by Calculated Risk on 4/08/2012 10:31:00 PM

A couple of updates to the weekly schedule:
Monday: LPS House Price Index for January.

Tuesday, 9:30 AM ET: Speech by FHFA acting director Edward DeMarco: "Addressing the Weak Housing Market: Is Principal Reduction the Answer?" at the The Brookings Institution, 1775 Massachusetts Ave., NW Washington, DC.

The Spanish 10 year yield is up to 5.76%.

The Asian markets are red tonight. The Nikkei is down about 1.1%, the Shanghai Composite is down 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are down 17, and Dow futures are down 140.

Oil: WTI futures are down to $101.99 and Brent is down to $122.38 per barrel.

Yesterday:
• Summary for Week Ending April 6th
• Schedule for Week of April 8th

by Calculated Risk on 4/08/2012 01:01:00 PM

On Friday I noted that Reis reported the mall vacancy rate declined slightly in Q1. The strip mall vacancy rate declined to 10.9% from 11.0% in Q4 2011, and the regional mall vacancy rate declined to 9.0% from 9.2% in Q4.

Here are a few more comments and a long term graph from Reis.

Comments from Reis Senior Economist Ryan Severino:

[Strip mall] Vacancies finally began to fall during the first quarter, declining by 10 bps. This is the first quarterly decline in the vacancy rate since the second quarter of 2005. In the periods leading up to the recession, excess building was to blame for the increase in vacancies. Since the advent of the recession, supply growth has been virtually nonexistent, but anemic demand drove vacancies upward.

Despite the first quarterly decline in vacancy since 2005, Reis is not yet convinced that a recovery for shopping centers has commenced. However, this says just as much about the limited increases in supply as it does about resurgent demand. New completions remain near historically low levels. With such low levels of supply growth, any semblance of healthy demand would have pushed vacancy rates downward in a more pronounced fashion. ... With construction projected to remain at low levels, Reis expects vacancies to begin moving downwards slowly in 2012 as demand for space slowly begins to return.
...
Regional malls posted relatively healthy results in the first quarter, with national vacancies declining by 20 bps to 9.0% This was the second consecutive quarter of vacancy declines. Asking rents grew by 0.2%, marking the third consecutive quarter of rent increases. Although regional malls are faring better then neighborhood and community centers at this juncture, this has as much to do with supply as demand. While demand for malls, particularly higher‐quality malls, is arguably stronger than demand for neighborhood and community center space, regional malls did not experience massive supply increases before the recession the way neighborhood and community centers did. In fact, the first new regional mall in the U.S. in six years opened during the first quarter of 2012.

The outlook for 2012 remains muddled. Although demand appears to be gathering strength, the developments are not uniformly positive. Best Buy recently announced that it was closing 50 big‐box stores, but opening 100 new, smaller Best Buy Mobile stores. Although the net effect is a reduction in occupied square footage, it will have a detrimental impact on power centers while benefitting other subtypes such as regional malls.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the '00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to a higher vacancy rate even before the recession, and then a sharp increase during the recession and financial crisis.

Mall investment has essentially stopped following the financial crisis.

The good news is, as Severino noted, mall "completions remain near historically low levels", and the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

Yesterday:
• Summary for Week Ending April 6th
• Schedule for Week of April 8th

by Calculated Risk on 4/08/2012 09:09:00 AM

From Eric Wolff at the North County Times: 'This is crazy': Home ownership cheaper than renting

Monthly payments on a house are now cheaper than monthly rents on a similar house in most of North San Diego and Southwest Riverside counties, according to an analysis of county-supplied and Realtor data by the North County Times.

... prices for houses plummeted and interest rates fell below 4 percent, a 40-year low. The combination of factors has created a house market in North San Diego and Southwest Riverside county in which homeowners are getting a better deal than renters, at least after they've paid their down payment.

"I don't think this has ever happened before," said G.U. Krueger, a principal economist for HousingEcon.com. "It's a function of the huge housing price collapse which has left a lot of people in the lurch."

Or, as Carlsbad real estate agent Tyson Lund put it: "This is crazy."
...
There are, of course, a host of caveats not included in the calculation. The analysis does not amortize the down payment on the house, nor does it include the maintenance costs that homeowners accrue to keep their homes in good repair, though many economists argue the mortgage interest tax deduction offered by the federal government balances those expenses. Still, the calculation depends on a homebuyer having enough money to make a down payment, and sufficient credit to get a loan. In 2011, banks raised the bar on those to whom they'd lend, making it difficult for many people to get mortgages. ... "If rates were back to 5.5 percent or 6 percent, then the mortgages become more expensive than rents. I would not call 4 percent a normalized housing market," [Nathan Moeder, a principal at The London Group] said in an email. "Today, people are able to afford more home because of the interest rates."

These comparisons aren't perfect, however the price-to-rent ratio (that doesn't include interest rates) is back to normal too, so stories like this aren't a surprise.

by Calculated Risk on 4/07/2012 08:17:00 PM

HUD Secretary Shaun Donovan will be on C-SPAN Sunday morning (see here).

Here are some comments on Fannie and Freddie principal reductions:

Q: Why should Fannie and Freddie be forced to do write-downs?

