Saturday, July 14, 2012

Weekend links


 1--Housing Market Continues to Show Strength, CEPR

May sales were contracted in March and April. The prior months had seen unusually high levels of sales due to unusually good winter weather across much of the country. For this reason we should have expected a sharp falloff in sales in May. Instead, May sales were down by only 1.5 percent from their April level. They were 9.6 percent above the May 2011 level.

In fact, the 4,550,000 sales rate reported for May is really about as high as we should expect sales to go. The sales rate in the mid-90s, before the bubble began distorting the market, was less than 3.5 million. The population has increased by less than 20 percent over this period, which means that we should expect annual sales of less than 4.2 million if the sales-to-population rate had remained constant. New home sales are down by around 200,000 from their mid-90s level, but this still puts current sales levels at or above the long-term trend. Those who expect further increases in sales from current levels have their eyes on the bubble, not the longer trends in the U.S. housing market.

The price data in this report were also striking. These data are erratic and are often moved by a change in the mix of homes for sale, but nonetheless the May data showed the third straight large monthly price gain. The median house price in May was 17.3 percent above its February level and 7.9 percent above its year-ago level.

Permits for single family homes were up 4.0 percent in May from their April level and were 19.9 percent above their year-ago level. This is the highest rate of construction since early 2010 when the first-time buyers’ credit was temporarily boosting the market. Also, new home sales in May were at their highest level since the end of the first-time buyers’ tax credit caused a surge in April of 2010.

2--Record ECB borrowing by Spanish banks, IFR

Spanish banks increased their ECB borrowing further in June to €365bn from €325bn in May. The breakdown shows that much of the increase came via an increasing reliance on MROs with borrowing via this window up from €9.2bn in May to €45bn in June. LTRO borrowing on the other hand went up marginally from €315bn to €320bn.

3--RealtyTrac, CoreLogic Confirm Housing Bear Thesis: 85-90% of REO Being Held Off Market, Meaning “Tight” Inventories Are Bogus, naked capitalism

From AOL’s Real Estate blog, “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest“:

As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole.

Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said.

Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration. As of April 2012, 390,000 repossessed homes sat in limbo, while about 39,000 were actually listed for sale, said Sam Khater, senior economist at CoreLogic.

Daren Blomquist, vice president of RealtyTrac, said that he was surprised by his company’s finding, especially since a similar analysis in 2009 found that banks were attempting to sell nearly twice as much of their REO inventory back then.

And the article presents the obvious conclusion, that keeping homes off the market is leading to higher prices than you’d see if they were put up for sale:

In fact, if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.

“If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy,” he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.

That doomsday scenario has many industry professionals supporting lenders’ tactics of holding onto most of their REOs. Otherwise, they would be “causing the floor to fall out from underneath the entire market,” Faranda said. He added that banks don’t have the manpower to push the paperwork required to put all their foreclosures on the market.

4--White House gives Homeland Security control of all communication systems, RT

The White House has finally responded to criticism over US President Barack Obama’s hushed signing last week of an Executive Order that allows the government to command privately-owned communication systems and acknowledges its implications.

When President Obama inked his name to the Assignment of National Security and Emergency Preparedness Communications Functions Executive Order on July 6, he authorized the US Department of Homeland Security to take control of the country’s wired and wireless communications — including the Internet — in instances of emergency. The signing was accompanied with little to no acknowledgment outside of the White House, but initial reports on the order quickly caused the public to speak out over what some equated to creating an Oval Office kill switch for the Web. Now the Obama administration is addressing those complaints by calling the Executive Order a necessary implement for America’s national security.

“The [order] recognizes the creation of DHS and provides the Secretary the flexibility to organize the communications systems and functions that reside within the department as [Homeland Security Secretary Janet A. Napolitano] believes will be most effective,” White House spokeswoman Caitlin Hayden tells the Washington Post.

Hayden insists that “The [order] does not transfer authorities between or among departments,” but the order does indeed allow the DHS to establish and implement control over even the privately owned communication systems in the country, including Internet Service Providers such as Time Warner, Verizon and Comcast, if the administration agrees that it is warranted for security’s sake.

Immediately after last week’s signing, the Electronic Privacy Information Center (EPIC) said the order allowed the DHS "the authority to seize private facilities when necessary, effectively shutting down or limiting civilian communications."

5--The Market Has Spoken – And It Is Rigged, Baseline Scenario

6--Attack of the Central Banks Points to Impending Recession, economic populist

The Central Banks went on the move. Within 45 minutes of each other, the ECB lowered interest rates, the Chinese central bank did too and the U.K. just enacted more glorified quantitative easing. BoE increased their asset purchases by £50 billion to a grand total of £350 billion.

While it appears we have a global, coordinated plan of attack by Central banks, one might also notice we have a global coordinated plan to counter an economic slowdown. In other words, by all acting in concert, this gives more confirmation that we have a global economic mini-implosion going on.

We already know a U.S. recession is projected for 2013. The IMF not only scolded the United Statesbut also is warning on a global economic growth downgrade, coming to a press release near you on July 16th.

“The United States remains vulnerable to contagion from an intensification of the euro area debt crisis, which would be transmitted mainly via a generalized increase in risk aversion and lower asset prices, as well as from trade channels” said IMF Managing Director Christine Lagarde during a press conference in Washington, D.C.

