by Calculated Risk on 2/04/2009 12:10:00 AM

An open thread and a few posts today you might want to read:

Q4: Homeownership Rate Declines to 2000 Level

With graphs on the rental vacancy rate, homeowner vacancy rate, and homeownerhip rate.

Looking for the Sun

The economic outlook is grim. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but a few areas will probably finally hit bottom.

Update: Tanta Scholarship Fund

An update from bacon_dreamz. Check it out. And check out the map of where the Mortgage Pigs have gone!

by Calculated Risk on 2/03/2009 09:28:00 PM

A word from bacon_dreamz:

I would like to thank everyone for the very generous response we have received to Tanta’s memorial scholarship and bench fund at ISU. There have been a large number of donations totaling just over $20,000 to date, and all of them are very greatly appreciated. The bench has already been purchased and will be placed on the ISU campus this spring (where Tanta’s parents will be able to visit it whenever they like), and the scholarship itself is very nearly fully endowed, so I’m hopeful that the first award will be next spring.

Tanta’s family has been very touched by the kindness and generosity of everyone here (as have I), and I know they have found comfort in the fact that she touched so many lives so deeply. My sincerest thanks to all of you for helping to make this happen in her memory.

Tanta_Vive!

Note from CR: To be fully endowed, The Doris Dungey Endowed Scholarship Fund at Illinois State University needs another $1,500 or so (I've dropped a few bills in the kitty today).

Donations can be made at the link below by entering "Doris Dungey Endowed Scholarship" in the Gift Designation box. Checks made out to the ISU Foundation with “Doris Dungey” in the memo can also be mailed to:

ISU Foundation
attention: Mary Rundus
Illinois State University, Campus Box 8000
Normal, IL 61790.
http://www.development.ilstu.edu/credit/credit.phtml?id=8000

Also here is map of where the Mortgage Pigs are (from Tanta's brother-in-law):

Click on graph for larger image in new window.

No Pigs in Florida?

A special thanks to bacon_dreamz for setting up the Scholarship Fund.

For much more on Tanta - tributes, charities, her writing - please see Tanta: In Memoriam

All my to best to everyone, CR

by Calculated Risk on 2/03/2009 06:47:00 PM

2009 will be a grim economic year. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but there might be a few rays of sunshine too.

Look at these three charts of Cliff Diving:

Click on graph for larger image in new window.

The first graph shows monthly vehicle sales (autos and trucks) as reported by the BEA at a Seasonally Adjusted Annual Rate (SAAR).

Based on the sales reports today from Ford, GM, Toyota and Chrysler, it looks like vehicle sales were below 10 million units (SAAR) for the first time since the early '80s. My estimate is vehicle sales were at a 9.2 million SAAR in January. Ouch!

The second cliff diving graph shows New Home Sales for the last 45 years.

Sales of new one-family houses in December 2008 were at 331 thousand (SAAR). This is the lowest level ever recorded by the Census Bureau (data collection started in 1963).

And the third graph shows total and single family housing starts since 1959.

Total starts were at 550 thousand (SAAR) in December, by far the lowest level since the Census Bureau began tracking housing starts in 1959. Single-family starts were at 398 thousand in December; also the lowest level ever recorded (since 1959). Single-family permits were at 363 thousand in November, suggesting single family starts may fall even further next month!

And none of this data is adjusted for changes in population.

No sunshine here. But wait ... we all know this cliff diving will stop sometime, and probably not at zero.

First, look at auto sales ...

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

The estimated ratio for January is 27 years, by far the highest ever. The actual in December was close to 24 years. This is an unsustainable level, and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of an increase in sales. (For more analysis, see: Vehicle Sales)

This suggests vehicle sales have fallen too far. And if vehicle sales just stablize, the auto companies can stop laying off workers, and the drag on GDP will stop.

New home sales is a little more difficult because of the huge overhang of excess inventory that needs to be worked off. But some people will always buy new homes, and we can be pretty sure that sales won't fall another 270 thousand in 2009 (like in 2008), because that would put sales at 60 thousand SAAR in December 2009. That is not going to happen.