DONOVAN: This isn’t about force. This is about making the right decision for homeowners and for the taxpayer. We believe and there is a lot of agreement, many economists, those who have looked closely at this data who believe where you have someone who is deeply underwater, where you’re in a situation where there is really no light at the end of the tunnel, no sense that even if you’re paying your mortgage for three, four, five years or even a decade, that you’ll get back to building equity again. Families will give up at some point. We think the data shows that. Really the issue here is about the numbers and the analysis and whether this is not only good for homeowners but also good for the taxpayer. And we believe with the changes that we’ve made over the last few months that the case is compelling. And my experience with Ed DeMarco is whatever his personal feelings are, he is dedicated to making sure that he follows the law and what the conservator is required to do. And we believe based on the analysis that we’ve done that the evidence is that principal write-downs should happen in cases where it’s not only good for the homeowner but also good for the taxpayer.

Q: Three out of four deeply underwater borrowers with loans backed by Fannie and Freddie are paying. How concerned are you that some of those borrowers may stop paying if you offer debt reduction to borrowers who are delinquent?

DONOVAN: The vast majority of homeowners don’t operate that way. They know that their home is where they’re going to raise their kids. They’re part of a community there. The home is much more than an investment. And so we really know this from studies we’ve done, that the vast majority of folks, these families, aren’t going to just put all of that at risk to default on purpose on their homes.

And so what we’re really talking about is a small group of folks, maybe demographically single folks who aren’t giving up those same things, who see that there may be from defaulting that you know they could move across the street or other things. So there is a small group. But we shouldn’t punish the vast majority of folks where strategic default isn’t really a risk, just to fix what may be really a risk with a small percentage.

This isn’t that hard a problem to design around. Take the mortgage-servicing settlement that we recently reached. In that case what we’re doing is putting in place protections so that we avoid some of the risks of strategic default. For example, in that case many of the servicers are simply going to set a date at which you’re eligible based on delinquency and what that means is there’s nothing you can do. You can’t make yourself eligible. You can’t start to default on your mortgage and all of a sudden start to get a windfall from that by getting a principal reduction. And so while I understand the concerns about this, I think one the vast majority of homeowners are not at risk for strategic default. And two, even for those where there is some risk, there is a way to design it so that … it avoids those risks.

A few days ago, FHFA acting director Edward DeMarco said:

[W]e are currently evaluating the recent Treasury Department proposal to HAMP regarding principal forgiveness and expect a decision this month.

So a decision will probably be made very soon.

Earlier:
• Summary for Week Ending April 6th
• Schedule for Week of April 8th

by Calculated Risk on 4/07/2012 05:25:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for April 6, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Quiet week for the Unofficial Problem Bank List as there were only two removals. The changes leave the list with 946 institutions with assets of $376.5 billion. A year ago, the list 982 institutions with assets of $433.2 billion. The action against First Savings Bank Northwest, Renton, WA ($1.0 billion Ticker: FFNW) was replaced by an informal action and Pilsen State Bank, Lincolnville, KS ($11 million) was dissolved through an unassisted merger.

With the passage of the first quarter of 2012, it is time to update the Unofficial Problem Bank List transition matrix. The list debuted on August 7, 2009 with 389 institutions with assets of $276.3 billion (see table). Over the past 32 months, 230 institutions or about 59 percent of the institutions on the original list have been removed with 137 from failure, 71 from action termination, 20 from unassisted merger, and two from voluntary liquidation. About 35 percent of the 389 institutions on the original list have failed, which is substantially higher than the 12 percent figure usually cited by the media as the failure rate for institutions on the FDIC Problem Bank List.

Since the publication of the original list, another 1,122 institutions have been added. However, only 789 of those additions remain on the current list as 333 institutions have been removed in the interim. Of the 333 inter-period removals, 178 were from failure, 72 were from an unassisted merger, 78 from action termination, and five from voluntary liquidation.

In total, 1,511 institutions have made an appearance on the Unofficial Problem Bank List and 315 or 20.8 percent have failed. Of the 563 total removals, the primary way of exit from the list is failure at 315 institutions or 56 percent. Only 149 or around 27 percent have been able to rehabilitate themselves to see their respective action terminated. Alternatively, another 92 or nearly 16 percent found merger partners most likely to avoid failure. Total assets that have appeared on the list amount to $789.8 billion and $282.3 billion have been removed due to failure. The average asset size of removals from failure is $896 million.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	71	(19,039,409)
	Unassisted Merger	20	(3,401,337)
	Voluntary Liquidation	2	(4,855,164)
	Failures	137	(178,872,611)
	Asset Change		(14,066,292)
Still on List at 3/31/2012		167	56,078,616
Additions		789	321,473,577
End (3/31/2012)		948	377,552,193
Intraperiod Deletions1
	Action Terminated	78	44,376,836
	Unassisted Merger	72	42,937,646
	Voluntary Liquidation	5	1,259,188
	Failures	178	103,460,185
	Total	333	192,033,855
1Institutions not on 8/7/2009 or 3/31/2012 list but appeared on a list between these dates.