HousingWatch

Jobless Rate Little Changed in February

Bendix Anderson — 2010-03-05T14:50:00 00:00

Big news on unemployment: the unemployment rate stayed put at 9.7 percent in February, according to today's release from the federal Bureau of Labor Statistics.

That's a pleasant surprise. Economists expected the unemployment rate to rise to 9.8 percent, after winter storms in February kept many construction and retail workers home.

But if you are among the many people worried about hordes of unemployed borrowers falling further behind in their mortgage payments, potentially leading to millions of new home loan foreclosures later this year, then today's news provides little reassurance.
The jobless recovery predicted by economists continues to limp forward. While bankers' bonuses, the stock market, and the gross domestic product have all recovered to varying degrees over the last year, the unemployment rate continues to wobble close to its worst rate in decades.

The 9.7 percent unemployment rate translates to 14.9 million unemployed people out there pounding the pavement. Another 8.8 million people are working part-time for lack of a full-time job, an increase of half a million from January. And an additional 1.2 million people are what federal officials call "discouraged workers" who want jobs but have give up looking.

Total non-farm payroll employment fell by 36,000 in February. Some media outlets have made these tens of thousands of lost jobs the focus of the story -- the New York Times put it in their headline. Employment in the construction and information industries fell while temporary help services added jobs. But the total change in the number of payroll jobs is tiny compared to the labor market overall.

Since the start of the recession in December 2007, payroll employment has fallen by 8.4 million.

In a bit of good news, initial claims for unemployment, reported Thursday by the U.S. Department of Labor, showed improvement.

For the week ending February 27, the seasonally adjusted rate of initial claims for unemployment was 469,000. That's down from 498,000 the week before. California, North Carolina, and Florida saw the biggest reductions in initial unemployment claims.

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Home Buyers Stayed Home This Winter

Bendix Anderson — 2010-03-04T15:10:00 00:00

Filed under: News, Economy

Looking to buy a home? You probably didn't have a lot of competition last January. The number of people who signed contracts to buy homes shrank as cold weather and a slack economy kept many potential buyers home, according to the Pending Homes Sales Index, created by the National Association of Realtors.

The Pending Home Sales Index fell 7.6 percent to 90.4, from an upwardly revised 97.8 in December. Analysts had expected a slight rise. January was the third month in a row that the index has been flat or falling.

That means fewer people bidding up home prices -- bad news if you're selling, but good news if you're in the market to buy.
Economists expect the weak market to pick up in the spring as the federal homebuyer tax credit expires again. "We will see weak near-term sales followed by a likely surge of existing-home sales in April, May and June," says Lawrence Yun, NAR chief economist.

However Yun has been disappointed before. "January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit," he says.

Yun blames January's low volume of pending home sales on the "abnormally severe and prolonged winter weather."

The Pending Homes Sales Index measures the volume of contracts signed to purchase homes. It's usually a good indicator of how many homes will be sold in the coming months, since homebuyers who break contracts to buy home risk losing their deposits. More than 80 percent of pending home sales close within two months.

An index level of 100 is equal to the average level of contract in 2001, the first year recorded by the index.

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Jobless Recovery Says Beige Book

Bendix Anderson — 2010-03-04T09:30:00 00:00

Filed under: News, Economy

The economy is strengthening in most parts of the U.S. -- but the recovery isn't translating into new jobs, according to the Beige Book report released today by the Federal Reserve.

That doesn't bode well for the housing market, since long term unemployment is one of the top reasons homeowners are still losing their homes to foreclosure, and foreclosure is still the biggest threat on the horizon for the housing recovery, according to many experts.

But the report showed strengthening demand in the residential real estate market -- at least for low-priced homes.
The Beige Book report collects anecdotal information on the economy from the 12 Federal Reserve districts. Nine of those report that economic activity improved since the last Beige Book report released January 13, though in most cases the improvements were modest.

The districts that did not participate in the modest growth included the Atlanta and St. Louis districts, where economic conditions were mixed, and the Richmond region, were economic activity was soft.

Residential real estate was a bright spot in the Fed's survey - though with a warning. "Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30," notes the report.

