by Calculated Risk on 1/26/2009 10:00:00 AM

From the NAR: Existing-Home Sales Show Strong Gain In December

ExistingExisting-home sales rose unexpectedly while inventory declined, led by a surge of sales in the West, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – jumped 6.5 percent to a seasonally adjusted annual rate1 of 4.74 million units in December from a downwardly revised pace of 4.45 million units in November, but are 3.5 percent below the 4.91 million-unit pace in December 2007.

For all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.
...
Total housing inventory at the end of December fell 11.7 percent to 3.68 million existing homes available for sale, which represents a 9.3-month supply2 at the current sales pace, down from a 11.2-month supply in November.

Click on graph for larger image in new window.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in December 2008 (4.74 million SAAR) were 6.5% higher than last month, and were 3.5% lower than December 2007 (4.91 million SAAR).

Not exactly a "strong gain" looking at a long term graph!

It's important to note that a large percentage of these sales were foreclosure resales (banks selling foreclosed properties). NAR economist Yun suggested said a couple of months ago that "distressed sales are currently 35 to 40 percent of transactions". Distressed sales include foreclosure resales and short sales. Although these are real transactions, this means activity (ex-foreclosures) is running around 3 million units SAAR.

The second graph shows nationwide inventory for existing homes. According to NAR, inventory decreased to 3.67 million in December, from an all time record of 4.57 million homes for sale in July 2008. Usually inventory peaks in mid-Summer, and then declines slowly through November - and then declines sharply in December as families take their homes of the market for the holidays. This decrease was especially large, but this is the usual pattern.

Most REOs (bank owned properties) are included in the inventory because they are listed - but not all. Some houses in the foreclosure process are listed as short sales - so those would be counted too.

The third graph shows the 'months of supply' metric for the last six years.

UPDATE: Important note: The NAR uses Seasonally Adjusted sales, and Not Seasonally adjusted inventory to calculate the Months of Supply. Since inventory always declines in December, the Months of Supply always declines too.

Months of supply decreased to 9.3 months.

I still expect sales to fall further in 2009. It will be interesting in 2009 to see if existing home inventory has peaked for this cycle. I'll have more on existing home sales ...

by Calculated Risk on 1/26/2009 08:21:00 AM

Update: Home Depot to cut 7,000 jobs. Press Release: The Home Depot Exits EXPO Business

The Home Depot®, the world's largest home improvement retailer, today announced it will exit its EXPO business. The Company is also taking steps to streamline its support functions. These decisions will impact 7,000 associates, or approximately two percent of the Company's total workforce.

From MarketWatch Caterpillar profit falls 32% in fourth quarter

Caterpillar Inc. on Monday posted a 32% drop in fourth-quarter profit ...

More dismal was the bellwether company's 2009 outlook, which predicted a 25% decline in sales due to tighter credit markets and the recession. In response, Caterpillar said it would cut costs, including the elimination of some 20,000 jobs -- nearly 18% of its workforce.

"We expect 2009 will be the weakest year for economic growth in the postwar period," the company said in a statement.

From MarketWatch: Sprint to eliminate 8,000 jobs

Sprint Nextel Corp. said Monday it will eliminate 8,000 jobs in the first three months of 2009 as part of an effort to reduce costs in the face of a deepening U.S. recession.

by Calculated Risk on 1/26/2009 01:30:00 AM

From the NY Times: Nationalization Gets a New, Serious Look

[M]ost members of the Obama economic team concede that the rapid deterioration of the country’s biggest banks, notably Bank of America and Citigroup, is bound to require far larger investments of taxpayer money, atop the more than $300 billion of taxpayer money already poured into those two financial institutions and hundreds of others.

But if hundreds of billions of dollars of new investment is needed ... what do taxpayers get in return?

Does this mean "Nationalization"?

So far, President Obama’s top aides have steered clear of the word entirely, and they are still actively discussing other alternatives, including creating a “bad bank” that would nationalize the worst nonperforming loans by taking them off the hands of financial institutions without actually taking ownership of the banks. Others talk of de facto nationalization, in which the government owns a sizeable chunk of the banks but not a majority...

That has already happened ...

I say to-may-to, you say to-mah-to.

by Calculated Risk on 1/25/2009 08:02:00 PM

For a few months it seemed Sunday had become the new Monday for news. I'm happy for a slow news day!

But this week will be busy: existing home sales on Monday, Case-Shiller house price index on Tuesday, the FOMC meeting on Wednesday, New Home sales on Thursday, and Q4 GDP (the big news) on Friday ... and much more.

The consensus is for a real GDP decline of 5.5% annualized in Q4. Should be interesting ...

