by Calculated Risk on 3/20/2009 03:33:00 PM

From Reuters: General Growth loses some malls after defaults

A Louisiana court issued an order to seize and sell a General Growth Properties Inc GGP.N shopping center in a New Orleans suburb after the No. 2 U.S. mall owner failed to repay a $95 million loan, a Citigroup ... unit said on Friday.

The Oakwood Shopping Center in the town of Gretna is the fourth General Growth property seized in the last few days after the company failed to pay mortgage debt.

A possible General Growth Properties bankruptcy could happen in the next few days.

by Calculated Risk on 3/20/2009 12:52:00 PM

From the LA Times: California unemployment hits 10.5% in February

California's unemployment rate rose for the 11th straight month in February, hitting 10.5% as a recession-wracked economy shed 116,000 jobs across all professions and industries, the state reported today.

The number is up from 10.1% in January and is the highest since April 1983.

The unemployment rate in California peaked at 11% in the early '80s.

Here is the EDD report. Construction employment is off 18.5% from Feb '08 to Feb '09. This is over 155,000 construction jobs lost in California alone over the last 12 months.

by Calculated Risk on 3/20/2009 11:30:00 AM

UPDATE: Here is the transcript of Bernanke's speech.

Federal Reserve Chairman Ben Bernanke will speak at Noon ET on "The Financial Crisis and Community Banking", at the Independent Community Bankers of America’s convention in Phoenix, AZ.

I expect CNBC to cover this ...

Here is the CNBC feed.

by Calculated Risk on 3/20/2009 11:12:00 AM

In addition to watching for bank failures this afternoon, the 2nd largest mall owner in the U.S. - General Growth Properties - is facing a significant deadline:

From the WSJ: General Growth Shakes Up Executive Ranks

[General Growth's] most critical deadline is 5 p.m. Friday, when it hopes the majority of its bondholders will have agreed to refrain from demanding payment this year on $2.25 billion in bonds. If that effort fails, General Growth says it might need to seek Chapter 11 bankruptcy protection.

Yesterday: Moody's Cuts General Growth To Last Pre-Default Level

Moody's Investors Service lowered its ratings on debt-laden mall owner General Growth Properties Inc. (GGP) and some of its subsidiaries to C, the last stop before default, after the company let a $395 million bond payment pass without a payment earlier this week.
...
On Wednesday, Standard and Poor's Ratings Services lowered its credit ratings on the company to default on the missed bond payment.

by Calculated Risk on 3/20/2009 09:03:00 AM

From HotelNewsNow.com: STR reports U.S. hotel data for week ending 14 March

The U.S. hotel industry posted declines in three key performance measurements during the week of 8-14 March 2009, according to data from STR..

In year-over-year measurements, the industry’s occupancy fell 15.7 percent to end the week at 55.2 percent. Average daily rate dropped 11.2 percent to finish the week at US$99.60. Revenue per available room for the week decreased 25.1 percent to finish at US$55.02.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week centered average).

The three week average is off 14.4% from the same period in 2008.

Note that the average daily rate dropped significantly too, so RevPAR (Revenue per available room) is off 25.1% from last year.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/20/2009 01:45:00 AM

From the FDIC: FDIC Closes Sale of Indymac Federal Bank, Pasadena, California

The Federal Deposit Insurance Corporation (FDIC) has completed the sale of IndyMac Federal Bank FSB, Pasadena, California, to OneWest Bank, FSB, a newly formed Pasadena, California-based federal savings ...

IndyMac Federal sustained losses of $2.6 billion in the fourth quarter 2008 due to deterioration in the real estate market. The total estimated loss to the Deposit Insurance Fund is $10.7 billion.

The original loss estimate was $4 to $8 billion, and that estimate was later increased to $8.9 billion. Now it is $10.7 billion.

Ouch.

by Calculated Risk on 3/19/2009 09:11:00 PM

From the WSJ: Travel Spending Sinks Sharply

Spending on travel and tourism declined last year for the first time since the Sept. 11, 2001, terrorist attacks, the Commerce Department said Thursday, as Americans canceled vacations, a strong dollar kept foreigners away and businesses slashed travel budgets.

Spending fell at a 22% annualized rate in the October through December quarter, compared with the prior three-month period. The decline was the sharpest since the government's quarterly records began in 2001, topping the 19% drop after the terrorist attacks that year.

As a result, the trillion-dollar industry -- a major employer in the U.S. -- is reeling ...

More cliff diving ... and more bad news for the hotel industry.

by Calculated Risk on 3/19/2009 04:55:00 PM

From Zach Fox at the North County Times: HOUSING: Banks selling properties in bulk for cheap

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

Investors then flip the properties for a profit without necessarily improving the home.

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.

