foreclosure sales

This week's shocking existing home sales and new home sales data are a reminder that government support for the housing market is starting to unwind. The bad data we saw this week was just the beginning of a 'hangover' from our recent housing stimulus binge:

Goldman's Jan Hatzius:

The effect of federal mortgage modification programs has also started to wane. Data reported from the Treasury this week indicate that the number of canceled modifications in the Home Affordable Modification Program (HAMP) jumped significantly, while the rate of new modifications has declined to a fraction of the previous pace. Most of these loans have not yet entered foreclosure, and it appears that many will enter non-federal modifications. That said, the effect of this program is nevertheless starting to reverse, from one that absorbed would-be distressed supply from the market, to one that will at some point add it back.

But we still have ultra-low mortgage rates... (In fact, the lowest mortgage rates ever in recorded history)

The third source of policy support for the housing market-low mortgage rates-remains intact, however. While the conforming spread has risen by roughly 30bps from its low point at the end of the Fed's MBS purchases in March, it is still significantly below normal levels. Since most of the effect of the Fed's purchases appears to come from the stock of MBS holdings, we don't expect this source of support to fade soon. However, GSE reform discussions that get underway later this year and become more intense early in 2011 could present a new risk to this last source of temporary policy support.

Still, as government support fades, Goldman is forecasting falling housing prices out to 2012:

Last year, we estimated that federal housing policies-the homebuyer tax credit, mortgage modification programs, and the Fed's MBS purchases-boosted house prices by about 5%, with the implication that the fading of these policies would lead to renewed price declines in 2010. Earlier this month we updated our house price forecast; we expect a 3% decline in the Case-Shiller 20-city index this year and another 1% in 2011 (see Jari Stehn, "House Prices Have Not Bottomed Yet", US Economics Analyst 10/22, June 4, 2010). Reports this week back up the notion that the first two of these supports have begun to fade, though the third remains largely intact:

The homebuyer tax credit hangover is happening:

Collapsing mortgage applications presaging collapsing existing home sales...

Collapsing new home sales...

Basically, don't be surprised if home prices go nowhere, at best, for a long time.

(Via Goldman Sachs, The Unwinding Of Federal Housing Stimulus Is Underway, Jan Hatzius, 23 June 2010)

Citing reduced electrical demand American Electric Power will keep 10 units off line most of the year.

American Electric Power Inc., one of the nation's biggest power generators, says 10 of its smaller, coal-fired generating units will remain off line for much of the year because of lower demand for electricity.

The company said the units will be kept in "extended startup status," during off-peak months beginning Tuesday. The plan will allow the company to redeploy workers at several coal-fired units projected to run less frequently over the next few years.

During peak months of July, August and January, these units will be available as they have been in the past.

The recession has dampened demand for electricity, especially from industrial customers. Electricity demand fell for the past two years, the first time that has happened since 1949.

Price Wars at Walmart

Inquiring minds note Wal-Mart cuts prices to boost sales.

Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to re-ignite sales in America.

The sharp cuts at U.S. stores, which came ahead of the Memorial Day holiday weekend, have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.

Wal-Mart is bearing the cost of some of the deep price cuts, not its suppliers, according to Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC, based on discussions with industry officials.

According to Pecoriello, on a basket of five food items, from Coke to Lay's potato chips, the total price was $11.23 at Wal-Mart, 24 percent less than it was a year ago. It's also almost 14 percent lower than Kroger and almost 26 percent lower than Safeway, according to Pecoriello's estimates. The firm gathers pricing data representing 15,000 stores across the country.

That doesn't include Wal-Mart's move to lower cans of name-brand Coke and Pepsi further in the past few days, from the announced discounted price of $5 to as low as $3.77 in certain markets. The original price was $6.98 for a 24-pack.

Pecoriello noted in his report that Target was selling 12 packs of soda for $2, roughly matching Wal-Mart's price, while Kroger was selling 12 packs for $2.50, less than a year ago.

When an item you like is on sale, buy 5-10 times as much of it as you normally would, making a point to only buy items on huge sales. Otherwise, If you mind the price of meat, most everything else will take care of itself.

Please get a freezer for storing meat. Sale prices on meat have not gone up for a decade. Food is a tremendous bargain.

Foreclosure Life Raft

Sales at Walmart and Target are chicken feed compared to having a mortgage and not paying it. Please consider Owners Stop Paying Mortgage ... And Stop Fretting About It

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

For borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’”

One and a Half Years of Not Paying Rent

The average length of time for the foreclosure process in Florida and New York is over 18 months. For Mr. Tsiogas who stopped paying $2,500 a month, that comes to $45,000 in found money.

That's quite a chunk of change to spend at Walmart or better yet to save up for a few year's rent when you finally do lose your property.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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