Sales were highest for lower-priced homes in the districts of Philadelphia, Cleveland, Kansas City, and Dallas. Most of this activity seems to represent a clearing out of existing homes, not sales of new homes. For example, the construction of new homes was down or stagnant in most districts except for Minneapolis, Kansas City, and Dallas, which showed strengthening home construction.

In keeping with the demand for low-prices homes, home prices mostly remained flat or declined slightly, though signs of improvement were noted in the Boston and San Francisco districts.

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New Home Sales Hit Record Low

Bendix Anderson — 2010-02-25T15:00:00 00:00

Filed under: News

The number of new single-family houses sold hit a record low in January, according to the U.S. Dept. of Commerce, raising new questions about the already shaky recovery of the housing markets.

"The road to a housing and economic recovery remains very uncertain," says David Crowe, chief economist for the National Association of Home Builders. "Competition from below-market-priced foreclosed and short-sale homes poses an additional challenge to the new-homes market right now.

New homes sold in January at a seasonally adjusted annual rate of 309,000. That represents a drop of more than 10 percent from the annualized rate of sales in December of 348,000 a year, and a more than 6 percent drop from January 2009's rate of 329,000 homes.
Over the last year, the housing market seemed to be recovering, and the rate of new home sales increased, especially over the summer, topping an annualized rate of 400,000 for several months.

Still, that pales next to the velocity of home sales during the boom: 1,051 new homes were sold in 2006.

Crowe expects new home sales to pick up this spring, as the federal homebuyer tax credit nears its latest expiration date. However, he says, "unseasonably poor weather across much of the country may delay the full impact of those incentives until closer to the deadline.

In the meantime, the inventory of new homes on the market continues to shrink. The seasonally adjusted estimate of new houses for sale at the end of January was 234,000. At the rate that new homes sold in January, it would take nine months to sell all those houses.

The inventory of new homes on the market has been dropping steadily since the end of the real estate boom. In January 2007 there were 536,000 new home for sale -- a 6.8-month supply at the rate of sales back then.

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Foreclosure Prevention Gains Traction

Bendix Anderson — 2010-02-23T16:46:00 00:00

Filed under: News

The biggest federal program to fight home loan foreclosures is finally making some progress.

More than 116,000 homeowners had received permanent loan modifications through the federal Home Affordable Modification Program as of the end of January, according to the U.S. Department of the Treasury and the Department of Housing and Urban Development.

Another 76,000 homeowners have been approved for permanent modifications - officials are now waiting for them to return their signed documents. That's a total of 192,000 homeowners approved for permanent modifications - a big jump for the program, which struggled for most of 2009 to achieve any significant number of permanent loan modifications.

The stakes couldn't be higher. Foreclosures are the anvil holding down the housing market and its wobbly recovery.In December, just 66,000 homeowners had received permanent modifications and another 44,000 had been approved. The new data suggests that almost all 44,000 of those approved homeowners finalized their loan modifications. Also, the program has continued to speed up in January, even though December's report was already a huge improvement for the Home Affordable program, which struggled for most of 2009 to achieve any significant number of permanent loan modifications.

There are now 1.8 million homes on the road to foreclosure, according to a recent report from credit agency Standard & Poor's. In most cases, that means the homeowners are extremely late in their payments. Court delays, temporary loan modifications and foreclosure moratoriums are the only things that have kept these homes from being seized and auctioned.

If this 'shadow inventory' of homes on the brink turn into real foreclosures, the flood of emptied homes would overwhelm the housing market... again.

More than half of that shadow inventory is now in the Home Affordable Modification Program. Currently 940,000 homeowners now have trial loan modifications through the program. However, over the last year, many commentators became skeptical that those homeowners will avoid foreclosure, as months past but only a tiny number of homeowners received permanent modifications.

It's still not clear that Home Affordable is acting quickly enough. To keep a new foreclosure wave from striking, Home Affordable will probably need to work even faster. But for now, federal officials sound confident:

"With nearly one million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP is doing the job it was designed to do," said Phyllis Caldwell, Chief of Treasury's Homeownership Preservation Office. The program is on pace to meet its overall program goal of providing 3-4 million homeowners the opportunity to stay in their homes, according to federal officials.

