain elevated, in part due to the great number of distressed properties on the market. These include bank-owned properties and properties where the loan is in default or the property is in the process of foreclosure. ...

Because of the factors I've discussed, I do not expect significant new residential construction nationally. Thus, it's unlikely that residential real estate will directly contribute much to GDP growth this year or next.

My housing graph in Chinese

2011-05-12T08:44:00.008-04:00

Apparently, word gets around:

Click on the screen shots to see the actual web pages.

A link to my housing graph labeled "CLICK HERE" can also be found at the very bottom of a recent NBC Los Angeles news story.

Conforming loan limit to come down in high-cost areas

2011-05-11T05:12:00.000-04:00

As The New York Times reports, the conforming loan limit in high-cost areas will come down soon:

By summer’s end, buyers and sellers in some of the country’s most upscale housing markets are slated to lose one their biggest benefactors: the deep pockets of the federal government. ...

By summer's end? Really? Autumn begins on September 23. The change occurs on October 1—after summer's end.

For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree.

But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.

Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.” ...

The federal government last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

The fact that Fannie Mae and Freddie Mac are losing billions of dollars on recent loans means that they have been giving people loans for less than the cost of the loans. It's funny how politicians scolded banks for engaging in "reckless lending," then proceeded to engage in the same activity themselves.

U.S. housing price decline accelerating

2011-05-10T08:00:00.004-04:00

According to Zillow.com, in Q1 2011 housing prices experienced their biggest quarterly decline since 2008:

Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom.

Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Zillow.com. Prices have now fallen for 57 consecutive months, according to Zillow.

Last year, the housing market showed signs of improving as price depreciation slowed in some markets and stabilized in others. In response, a number of economists began forecasting that housing would hit a bottom in late 2011, then begin to recover. But the improvements, spurred by federal programs that gave buyers up to $8,000 in tax credits, proved fleeting. Sales collapsed when the credits expired last summer, and prices in many markets have been falling ever since.

While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. "We expected December and January to be bad" as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow's chief economist. But monthly declines for February and March were "really staggering," he said. They indicate "a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it's being completely overwhelmed by supply." ...

Prices are decelerating in large part because the many foreclosed properties that often sell at a discount force other sellers to lower their prices.

Personally, I think that if the federal government hadn't tried to artificially prop up housing prices in 2009-2010, the market would already have hit bottom and we'd be seeing recovering housing prices now. The desire to avoid housing pain in 2009 simply delayed the pain until 2011.

Foreclosures continue to rise even as mortgage delinquency rates fall

2011-05-09T06:58:00.006-04:00

Mortgage delinquency rates have been falling for a while now—down 12% in March alone—yet foreclosure rates continue to creep upward.

In the longer term I expect that declining delinquency rates will eventually lead to declining foreclosure rates, but apparently we're not there yet.

U.S. home-ownership rate continues to decline

2011-05-06T09:30:00.002-04:00

After rising to an all-time high during the upside of the bubble, America's home-ownership rate is now back down to where it was in 1998:

In the first quarter, 66.5% of Americans owned homes, down from 67.2% a year earlier, the Census Bureau reported. The rate last hit this level in 1998.

During the boom, when easy credit made mortgages available with less regard for income or ability to pay, the ownership rate surged to a record 69.2% in 2004′s second and fourth quarters and stayed near that level until the recession deepened.

Now, some industry watchers expect the rate to slip below 65%. Housing experts say each 1% decline in the home ownership rate represents the movement of one million households to rentals. Some people can’t buy homes, while others just don’t want to.

"Sam, are you trying to flip his house?"

2011-05-04T07:30:00.000-04:00

A nice little real estate joke from 1:10 - 2:10:

The Daily Show - To Kill a Mockingturd - Reaction to Bin Laden's Death
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Pending home sales up

2011-05-03T08:18:00.003-04:00

Pending home sales, a leading indicator, are up even as prices are expected to continue falling:

Here’s a bit of good news for the existing-home market: The National Association of Realtors’ monthly index for pending sales climbed 5.1% to 94.1 in March. That is (drumroll) the highest reading since November.

It was the second-straight monthly increase for the index, which tracks ahttp://www.blogger.com/img/blank.gifgreements to purchase homes. The results beat expectations: Economists were looking for a 1.5% increase.

But, before you break out the bubbly, know that the reading is 26% below its April 2005 peak. Plus, prices, already down 30% from the peak, continue their downward spiral. The median sales price for an existing home is forecast to fall to $169,800 this year, down from $172,900 in 2010.

Here's the spin from the National Association of Realtors:

U.S. housing prices still falling

2011-05-03T08:10:00.003-04:00

Sorry about the lack of blogging over the past two weeks. Here's some of what I missed. The S&P/Case-Shiller 20-city index shows U.S. home prices are still falling.