...the Temecula foreclosure was first listed for sale by Citigroup in May 2007 for $420,000, according to Multi-Regional Multiple Listing Service ...

The property was listed on the site for 19 months before selling to the investors in a bulk sale in December 2008. The lowest price it was listed for was $314,000.

"It should have been listed for less," said Craig Finlayson, a real estate agent in the area who listed the property for Citigroup. "But it would have sold for more than 139 (thousand); 139 was a giveaway price."

There is much more in the story.

I'm hearing stories frequently of banks selling REOs far below market prices, only to have local investors flip the properties.

A reader sent me some info on a property in Redwood City that is typical. The lender turned down two short sale offers at close to $649,000, and then, after foreclosing on the property, the bank listed the property at $509,000. The property sold for $493,000 all cash, even though there were other offers above the list price.

What is going on? I think the lenders are swamped, and this is OPM (other people's money). The money doesn't belong to the people making the decisions, and it is hard for them to accept a short sale, and after foreclosure, it is probably easier for them to just take a check and get the property off their desk. The result is the banks make a series of less than optimal decisions, and they leave money on the table at several points in the process.

In the story above, Citigroup left $100,000 on the table with just this one property.

by Calculated Risk on 3/19/2009 04:37:00 PM

From the Fed:

The Federal Reserve Board on Thursday announced that the set of eligible collateral for loans extended by the Term Asset-Backed Securities Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities (ABS):

ABS backed by mortgage servicing advances

ABS backed by loans or leases relating to business equipment

ABS backed by leases of vehicle fleets

ABS backed by floorplan loans

Mortgage servicing advances are loans extended by residential mortgage servicers to cover payments missed by homeowners. Accepting ABS backed by mortgage servicing advances should improve the servicers' ability to work with homeowners to prevent avoidable foreclosures. The additional new ABS categories complement the consumer and small business loan categories that were already eligible--ABS backed by auto loans (including auto floorplan loans), credit cards loans, student loans, and SBA-guaranteed small business loans.

The new categories of collateral will be eligible for the April TALF funding. Additional details on the April funding will be released on March 24. Subscriptions for the April funding will be accepted on April 7, and those loans will settle on April 14.

The subscription period for the first TALF funding ends today. The requested loans will settle on March 25.

The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. Under the TALF, the Federal Reserve Bank of New York extends three-year loans secured by AAA-rated ABS backed by newly and recently originated loans.

On February 10, 2009, the Board announced that it is prepared to undertake a significant expansion of the TALF. Today's announcement marks the first step in that expansion; a number of other asset classes are under review.

A new term sheet and a revised frequently-asked-questions document are attached.

Terms and conditions

Frequently asked questions

by Calculated Risk on 3/19/2009 02:45:00 PM

With the Fed buying longer term Treasury securities, how far will 30 year mortgage rates fall?

On CNBC yesterday, PIMCO's Bill Gross suggested mortgage rates might fall to 4%. I think this is unlikely.

Click on graph for larger image in new window.

This graph shows the relationship between the Ten Year yield (x-axis) and the 30 year mortgage rate (y-axis, monthly from Freddie Mac) since 1971. The relationship isn't perfect, but the correlation is very high.

Based on this historical data, the Fed would have to push the Ten Year yield down to around 2.3% for the 30 year conforming mortgage rate to fall to 4.5%.

Currently the Ten Year yield is 2.58% (typo corrected) suggesting a 30 year mortgage rate around 4.7%.

If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5%.

by Calculated Risk on 3/19/2009 01:04:00 PM

From DataQuick: Bay Area home sales climb above last year as median falls below $300K

Note: Beware of the median price. That is skewed by the change in mix towards the low end.

Bay Area home sales beat the year-ago mark for the sixth straight month in February as the winter market sizzled in many foreclosure-heavy inland areas offering the deepest discounts. The median price dipped below $300,000 for the first time since late 1999, pushed lower by an abundance of inland distressed sales and a dearth of coastal high-end activity ...

A total of 5,032 new and resale houses and condos closed escrow in the nine-county Bay Area last month. That was essentially unchanged from 5,050 in January but up 26.1 percent from 3,989 in February 2008, according to MDA DataQuick of San Diego.
...
The allure of such discounted foreclosures helped lift sales of existing single-family houses to record levels for a February in Vallejo, Brentwood, Antioch, Pittsburg, Oakley and Gilroy.

The use of government-insured, FHA loans – a common choice among first-time buyers – represented a record 24.9 percent of all Bay Area purchase loans last month.

Conversely, use of so-called jumbo loans to finance high-end property remained at abnormally low levels. Before the credit crunch hit in August 2007, jumbo loans, then defined as over $417,000, represented 62 percent of Bay Area purchase loans, compared with just 17.5 percent last month.
...
Last month 52 percent of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from a revised 51.9 percent in January and 22.3 percent a year ago.