Best to all.

by Calculated Risk on 1/25/2009 03:35:00 PM

From Bloomberg: Summers Says Economy Entering a ‘Difficult’ Time

“The next few months are, no question, going to be very, very difficult and it may be longer than that,” said Summers, appearing on NBC’s “Meet the Press.”
...
Summers said Obama plans to overhaul the $700 billion Troubled Asset Relief Program enacted in October. Obama’s bank rescue plan, using the remaining $350 billion in TARP, will be “very different” than it was under George W. Bush’s administration, Summers said.
...
“Secretary-designate Geithner ... will be laying out the plans and principles behind our approach,” said Summers ...

"Very different" doesn't tell us much.

by Calculated Risk on 1/25/2009 10:30:00 AM

Bloomberg has an update on Manhattan’s largest apartment complex: Tishman’s Stuyvesant Town Fund May Run Dry This Year (hat tip Brian)

Tishman Speyer Properties LP and BlackRock Realty ... are relying on a reserve fund to pay debt on the property and have only six months of money left before it runs out, Fitch Ratings said in a report. ... The fund for the Stuyvesant Town and Peter Cooper Village apartments has declined to $127.7 million as of Jan. 15, from $400 million when it was established.

This property was purchased in 2006 and has obviously not met income projections. When the reserve fund runs dry, the owner will need to put in more cash or possibly default on the loan.

This is a common problem for office, retail and apartment properties that were purchased in 2005 or 2006, at prices that were based on overly optimistic pro forma income projections. A reserve fund was used to pay interest until the rents increased, a scenario that is now unlikely with a recession and declining rents. Many of these deals will blow up when the interest reserve is depleted - probably this year or in 2010.

by Calculated Risk on 1/24/2009 10:07:00 PM

From the NY Times: Obama Plans Fast Action to Tighten Financial Rules

Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
...
Officials said they want rules to eliminate conflicts of interest at credit rating agencies ...

Aides said they would propose new federal standards for mortgage brokers ... They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.
...
The administration is also preparing to require that derivatives like credit default swaps ... be traded through a central clearinghouse and possibly on one or more exchanges.

It sounds like the Obama administration will propose the stimulus plan, the new bank bailout, and significant regulatory changes for financial system all in short order.

by Calculated Risk on 1/24/2009 08:06:00 PM

“President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency.”
Treasury Secretary nominee Tim Geithner, Jan 22, 2009

I'm just thinking about some trades issues, and here a few graphs that might be helpful:

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through November 2008 (most recent data). The recent rapid decline in foreign trade is clear. Note that a large portion of the decline in imports is related to the fall in oil prices.

Looking at port traffic data, exports and imports collapsed further in December.

The second graph shows the U.S. trade deficit / surplus as a percent of GDP since 1960 through Q3 2008.

The trade deficit as a percent of GDP started declining in 2006, even with the rapid increase in oil prices. Now, with oil prices falling rapidly, the trade deficit as a percent of GDP will decline sharply in Q4 2008 and Q1 2009.

The third graph shows the U.S. trade deficit, both with and without petroleum through November.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

So, excluding petroleum, the trade deficit has been falling since early 2006.

This graph compares monthly U.S. spot oil prices from the Energy Information Administration (EIA) with import oil prices from the Census Bureau trade report.

Obviously the two price series track very well. This implies that import oil prices will drop sharply in the December and January reports, from $67 per barrel in November to around $37 per barrel in January.

Based on this decline in oil prices, and looking back at the third graph, the oil deficit will probably fall from around $19 billion in November to close to $10 billion in January (the actual decline depends on volumes in addition to price). All else being equal, this would push the trade deficit down to $30 billion in January.

And this brings us back to the quote at the top from Geithner. The trade deficit with China was $23 billion in November alone, and even with declining imports from China, the deficit with China will probably account for well over half of the U.S. trade deficit in January.

Just some thoughts ... For some excellent discussion of trade issues (especially with China) see Brad Setser's blog: Follow the Money

by Calculated Risk on 1/24/2009 06:42:00 PM

From The Times: RBS to purge directors in big shake-up

The Sunday Times can reveal RBS is preparing to place £50 billion to £100 billion of loans into the government’s new bank-insurance scheme ... designed to protect RBS from significant further losses and allow it to restart lending to British companies.

The move comes as [new chief executive Stephen] Hester puts the finishing touches to a radical restructuring. As many as 30,000 jobs, out of 170,000, could go in the next three to five years ...

RBS, which has more than £2 trillion of assets, is being used as a guinea pig for the government’s loss insurance rescue scheme.

This is similar to the insurance plan the U.S. provided for Citigroup and Bank of America. RBS will take the first 10% of losses on the loans and the U.K. taxpayers are on the hook for any additional losses.

by Calculated Risk on 1/24/2009 04:19:00 PM

From the Seattle Times: More layoffs expected at Starbucks

Another big round of layoffs is expected at Starbucks, possibly 1,000 people — a third of its headquarters employees — and some district managers and field employees, according to an e-mail sent to a stock brokerage's customers Friday.

"The cuts might be next week or in February," wrote Diane Daggatt, a managing director at McAdams Wright Ragen in Seattle.

The story doesn't mention any more store closings - although apparently no "barista jobs are in jeopardy".