Photo: The U.S. Treasury building in Washington, D.C.

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Case Shiller Home Prices: Up or Down?

Bendix Anderson — 2010-02-23T14:35:00 00:00

Filed under: News

Reading the headlines about the latest Case Shiller report on home prices is a little like looking at one of those two-sided optical illusions.

NPR and the New York Times say home prices are up. The Wall Street Journal's MarketWatch and Chicago Sun-Times say home prices are down.

Here's the real picture: Home prices fell slightly in December, according to the latest Case Shiller Home Price Index, released today by credit agency Standard & Poor's. But they fell less than you would expect for a cold weather month, since few people are normally out buying homes in the weeks before Christmas. When the index is adjusted for the season, prices look ever so slightly higher.

And that's great news, since every month that passes without massive fluctuations in the housing market is a step closer to stability.
The seasonally-adjusted Case Shiller Home Price Index hit 145.87 in December, up from 145.4 in November. The seasonal adjusted Case Shiller index has risen steadily for the last seven months, starting its slow rise from 140.83 in May.

That shows that the housing market is continuing to solidify, shaking off some of the frenetic activity of the housing boom and the bust that followed. "The pace of deterioration has stabilized for now," says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

However, take away the seasonal adjustment and the Case Shiller Index fell to 145.9 in December from 146.25 in November. The unadjusted Case Shiller has been falling since September from 146.71.

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Interest Rates Still Low, but for How Long?

Bendix Anderson — 2010-02-22T11:00:00 00:00

Filed under: News

The Fed may have bumped up the short term interest rate that banks pay to borrow money by a quarter-point, but for the rest of us, low interest rates are still here.

Despite months of predictions that interest rates must rise soon, average interest rates for 30-year, fixed rate mortgages slid back down to 4.93 percent in the week ending February 18, according to Freddie Mac's Primary Mortgage Market Survey.

That's close to the record low interest rates of end of last year, which bottomed out at a average 4.71 percent for the week ending December 3.

Average interest rates are expected to rise to 6 percent by the end of the year, pushed up by a long list of factors.
To begin with, the Federal Reserve won't keep its benchmark interest rates at zero forever. On Thursday, the Fed increased the interest rate it charges banks, the "discount rate," from .5 percent to .75 percent. The change shows that the Fed is beginning to back out of it's massive intervention in the capital markets. However, for now the Fed's most important interest rates are still set at effectively zero. That helps keep interest rates in general throughout the capital markets.

The Fed reaffirmed last month that it would keep this benchmark interest rate "exceptionally low" for an "extended period," language it has used since March.

Fed bankers usually raise the rate to help fight inflation -- however for now the pressure from inflation is off. The Labor Department said Friday that consumer prices edged up 0.2 percent in January while prices excluding food and energy slipped 0.1 percent. That was the first monthly decline since December 1982.

Interest rates could also be pushed up as the Fed stops buying new mortgage-backed securities the spring. The Fed bought the bonds during the credit crisis to make sure the money kept flowing into home mortgages, even as bond market overall froze over.

"The Fed's planned completion of its purchases of mortgage-backed securities will test the resiliency of the market... We expect any impact on mortgage rates to be modest and not derail the housing recovery," according to a statement from Freddie Mac.

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Rise in Unemployment Claims Bodes Ill for Housing Market

Bendix Anderson — 2010-02-19T13:00:00 00:00

Filed under: News

The number of newly-fired workers who filled out claims for unemployment grew again last week. The rate of initial unemployment claims rose to a seasonally adjusted rate of 473,000 a week for the week ending February 13, according to the Dept. of Labor.

That's up 31,000 from the week before, leading to a flurry of dour headlines. However, the overall trend for the past month, as reflected by a four-week moving average, is still gradually improving. The average rate of new unemployment claims over four weeks was 467,500, down 1,500 from the week before.

Still, the unexpected rise dampens some of the enthusiasm generated by last month's decline in the unemployment rate, which fell to 9.7 percent for January, and casts doubt on a near term housing market recovery.Many experts believe that the housing market will remain depressed until the employment picture improves.

