by Calculated Risk on 4/12/2012 04:01:00 PM

This is from real estate analyst G.U. Krueger in the O.C. Register: Analyst: Rent hikes turning renters into buyers

USC’s 2012 Casden Multifamily Forecast predicts two more golden years of apartment Southern California rent growth. The sky seems to be the limit for ecstatic landlords right now.

However, emphatic landlords raising rents with gusto could tip the cost of housing in favor of ownership while at the same time a supply response (more construction) could keep vacancy rates from dropping much further.
...
The “witching hour” for apartment rents may not be far off. The relative cost between rentals and ownership advances in favor of home purchases.

Click on graph for larger image.

CR: The price-to-rent ratio is close to normal (see: Real House Prices and Price-to-Rent Ratio decline to late '90s Levels )

As G.U. notes, rising rents and falling house prices will eventually tip the balance back to ownership.

by Calculated Risk on 4/12/2012 01:21:00 PM

I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

So far there has been a shift from REO to short sales, and the percentage of distressed sales has been declining year-over-year. This data would suggest improvement, however we do not know the impact of the mortgage settlement yet (the court signed off on the agreement last week).

In March 2012, 59.6% of all resales (single family homes and condos) were distressed sales. This was down from 70.7% in March 2011, and the lowest percentage of distressed sales since Sacramento started breaking out the data in May 2008. Still almost 60% distressed is extremely high!

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales. There is a seasonal pattern for conventional sales (stronger in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales decreases every summer and the increases in the fall and winter.

There will be probably be more foreclosures following the mortgage servicer settlement, but this is still a sharp increase in conventional sales. In another change, short sales are almost at the same level as REOs.

Total sales were down 2.9% compared to March 2011, but conventional sales were up 34% year-over-year. Active Listing Inventory declined 59.5% from last March, and total inventory, including "short sale contingent", was off 31% year-over-year.

Cash buyers accounted for 32.0% of all sales (frequently investors), and median prices were unchanged from last March (mean prices were up 2.8%).

I've been hoping this data would help determine when the market is improving. Unfortunately the mortgage settlement is a big unknown. Otherwise this would be considered progress, although the market is still in distress.

A few key points:
• Inventory is off sharply year-over-year even including "short sale contingent" listings.
• Conventional sales are up sharply (up 34% from March 2011).
• The median sales price is unchanged from last year (probably because of fewer REOs), and the mean price is up 2.8%.
• This is the lowest percentage of distressed sales since the Sacramento Association started breaking out distressed sales.

We are seeing similar patterns in other distressed areas. This will be interesting to watch over the next few months to see the impact of the mortgage settlement.

by Calculated Risk on 4/12/2012 11:42:00 AM

In FHFA acting director Ed DeMarco's speech on Tuesday, he discussed the risk of "strategic modifiers". Felix Salmon and I have been discussing this via email. Here is Salmon's post this morning: Ed DeMarco and the spectre of strategic modifiers

A couple of definitions: A "strategic defaulter" is a borrower who is underwater on their home mortgage (they owe more than the house is worth), and who is willing to walk away from their home, even though they have the capacity to make the payments. Strategic defaulters intend to go to foreclosure - and probably will - even if offered a modification.

A "strategic modifier" is a borrower who intends to stay in their home, but is willing to miss some payments to qualify for a loan modification.

Salmon writes:

I don’t believe that the problem of strategic modifiers (over and above the problem of strategic defaulters) is likely to be huge. One reason is that I’ve been writing about the upside of strategic default for a long time, and it really hasn’t caught on, outside a few second homes and the like. Strategic default is not something that Americans like to do, and one of the main reasons is that they really care about their credit rating. Even if a strategic modifier keeps her house, she’ll suffer the same hit to her credit rating as a strategic defaulter would. And people don’t like that at all.

I disagree somewhat. First, someone who goes to foreclosure will take a much larger hit to their credit than someone who misses a few payments. So there is a difference - "strategic modifiers" will not take the same credit hit as "strategic defaulters".

Second, I think most people feel an obligation to pay their mortgage, if they can, even if they owe more than their home is worth. But some of those same people will be willing to stand in the "free money" line (principal reduction), even if that means missing a few payments.

So, depending on the guidelines, I think there will be a higher percentage of "strategic modifiers" than "strategic defaulters".

Salmon concludes:

[L]et’s try principal reductions in the real world, and see what happens. If they turn out to be incredibly expensive, then we can revisit the issue. But my guess for the most likely outcome is not a wave of strategic modifiers. Rather, it’s that the program turns out to be much like all other government attempts to deal with underwater borrowers: a damp squib where very little happens at all.

I think some sort of principal reduction program will be announced, with tight guidelines, but I agree with Salmon, I expect the program will have little impact.

by Calculated Risk on 4/12/2012 09:09:00 AM

The Department of Commerce reported:

[T]otal February exports of $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January, revised. February exports were $0.2 billion more than January exports of $180.9 billion. February imports were $6.3 billion less than January imports of $233.4 billion

The trade deficit was well below the consensus forecast of $51.7 billion.

The first graph shows the monthly U.S. exports and imports in dollars through January 2012.

Click on graph for larger image.

Exports increased slightly in February, while imports decreased sharply. Exports are well above the pre-recession peak and up 9% compared to February 2011; imports are near the pre-recession high and imports are up about 8% compared to February 2011.

The second graph shows the U.S. trade deficit, with and without petroleum, through February.

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.

Oil averaged $103.63 per barrel in February, down slightly from January. The decline in imports was a combination of less petroleum imports and less imports from China.

Exports to the European Union were $22.5 billion in February, up from $20.0 billion in February 2011.

by Calculated Risk on 4/12/2012 08:30:00 AM

The DOL reports:

In the week ending April 7, the advance figure for seasonally adjusted initial claims was 380,000, an increase of 13,000 from the previous week's revised figure of 367,000. The 4-week moving average was 368,500, an increase of 4,250 from the previous week's revised average of 364,250.

The previous week was revised up to 367,000 from 357,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 368,500.

The 4-week moving average has been moving sideways at this level for about two months.

And here is a long term graph of weekly claims:



This is the highest level for weekly claims since January.

All current Employment Graphs