At the county level, foreclosure resales last month ranged from 12.1 percent of resales in San Francisco to 69.5 percent in Solano County. In the other seven counties, foreclosure resales were as follows: Alameda, 46.2 percent; Contra Costa, 65.1 percent; Marin, 18.9 percent; Napa, 63.1 percent; Santa Clara, 42.9 percent; San Mateo, 31.3 percent; and Sonoma, 57.1 percent.
emphasis added

And there is this interesting comment:

Only 321 newly constructed homes sold last month, down 55 percent from 713 a year ago, the lowest on record for a February, and the second-lowest for any month back to 1988. Many builders have had a difficult time competing with falling resale prices – especially foreclosures.

Only 321 new homes in the entire Bay Area? Wow.

This really shows what is happening. Volumes have all but disappeared for high end homes (and jumbo loans), and the low end is dominated by foreclosure resales (and more FHA loans). The builders can't compete with the foreclosure resales, so new home sales have declined sharply.

by Calculated Risk on 3/19/2009 11:49:00 AM

The Dept of Transportation reports on U.S. Traffic Volume Trends:

[T]ravel during January 2009 on all roads and streets in the nation changed by -3.1 percent (-7.0 billion vehicle miles) resulting in estimated travel for the month at 222.4 billion vehicle-miles.

Click on graph for larger image in new window.

The first graph shows the rolling 12 month total vehicle miles driven since 1971.

The second graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early '70s and 1979-1980 oil crisis.

As the DOT noted, miles driven in January 2009 were 3.1% less than January 2008.

Even with much lower gasoline prices in January 2009 ($1.84 per gallon) compared to January 2008 ($3.09 per gallon), the total vehicle miles driven is less because of the weaker economy.

by Calculated Risk on 3/19/2009 10:00:00 AM

Here is the Philadelphia Fed Index released today: Business Outlook Survey.

The region's manufacturing sector continued to contract this month, according to firms polled for the March Business Outlook Survey. Indexes for general activity, new orders, shipments, and employment remained significantly negative. Employment losses were substantial again this month, with over half of the surveyed firms reporting declines. ...

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, edged higher, from -41.3 in February to -35.0 this month. Last month's reading was the lowest since October 1990. The index has been negative for 15 of the past 16 months, a period that corresponds to the current recession ...

The current employment index fell for the sixth consecutive month, declining six points, to -52.0, its lowest reading in the history of the survey.
emphasis added

Click on graph for larger image in new window.

This graph shows the Philly index for the last 40 years.

"The index has been negative for 15 of the past 16 months, a period that corresponds to the current recession ."

by Calculated Risk on 3/19/2009 09:19:00 AM

From Reuters: Moody's may cut $241 billion jumbo mortgage debt

... reflecting widening stress in the U.S. housing market, Moody's Investors Service on Thursday said it may downgrade $240.7 billion of securities backed by prime-quality "jumbo" U.S. residential mortgages because defaults will be higher than they expected.
...
It said 70 percent of the 2005 senior securities will likely remain investment-grade, with the rest falling to "junk." Securities issued later may suffer deeper downgrades. Moody's also said subordinated securities from 2006, 2007 and 2008 transactions "will likely be completely written down."

Defaults continue to increase in higher priced areas ...

by Calculated Risk on 3/19/2009 08:32:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending March 14, the advance figure for seasonally adjusted initial claims was 646,000, a decrease of 12,000 from the previous week's revised figure of 658,000. The 4-week moving average was 654,750, an increase of 3,750 from the previous week's revised average of 651,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending March 7 was 5,473,000, an increase of 185,000 from the preceding week's revised level of 5,288,000.

Click on graph for larger image in new window.

This graph shows weekly claims and continued claims since 1971.

The four week moving average is at 654,750, the highest since 1982.

Continued claims are now at 5.473 million - the all time record (although not if adjusted by covered employment - I'll post the normalized graph next week).

Another weak employment report ...

by Calculated Risk on 3/18/2009 11:08:00 PM

Sign of the Times. Click on photo for larger image in new window. Credit: Nades. This is on Mission Blvd in Pacific Beach, San Diego.

The big news ... the Fed announced they have "decided to purchase up to $300 billion of longer-term Treasury securities over the next six months" and also buy more MBS. This is quantitative easing (printing money) ... and this should lead to lower mortgages rates and lower long term rates. I've seen forecasts of 30 year mortgage rates in the 4% to 4.5% range for conforming loans. This will have a some stimulus effect.

The Architecture Billings Index is still near a record low suggesting further weakness in non-residential construction investment later this year.