The number of new unemployment claims continues to wobble close to the rate that economists call equilibrium -- that's a seasonally adjusted rate of 450,000 initial claims a week. But the important thing is the long term trend. Overall, the seasonally adjusted rate of initial claims has been falling towards equilibrium for almost a year -- from more than 650,000 in March to less than 550,000 in September to just under 500,000 by December, according to the Dept. of Labor.

So where is the unemployment going? The Obama Administration is hedging its bets, predicting unemployment will rise again to average 10 percent for the whole year, according to its Economic Report of the President, released February 10.

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Builders Digging in, Data Shows

Bendix Anderson — 2010-02-17T17:20:00 00:00

Filed under: News

That roar you heard last month was the sound of builders pounding nails and digging the foundations of new homes, which they did at a faster rate in January than any other time in the last year.

Housing starts rose to a seasonally-adjusted annual rate of 591,000 per year in January, according to the U.S. Census. That makes January the top month so far in what has been a long steady rise in housing starts from its low point at 479,000 last April.

But we're still a long way from a healthy housing market. Put in context, the January numbers are still less than a third the rate in 2006 and less than half the rate in 2007. The economists at Freddie Mac predict the rate of starts will continue to rise, but won't reach 2007 levels until 2011.

Here's another clue that the mini-recovery in home building should continue. Applications for building permits -- a reliable omen of future construction activity -- were made at a quicker pace in January than any month in the last year except December.The annualized rate for building permits in January was 621,000 a year, down from 653,000 in December. That's a 4.9 percent drop, but still much better than the sluggish rate of permitting for in 2009, which seemed stuck in the 500,000 range -- except when it dropped even lower.

What could derail the recovery? Foreclosures. S&P just issued a report predicting a huge rises in foreclosures this year as loans that should have would have gone into foreclosure months ago gained a temporary reprieve, mostly through trial loans modifications through the Federal Home Affordable program.

As of the end of December, more than 850,000 loans have received trial modifications through the program, though only 110,000 loans had been approved for permanent modifications and many pundits seem to be writing the program off.

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Fannie and Freddie: Jekyll and Hyde?

Bendix Anderson — 2010-02-17T11:30:00 00:00

Filed under: News

For many critics, watching the government pour more and more taxpayer money into Fannie Mae and Freddie Mac is like watching a slow motion horror flick. One critic likened the companies, which were seized by the government in 2008, to monsters like Godzilla, Frankenstein and Dracula.

The reality is a little more complicated -- but not by much. Fannie and Freddie are better summed up by another horror film cliche: Dr. Jekyll and Mr. Hyde.

Like the dual-personality character in the Robert Louis Stevens thriller, Fannie and Freddie had two sides to their businesses. And, as the beleaguered companies come under increasing attack, it is useful to understand the differences.The good, "Dr. Jekyll" side of the business helped millions of people buy homes. And despite what you've read, the vast majority of those homes have stayed out of foreclosure.

Here's how this part of the business works. Fannie and Freddie act as massive middlemen between banks that make home loans and the bond investors that put up the cash. Fannie and Freddie tell their banks what kind of loans to make, then they pass those loans on to bond investors and guarantee to pay for any losses due to foreclosure.

This side of the business is weathering the housing storm pretty well.

Freddie's delinquency rate is half the rate for the U.S. overall. Across the country, 6.6 percent of all home loans to one-to four-unit residential properties were 90 days or more past due at the end of September, according to the National Delinquency Survey from the Mortgage Bankers Association. But only 3.4 percent the $1.8 trillion in loans guaranteed by Freddie Mac were 90 days or more past due at the end of September. (Since Freddie and Freddie acted almost identically, with almost identical results, let's focus on Freddie Mac.)

You see, most of the loans Freddie helped banks originate, guaranteed, and then sold to bond investors were very conventional, 30-year, fixed-rate mortgages to people with strong credits histories.

