foreclosure report

From The Daily Capitalist

Existing Home Sales

Today's report that existing housing sales plummeted 27% in July should not come as a surprise.

Consider the fact that we are coming off of the greatest boom-bust credit cycle in world history. The focus of that cycle was residential housing which resulted in massive overbuilding of homes. Now we are seeing the inevitable result of the housing boom — the housing bust which requires the liquidation of this malinvestment.

From 2001 to 2006 housing starts jumped 40%, from about 1.6 million units per year to 2.250 million units per year. That period coincided with a massive expansion of the money supply by the Fed. When the cheap money stopped, the ride ended, and projects that, but for the cheap money were unprofitable, went broke.

The liquidation phase is never pretty but it is necessary for recovery. And that is why the government has been unable to prop up the housing market, except temporarily though tax credits. You can't push a string as they say, and the inevitable process of liquidation is continuing after the tax credits expired in April.

According to the National Association of Realtors report, demand for existing single-family housing dropped to a 15 year low. The 27% drop was the biggest one-month drop since 1968. Sales dropped 29.5% in the Northeast, 22.6% in the South, 25% in the West, and 35% in the Midwest. June sales figures were revised downward to 5.26 million homes from 5.37 million previously reported.

Courtesy The Wall Street Journal

The important existing inventory index increased to 12.5 months from 8.9 months. Which means it will take a year to sell off existing inventory, a substantial jump and a significant problem for the market. Normal inventory is a 4 to 6 months supply. While prices had appeared to have stabilized (median home prices rose 0.7% to $182,600 in July) because of the tax credits and speculator competition for foreclosure sales, this inventory glut will put negative pressure on prices. Ultimately I believe foreclosure speculators will create a floor under prices (based on the level of activity I have seen), so I don't think the downside will be drastic.

Jobs Reports

Last week's report on initial claims showed a MoM jump of 25,000 claimants, a 6% increase over the previous week. The 500,000 claims was a 9-month high. Initial claims had dropped to 439,000 in February, 2010, then flattened out showing a stalled recovery, and has been climbing since July.

A brighter statistic was that continuing claims were down 13,000 for the week of August 7. The four-week average is 4.527 million, the lowest since the peak in March, 2009.

Courtesy The Wall Street Journal

The bulk of job cuts have been in small companies:

Tomorrow the Q2 GDP revision will be released, Fed Chairman Ben Bernanke will speak at the Jackson Hole conference, and perhaps the FDIC will release the Q2 Quarterly Banking Profile ...

From Binyamin Applebaum at the NY Times Economix: An Autopsy of Fannie Mae and Freddie Mac

Here’s a last-minute option for summer reading material: An autopsy on Fannie Mae and Freddie Mac by their overseer, the Federal Housing Finance Agency.

The report aims to inform the continuing debate in Washington about the future of the government’s role in housing finance. It’s not hard sledding, just 15 pages of bullet points and charts. And it does a good job of making a few key points:

1. Fannie and Freddie did not cause the housing bubble. ...

2. This was not for a lack of trying. ...

3. Importantly, the companies’ losses are mostly in their core business of guaranteeing loans, not in their investment portfolios.

From the Atlanta Fed: Financial Highlights

Click on graph for larger image in new window.

From the Atlanta Fed:

Peripheral European bond spreads (over German bonds) have risen since the August FOMC meeting.

In fact the Greece-to-Germany, and the Ireland-to-Germany, bond spreads are near the levels reached during the May financial crisis.

Here is my post on the MBA Q2 delinquency report: 14.42% of Mortgage Loans Delinquent or in Foreclosure . This graph (from the earlier post) shows the delinquency rate by "bucket" (30 days, 60 days, 90+ days, and in foreclosure process):

The total percent of loans delinquent or in the foreclosure process declined only slightly in Q2 from Q1 - and the rate is the second highest on record.

Loans 30 days delinquent increased to 3.51%, and this is about the same levels as in Q4 2008 (slightly below the peak of 3.77% in Q1 2009).

Delinquent loans decreased in all other buckets - especially in the 90+ day bucket. MBA Chief Economist Jay Brinkmann suggested the decline in the 90+ day bucket was because of some successful modifications - since the lenders reported the loans as delinquent until the modification was made permanent.

CoreLogic reports on negative equity in Q2. Here is my earlier post CoreLogic: 11 Million U.S. Properties with Negative Equity in Q2

This graph shows the negative equity and near negative equity by state.

Although the five states mentioned above have the largest percentage of homeowners underwater, 10 percent or more of homeowners with mortgages in 33 states and the D.C. have negative equity.

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