So, at the least, the pace of decline in new home sales will slow in 2009. More likely sales will find a bottom - to the surprise of many.

And we know for certain that single family starts will not fall as far in 2009 as in 2008, because starts can't go negative! So, once again, the pace of decline will at least slow. And more likely starts will find a bottom too (although any rebound will be weak because of the excess inventory problem).

Even though most of the economic news will be ugly in 2009, my guess is all three of these series will find a bottom (or at least the pace of decline will slow significantly). This means that the drag on employment in these industries, and the drag on GDP, will slow or stop.

These will be rays of sunshine in a very dark season. That doesn't mean a thaw, but it will be a beginning ...

by Calculated Risk on 2/03/2009 06:17:00 PM

Harry Markopolos will testify before Congress tomorrow regarding his many attempts to get the SEC to investigage Madoff.

From the WSJ: Madoff Whistle-Blower Cites 'Abject Failure' by Regulatory Agencies

Harry Markopolos, an independent fraud investigator, said in more than 300 pages of testimony before a House committee that he was repeatedly ignored or given the brush-off by SEC officials.
...
In the documents provided to the committee, he describes his efforts, which began as early as 1999, like a military intelligence operation. Mr. Markopolos said he and his team of investigators collected "intelligence reports from field" operatives and developed networks of contacts to provide information on Mr. Madoff's operation and the feeder funds that allegedly contributed to the Ponzi scheme.

Here is Markopolos' prepared testimony. Fascinating reading.

by Calculated Risk on 2/03/2009 03:01:00 PM

Last month I provided an overview of the Residential Rental Market. Here is an update based on the Q4 2008 housing data from the Census Bureau.

See this earlier post for graphs of the homeownership rate, and homeowner and rental vacancy rates.

The supply of rental units has been surging:

Click on graph for larger image in new window.

This graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. (all data from the Census Bureau).

The total number of rental units (red and blue) bottomed in Q2 2004, and started climbing again. Since Q2 2004, there have been almost 4.1 million units added to the rental inventory. Note: please see caution on using this data - this number is probably too high, but the concepts are the same even with a lower increase.

This increase in units almost offset the recent strong migration from ownership to renting, so the rental vacancy rate has only declined slightly (from a peak of 10.4% in 2004 to 10.1% in the most recent quarter).

Where did these approximately 4.1 rental units come from?

The Census Bureau's Housing Units Completed, by Intent and Design shows 1.05 million units completed as 'built for rent' since Q2 2004. Although we don't have the Q4 2008 data yet, we know completions were pretty low in Q4, so this means that another 3.0 million or so rental units came mostly from conversions from ownership to rentals.

These could be investors buying REOs for cash flow, condo "reconversions", builders changing the intent of new construction (started as condos but became rentals), flippers becoming landlords, or homeowners renting their previous homes instead of selling.

Although there are several factors increasing the supply, I believe the main factors are a surge in REO sales to cash flow investors, and frustrated sellers putting their homes up for lease. This is increasing the supply of rental properties, and is finally pushing down rents in many areas.

by Calculated Risk on 2/03/2009 02:59:00 PM

This morning the Census Bureau released the Housing Vacancies and Homeownership for Q4 2008. This is a very useful report, and earlier I posted graphs of the decline in the homeownership rate, and changes in the homeowner and rental vacancy rates.

Nerd alert: I've mentioned this before, but as a reminder readers should use caution when using the Estimates of the Housing Inventory. The homeownership and vacancy rates come from a survey of a sample of households, but the inventory data is based on two year old housing unit controls. See the discussion at the bottom of Table 4. Estimates of the Total Housing Inventory

The totals shown above have a two-year time lag (4Q2007 uses 2005 housing unit controls from Population Division, which are projected forward and 4Q2008 uses 2006 housing unit controls from Population Division which are projected forward).