Did Freddie engage in irresponsible lending? Not much. Freddie Mac did guarantee home loans to people with credit scores under 620, but those loans are just 4 percent of Freddie's $1.8 trillion loan portfolio. Freddie also made loans that, at the time, covered more than 90 percent of the value of the home, but that's just 8 percent of its portfolio. The story is the same for "interest-only" loans, "Alt-A" loans, and adjustable-rate mortgages. Freddie Mac guaranteed loans in all of these relatively exotic categories, but it totals up to just a fraction of its business.

True, these relatively exotic loans led to credit losses: $2.1 billion in Freddie's $1.8 trillion portfolio in the third quarter alone. But two billion is hardly enough to wreck a trillion-dollar company.

Overall, Freddie's record looks good: it holds 23 percent of single family mortgages in the US, but these loans accounted for just 9 percent of seriously delinquent loans at the end of November. In contrast, "private label" securities account for 12 percent of the nation's mortgages, but a whopping 33 percent of serious delinquencies, Freddie Mac points out on its web site. (Fannie Mae, with 33 percent of all loans, had 19 percent of serious delinquencies for the period).

So what brought Freddie Mac down? And did the company play a leading role in creating the housing crisis that caused the recession? The answers are "yes" and "yes."

Enter Mr. Hyde.

During the housing boom Freddie Mac, once one of the most trusted names in housing finance, also acted like a hedge fund, borrowing hundreds of billions of dollars to effectively speculate in the bond market. (And hedge fund managers conjure up their own horror images -- think "American Psycho")

Back in the boom, hedge funds managers used their reputations on Wall Street to borrow huge sums of money at high rates of leverage and relatively low interest rates. Among other speculations, they used the borrowed cash to buy things that seemed to be relatively stable and even boring at the time... like AAA-rated bonds backed by home loans. The bonds had relatively predictable yields that were only a little higher than the interest rate on the borrowed money. After all, home prices seemed to rise steadily in good times and bad. And if you buy something using mostly borrowed cash and the thing you buy increases even slightly in value, you win a giant jackpot.

Of course, if the value of the asset drops even slightly, you lose everything.

Technically, Freddie Mac is not a hedge fund. But like a hedge fund, it used its government charter to borrow money at low interest rates and high leverage and buy bonds backed by real estate loans -- generating big dividends for Freddie's owners.

Freddie's balance sheet of "mortgage-related investments" grew to more than $800 billion by 2008 - including nearly $200 billion in bonds issued by other companies, some backed by some of the worst subprime home loans. It was these investments in subprime securities that helped the business grow dramatically during the boom -- and created Freddie's problems after the bust.

"Obviously it's been the deterioration of subprime loans that's been the driver of our losses," says Michael Cosgrove, senior director of public relations for Freddie Mac.

Freddie Mac's split personality - part responsible mortgage lender, part rabid hedge fund manager - was built into the company. It was owned by private investors and it had a responsibility to give those investors that best return possible under the law. Freddie also had its Congressional charter that made it possible to borrow huge amounts of money.

Congressmen from both parties now call for Fannie and Freddie to be abolished and replaced - they'll get their chance to act on their killer instinct in hearings starting March 2.

It's a tricky issue. Taxpayers are rightly concerned by the $112 billion and counting that has flowed to Fannie and Freddie. Yet, the companies have played an important role in keeping the housing market going, and any drastic changes could derail the fragile economic recovery. Whatever happens to Fannie and Freddie, the trillions of dollars needed to support home mortgages will have to come from somewhere -- unless we want to go back to the old days, say, a hundred years ago, when most people who bought homes had to pay in cash. Congress will have to find some way to replace the useful part of Fannie and Freddie, the Dr. Jekyll part, while getting rid of Mr. Hyde.

(Artwork by Charles Raymond Macauley for the 1904 edition of ''The Strange Case of Dr. Jekyll and Mr. Hyde'' by Robert Louis Stevenson. Publisher: New York Scott-Thaw)

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After Stuy-Town: Next NY Foreclosures

Bendix Anderson — 2010-02-12T15:00:00 00:00

Filed under: News

The foreclosures of Stuyvesant Town and Peter Cooper Village earlier this month were just the beginning. Banks are likely to seize many more apartment buildings in New York City this year, according Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development, an organization of local nonprofit groups fighting to preserve New York's little remaining affordable housing.