On the domestic front, failure to reach an agreement on near-term tax and spending policies would trigger a severe “fiscal cliff” in 2013, threatening the recovery, she added. Lagarde made these remarks after joining the final policy discussions.

The IMF expects U.S. growth to remain modest during the next two years, constrained by housing difficulties, the expiration of fiscal stimulus measures, and continued low global demand, particularly in Europe. Growth is projected at 2 percent in 2012 and about 2¼ percent in 2013.

Seems generally the globe is preparing for yet another economic slowdown. In other words, things are not going to get better, things are going to get worse.

We've already seen a slew of economic reports showing declines not seen for three years. Earlier the FOMC downgraded the economy as well.

Europe is probably already in a recession and China's mercantile trade practices might be hitting a wall:

7--Price Declines Inevitable for Many States Due to Backlog: Agency, DS News

Based on its database, YouWalkAway.com foresees an inevitable decrease in property values due to backlog and delays in processing foreclosures.

The foreclosure agency said that 40 percent of its client base comes from California and Florida. In these states, the years’ worth of backlog building up could ultimately be detrimental to the regions’ housing markets, the agency said.

For example, in Florida, 45 percent of YouWalkAway.com clients are in pre-foreclosure status, and on average, they are 17 months past due and still have not received their first formal foreclosure notice.
In California, 59 percent of the agency’s clients are in pre-foreclosure status, and on average, they are 15 months behind and still haven’t received a foreclosure notice.

“Eighty-five percent of the homeowners we’re working with are in pre-foreclosure and have not made a mortgage payment for an average of 14 months,” said YouWalkAway.com CEO Jon

8--Unfriendly Fire, How the Taliban mastered the operational art of modern war, American Conservative

... The Taliban’s response has been to have men in Afghan uniform— many of whom actually are Afghan government soldiers or police—turn their guns on their NATO advisers. That is a fatal blow against our strategy because it makes the training mission impossible. Behold operational art in Fourth Generation war.

According to a May 16 article by Matthew Rosenberg in the New York Times, 22 NATO soldiers have been killed so far this year by men in Afghan uniforms, compared to 35 in all of last year. The report went on to describe one incident in detail—detail NATO is anxious to suppress. There were three Afghan attackers, two of whom were Afghan army soldiers. Two Americans were killed. The battle—and it was a battle, not just a drive-by shooting—lasted almost an hour....

The Taliban know this technique is operational, not just tactical. They can be expected to put all their effort into it. What counter do we have? Just order our troops to pretend it is not happening—to keep trusting their Afghan counterparts. That order, if enforced, will put our soldiers in such an untenable position that morale will collapse.

So powerful is this taste of Taliban operational art that Washington may fear the example it sets. During a recent visit by Secretary of Defense Leon Panetta to Afghanistan, no American soldiers were allowed to get near him with loaded weapons. Might the Pentagon be worried that our own troops could learn from the Taliban? Were I an American soldier who had been told to hand over or unload his weapon before approaching Secretary Panetta, I would certainly have read it that way.

9--The housing bottom consensus could be very wrong, OC Housing

... although delinquency rates are dropping, they are still almost double their historic norms. Delinquency precedes foreclosure, and foreclosure rates are still 10 times historic norms, and these rates are not dropping. In fact, we have not yet turned the corner on foreclosures...

The reason foreclosure rates are so high and likely to stay there is because lenders are yet to empty the enormous reservoir of shadow inventory.Until these delinquent borrowers are removed from these properties through short sale or foreclosure, these sales will continue to pressure home prices...

Lenders believe they can correct the negative equity problem by raising prices. With the dramatic slowdown of lender liquidations of late, they have been making some progress, but unless they are going to let millions of delinquent borrowers squat until prices rise back up to the peak, the liquidations of REO from processing their previous bad loans will keep prices from rising to far too fast. How does a market bottom in the face of such a large quantity of short sales and foreclosures?

Perhaps lenders are counting on resurgent demand? The only problem is this demand does not exist. Look carefully at the graph of purchase applications. Do you see an increase in demand?

So think about what these eminent economists are saying. Because inventory has been withheld from the MLS by bank artifice and prices have ticked up slightly, we should all ignore the problems with high delinquency rates, high foreclosure rates, an enormous reservoir of shadow inventory, and weak demand. Hmmm… Does that make sense to you?...

f you look at the existing home sales chart on the right, you see that sales volumes are still about 10% lower than 2000 and about 35% below the sales volumes at the peak. Sales have not surpassed the tax-credit induced nonsense of the bear rally....

 In 2009, single-family starts fell to the lowest level recorded since 1958 when records were first tallied. Since 2009, starts have remained in the doldrums. The nearly indistinguishable uptick in 2012 has not surpassed the bear rally of 2010, and is still nearly 50% below the lowest low recorded over the 50 years prior to the collapse of the housing bubble.

A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t. ...

t’s worth pointing out here again that most economists who quote the percentage underwater figures use Zillow’s estimate based on the current value as compared to the original first mortgage. Zillow does not take into account subsequent refinances or second mortgages, nor does it allow for transaction costs to get out of the property. The true percentage of underwater loanowners is closer to 50% with beaten down markets having much, much higher rates....

From WSJ: Plenty could go wrong. The biggest threat is a large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. 

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