We can clearly see the inventory increases are too high for 2007 and 2008. First, the inventory each year increases by the number of housing units completed, minus scrappage and net manufactured homes added (a few scrapped housing units may be rehab'd, but that is minor).

The Census data shows inventory increased by 1.998 million in 2007, and 2.191 million in 2008. These numbers are based on two year old housing unit controls and are clearly way too high. Total completions in 2007 were 1.502 million (plus 95 thousand manufactured homes) and completions were 1.116 million in 2008. Add in some scrappage, and the housing inventory probably increased by less than 1 million in 2008 (less than half the amount the Census Bureau reported this morning).

This is just a reminder that users should use caution when using the inventory numbers.

by Calculated Risk on 2/03/2009 01:51:00 PM

UPDATE: MarketWatch headline: Chrysler U.S. sales down 54.8% to 62,157 vehicles in January

MarketWatch headline: GM U.S. sales fall 48.9% to 128,198 units in January

From the WSJ: Ford's Sales Fall 40%, Toyota's Drop 32%

Toyota Motor Corp. reported a 32% drop, as the Japanese company sold 117,287 vehicles in the U.S. last month. Its passenger-car sales dropped to 67,263 from 94,586, while its light-truck sales fell to 50,024 from 77,263.

Chrysler usually reports last, and they have seen the largest sales declines recently (53% year over year in December).

The good news is auto sales have to be closer to the bottom than the top!

by Calculated Risk on 2/03/2009 12:12:00 PM

From MarketWatch: Ford posts 42.1% drop in January U.S. sales

Ford Motor Co. on Tuesday reported a 42.1% decline in January U.S. sales to 90,596 cars and trucks, down from 156,391 vehicles a year earlier.

This is worse than the 32.4% year over year decline Ford reported in December, and the 31.5% decline reported in November.

GM, Toyota and Chrysler report later today.

by Calculated Risk on 2/03/2009 12:03:00 PM

From the Fed:

The Federal Reserve on Tuesday announced the extension through October 30, 2009, of its existing liquidity programs that were scheduled to expire on April 30, 2009. The Board of Governors and the Federal Open Market Committee (FOMC) took these actions in light of continuing substantial strains in many financial markets.

The Board of Governors approved the extension through October 30 of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The FOMC also took action to extend the TSLF, which is established under the joint authority of the Board and the FOMC.

In addition, to address continued pressures in global U.S. dollar funding markets, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to October 30.
emphasis added

by Calculated Risk on 2/03/2009 10:01:00 AM

So much for the homeownership gains of the last 8+ years. Gone.

This morning the Census Bureau reported the homeownership and vacancy rates for Q4 2008. Here are a few graphs ...

Click on graph for larger image in new window.

The homeownership rate decreased slightly to 67.5% and is now back to the levels of late 2000.

Note: graph starts at 60% to better show the change.

The homeowner vacancy rate was 2.9% in Q4 2008.

A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, so perhaps the vacancy rate has stabilized in the 2.7% to 2.9% range.

This leaves the homeowner vacancy rate almost 1.2% above normal, and with approximately 75 million homeowner occupied homes; this gives about 900 thousand excess vacant homes.

The rental vacancy rate increased slightly to 10.1% in Q4 2008, from 9.9% in Q3.

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are close to 40 million rental units in the U.S. If the rental vacancy rate declined from 10.1% to 8%, there would be 2.1% X 40 million units or about 820,000 units absorbed.

This would suggest there are about 820 thousand excess rental units in the U.S.

There are also approximately 150 thousand excess new homes above the normal inventory level (for home builders) - plus some uncounted condos.

If we add this up, 820 thousand excess rental units, 900 thousand excess vacant homes, and 150 thousand excess new home inventory, this gives about 1.87 million excess housing units in the U.S. that need to be absorbed over the next few years. (Note: this data is noisy, so it's hard to compare numbers quarter to quarter, but this is probably a reasonable approximation).

These excess units will keep pressure on housing starts and prices for some time.

I'll have some more later today ...