"About 100,000 units of affordable housing in this city were grossly over-leveraged from 2005 to 2008 and are likely to have severe financial problems," says Dulchin.
In a wide ranging interview with HousingWatch, Dulchin discussed his concern that these buildings might go through the foreclosure process only to be purchased at auction by new speculators.These "over-leveraged" buildings now carry more debt that the price they could earn in a sale. For many of these properties, the income from rents can't cover the landlord's mortgage payments - much less justify a high sale price.

Dulchin's group is now tracking 10 large portfolios of over-leveraged apartment buildings in New York City. On average, the rental income from these buildings only covers just 57 cents on the dollar of the mortgage payments. For now, the rest of the money to pay the mortgages is coming from building reserve funds, but that can't last for long.

These owners paid too much for their buildings during the real estate boom, says Dulchin. As with Stuy Town, the landlords planned to raise the rent, even though the 100,000 apartments tracked by Dulchin's organization are covered by New York's rent stabilization laws.

"The owners' strategy of pushing out rent stabilized tenants has resulted in the harrassment of working class tenant throughout the city," says Dulchin, left. He says that many tenants were falsely accused of breaking the terms of their leases by landlords eager to evict them. "The techniques of harassment are built into the predatory equity business model," he says.

A case in point: On Thursday, New York state Attorney General Andrew Cuomo said reached a $1 million settlement with Vantage Properties, a major New York City landlord, which was charged with harassing tenants in rent-regulated apartments in an attempt to force them out and hike up rents.

So far, only a few of these over-leveraged properties have been seized by banks in foreclosure actions, including Riverton, a complex in northern Manhattan, Stuy Town and Peter Cooper Village. However, other properties are likely to follow, including a portfolio of 20,000 apartments in Upper Manhattan owned by Joel Wiener's Pinnacle Group, says Dulchin. Pinnacle's large portfolio of apartments on 109th St. near Columbia University is already in serious trouble, he said.

As foreclosure approached for the 100,000 debt-ridden apartments, Dulchin worries about what kind of buyers might emerge to bid on the building in foreclosure auctions.

"The concern is that these buildings will be bought again by speculators," says Dulchin. Any price higher than what the current rents can support implies that the new buyer plans to raise the rents, he says, leading to a new cycle of harassment for the tenants and potentially another foreclosure for the property sometime in the future.

And New York needs that like a hole in the head.

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Foreclosures Down, But Economists Still Dour

Bendix Anderson — 2010-02-12T08:00:00 00:00

Filed under: News

Fewer people are getting bad news in the mailbox: the number of foreclosure fillings dropped again in January, according to the latest information from RealtyTrac.

There were 315,716 foreclosure filings in January -- that's down 10 percent from December. Cheery news, at first glance. But more than 300,000 foreclosure filings in a single month is still tremendously bad. In Jan. 2008, before the full brunt of the crisis struck, the rate was just over 200,000 foreclosure actions a month. But that rate was enough to set into motion the chaos in the nation's bond markets that later spread to the rest of the financial system.

There have been well over 300,000 foreclosure filings a month for the last 11 months. Worse, a growing number of experts and economists seem to expect a new wave of foreclosure filings in 2010. That's includes the boss at RealtyTrac.

"If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works," said James J. Saccacio, chief executive officer of RealtyTrac.Many commentators like Saccacio are writing off federal foreclosure prevention efforts. However, the federal government is working frantically to get its Home Affordable Modification Program to work and prevent new foreclosures from overwhelming the economy.

As of December 31st, about 110,000 permanent loan modifications had been approved by banks through the government's Home Affordable program. Most of those permanent modifications had been approved in the last weeks of the year. That's why many newspapers reported that only 66,000 permanent modifications had been finalized -- about 44,000 of the homeowners seeking modifications hadn't returned their signed forms yet.

Lenders have also approved more than 900,000 trial modifications, and federal officials spent much of January pressuring lenders to make decisions on as many of those trial modifications as possible. We'll see how well they did when Home Affordable releases its report for January, probably later this month.