And here is some more on the two eventual bottoms for housing: the first will be single-family housing starts, new home sales, and residential investment, and the second will be for house prices.

And some futures:

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/18/2009 09:36:00 PM

Something a little different ...

Click on graph for larger image in new window.

From the CDC: Births: Preliminary Data for 2007

The preliminary estimate of births in 2007 rose 1 percent to 4,317,119, the highest number of births ever registered for the United States. The general fertility rate increased by 1 percent in 2007, to 69.5 births per 1,000 women aged 15–44 years, the highest level since 1990. Increases occurred within all race and Hispanic origin groups and for nearly all age groups.
...
This number surpasses the peak of the postwar ‘‘baby boom,’’ in 1957 ...

The preliminary estimate of the total fertility rate (TFR) in 2007 was 2,122.5 births per 1,000 women, a 1 percent increase compared with the rate in 2006 (2,100.5, see Table 1). The TFR summarizes the potential impact of current fertility patterns on completed family size by estimating the average number of births that a hypothetical group of 1,000 women would have over their lifetimes, based on age-specific birth rates observed in the given year.

The U.S. TFR in 2007 marks the second consecutive year in which the rate has been above replacement. A replacement rate is the rate at which a given generation can exactly replace itself, generally considered to be 2,100 births per 1,000 women. The TFR had been below replacement from 1972 through 2005.

Although the chart only goes back to 1930, both the number of births, and the birth rate, declined precipitously in the late '20s as more and more families put off having children because of hard economic times (Times were tough for many families even before the stock market crash of 1929).

The original baby bust last throughout the '30s.

There is no evidence in this 2007 data of families putting off having children now. In fact the birth rate and total fertility rate were increasing in 2007.

Now we know who will pay off all that debt!

by Calculated Risk on 3/18/2009 04:59:00 PM

David Greenlaw at Morgan Stanley makes an interesting point:

"The Fed’s announcement signals a clear intent to continue to drive mortgage rates lower and we expect them to meet this objective. ... In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year."
David Greenlaw, Morgan Stanley, WSJ Real Time Economics March 18, 2009

According to the BEA, the effective mortgage interest rate in 2008 was 6.235%.

If the Fed's actions drive mortgage rates to an effective rate of 4.5% on all outstanding mortgage debt that would be about $190 billion in stimulus (on an annual basis). However not all homebuyers will be eligible for a 4.5% interest rate mortgage. But even half that stimulus would be significant.

According to Housing Wire, we are already seeing a refinancing boom: Fannie Mae Refinancing Volume Jumps

Fannie Mae’s refinancing volume jumped to more than $41 billion in February, nearly three times the refinancing volume the company experienced during the month of January and the largest refinancing volume in nearly a year, the company said Wednesday.
...
The Mortgage Bankers Association reported last week an 11.3 percent week-over-week surge in application volume –two-thirds of which were from homeowners who wanted to refinance.

Just wait - the mortgage brokers will be really busy!

by Calculated Risk on 3/18/2009 03:23:00 PM

Yesterday I noted that housing starts might be nearing a bottom. This post led to a number of emails from readers stating that they believe prices will fall further. I agree.

There will almost certainly be two distinct bottoms for housing: the first will be single-family housing starts, new home sales, and residential investment, and the second will be for house prices.

These bottoms could happen years apart!

As I noted yesterday, it is way too early to try to call the bottom in prices. House prices will almost certainly fall for some time. My original prediction (a few years ago) was that real house prices would fall for 5 to 7 years, and we could start looking for a bottom in the 2010 to 2012 time frame for the bubble areas. That still seems reasonable to me. However some lower priced areas might be much closer to the bottom.

For the first bottom, we have several possible measure - the following graph shows three of the most commonly used: Starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Click on graph for larger image in new window.

The arrows point to some of the earlier peaks and troughs for these three measures.
The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

We could use any of these three measures to determine the first bottom, and then use the other two to confirm the bottom. But this says nothing about prices.

The second graph compares RI as a percent of GDP with the real Case-Shiller National house price index.

Although the Case-Shiller data only goes back to 1987, look at what happened following the early '90s housing bust. RI as a percent of GDP bottomed in Q1 1991, but real house prices didn't bottom until Q4 1996 - more than 5 years later!

Something similar will most likely happen again. Indicators like new home sales, housing starts and residential investment will bottom long before house prices.

Economists and analysts care about these housing indicators (starts, sales, RI) because they impact GDP and employment. However most people (homeowners, potential homebuyers) think 'house prices' when we talk about a housing bottom - so we have to be aware that there will be two different housing bottoms. And a bottom in starts doesn't imply a bottom in prices.

by Calculated Risk on 3/18/2009 02:05:00 PM

Fed Statement:

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.
emphasis added