Home prices in February sank 3.3% to just above the post-crisis lows reached in April 2009. It was the seventh straight month of declines.

Home values are down 32% from their peak set in May of 2006, according to the S&P/Case-Shiller index of home prices in 20 cities.

"There is very little, if any, good news about housing," said David Blitzer, spokesman for S&P. "Prices continue to weaken, trends in sales and construction are disappointing."

The drop has come in two stages. First, the index recorded 36 months of nearly uninterrupted declines after reaching the spring 2006 peak. Then came a 13-month upswing during which the index recorded a 5% gain. That rebound ended last June.

Since then, the index has recorded losses every month and it has now edged closer to a new low — the dreaded double-dip. ...

Economists say the initial rebound after the financial crisis was artificially inflated by government initiatives.

Lawmakers implemented a tax credit for homebuyers. And the Federal Reserve helped keep mortgage rates low.

Also artificially supporting prices at the time was a decrease in the supply of foreclosed properties. That was the result of government loan modification programs, but many foreclosed properties have again come back to market.

Los Angeles housing prices

2011-04-22T07:27:00.002-04:00

Click on the graph to see the full-size version. The blue line shows nominal housing prices. The red line shows inflation-adjusted housing prices.

Is too much debt a bad reason for denying someone a mortgage?

2011-04-20T06:53:00.002-04:00

A new CNN Money article titled, "Mortgage denied: Sometimes, for no good reason" claims people are being denied mortgages for bad reasons, but their list of reasons looks pretty good:

Too few of the condos in your association have been sold
Your debt is too high
The wait after foreclosure is extended to seven years from five
Missed payments on credit card debt

A condo association with lots of unsold units is on shaky financial ground. A person with high debt is on shaky financial ground. Not paying your mortgage or credit card bills are signs that you have a tendency to be irresponsible with your money.

Meanwhile, the Federal Reserve has proposed an "ability to repay" requirement for mortgage loans:

The proposal under Regulation Z would require creditors to determine a consumer’s ability to repay a mortgage before making the loan and establish minimum mortgage underwriting standards.

Zillow.com filed for an IPO

2011-04-20T06:34:00.002-04:00

Want to buy a stake in an unprofitable internet company?

Real estate site Zillow.com filed for a $51.75 million initial public offering Monday. ...

Zillow, founded in 2004, provides a database of more than 100 million U.S. homes for sale or rent, as well as homes not currently on the market.

In March, the site and mobile app together attracted 19.4 million unique users — a year-over-year gain of more than 90%.

Zillow's revenue has grown significantly over the past three years, according to the Securities and Exchange Commission filing. In 2010, Zillow's revenue jumped 74% to $30.5 million.

But the company has also booked net losses during that time, though those losses have been steadily narrowing. Zillow only lost $6.8 million last year, compared with $12.9 million in 2009 and $21.1 million in 2008.

Housing bubble graph fail!

2011-04-18T05:15:00.011-04:00

I noticed Mark Thoma posting this graph from Barry Ritholtz's blog. Barry Ritholtz attributes it to reader Steve Barry. This graph supposedly shows Robert Shiller's famous 2006 housing graph updated through 2010. Notice that as of December 31, 2010, housing prices are at roughly index value 140, way above the 1989 bubblette peak.

(Click the image to see the full-sized version.)

There's just one problem. The graph is bogus. At least it isn't updated with Robert Shiller's national home price data. You see, Robert Shiller updates his own graph (it's in his housing data Excel file) which you can see below. According to Shiller, as of December 31, 2010, housing prices were at index value 124, not 140.

(Click the image to see Robert Shiller's spreadsheet and graph.)

It's possible Steve Barry used the FHFA House Price Index to update the graph, but the S&P/Case-Shiller National Home Price Index is considered way more reliable, and it's the data Robert Shiller uses for home prices from 1987 onward. (Why use one data set for the up side of the bubble and a different data set for the down side?)

I also question how Steve Barry came up with his "projection". It looks like he just drew a dashed line where he wants home prices to go, but that's not valid forecasting.

Update: It appears that Steve Barry is making two errors. First, he is using the S&P/Case-Shiller 20-city index rather than the national index that Robert Shiller used. Second, Robert Shiller's portion of the graph is adjusted for inflation, but Steve Barry's is not. Hat tip to Partisan.

Update #2: I contacted Barry Ritholtz about the issues with the graph. He then contacted Steve Barry. It has been confirmed straight from the horse's mouth, from 2006 onward the disputed graph uses the S&P/Case-Shiller 20-city index, rather than the national index that Robert Shiller used, and it does not adjust for inflation. This graph is really making its way around the web, which is unfortunate because it is worthless.