Whatever the news is, it's likely to have a big effect on the rate of foreclosures.

Foreclosure Filings by Month

January, 2010: 315,716
December, 2009: 349,519
November, 2009: 306,627
October, 2009: 332,292
September, 2009: 343,638
August, 2009: 358,471
July, 2009: 360,149
June, 2009: 336,173
May, 2009: 321,480
April, 2009: 342,038
March, 2009: 341,180
February, 2009: 290,453
January, 2009: 274,399
December, 2008: 303,410
November, 2008: 259,085

(Information from RealtyTrac.)

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Jobless Rate Dips Below 10%

Bendix Anderson — 2010-02-05T14:20:00 00:00

Filed under: News

Peace in our time! Mission accomplished! Unemployment down!

The unemployment rate unexpectedly dipped below 10 percent in January, to 9.7 percent, according to the Labor Department. And stock markets rallied on the news.

A jobless rate below 10 percent is certainly good for morale -- and for real estate. But hold the bubbly: the unemployment figure fell because fewer people are filing for unemployment benefits, not necessarily because lots more people have found jobs.

Look closely and you'll see that the number of unemployed and the number jobs available for them has been treading water in recent weeks -- neither is getting much better or much worse.
Jobs numbers have important implications for real estate. Homebuilders, for example, are obsessed with the number of jobs in their markets and whether that number is growing or shrinking, because that helps them know whether a new home will sell or stand empty. Unemployment is also significant, because homeowners who have lost their jobs are more likely to lose their homes through foreclosure.

A separate payroll report released Friday by The Bureau of Labor Statistics suggested that we're not out of the woods yet. Payrolls (not including farm workers) fell by 20,000 in January. That's not a big drop. The Bureau characterized the total number of people on the payroll in January "essentially unchanged," as more than 100,000 new temp, retail and government jobs filled most of the void left by more than 100,000 lost construction, transportation, and warehouse jobs. But the BLS upped its estimate of jobs lost in December to 150,000 from the previous estimate of 85,000 losses.

The number of new unemployment claims continues to wobble close to the rate that economists call equilibrium -- that's a seasonally adjusted rate of 450,000 initial claims a week. The seasonally adjusted rate hit 480,000 for the week ending January 30, according to the Dept. of Labor.

That's up 8,000 from the week before, depressing journalists across the Web. But the important thing is the long term trend. Overall, the seasonally adjusted rate of initial claims has been falling towards equilibrium for almost a year -- from more than 650,000 in March to less than 550,000 in September to just under 500,000 by December, according to the Dept. of Labor.

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Save the Date: Fannie, Freddie Smackdown Planned

Bendix Anderson — 2010-02-04T16:16:00 00:00

Filed under: News

A housing smackdown is coming to Capitol Hill.

Rep. Barney Frank (D-Mass.) has set March 2nd as the date for the first hearing on the future of housing finance. Though sweeping in scope, the review will surely center on the uncertain future of Fannie Mae and Freddie Mac.

It won't be an easy ride for the embattled Fannie and Freddie. Frank, chairman of the House Financial Services Committee, recently declared that the two troubled mortgage giants should be wiped out and replaced, according to news outlets including Bloomberg News. Republicans, too, are calling for drastic changes.

The high-stakes hearings are likely to shape the role of the federal government in the housing market going forward. Considering that almost every home loan written today is guaranteed by Fannie, Freddie, or the Federal Housing Administration, Congress is about to decide nothing less than the future of housing.The agenda is broad, and will address all of the private and public entities that support the mortgage market, including the Federal Housing Administration, Ginnie Mae, Federal Home Loan Banks, and private lenders and securitizers. But Fannie and Freddie will no doubt be at the center of the discussion.

The two companies were owned by private shareholders until 2008; today they are 80 percent government- owned. The trillion-dollar organizations are now in a kind of limbo, and Wall Street is betting that the shareholders will be almost, but not quite, totally cleaned out: Fannie and Freddie stock has traded for about a dollar a share since 2008.

Frank has invited Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan to present the Administration's perspective, as well as representatives of the advocacy community, academia, and industry to present their ideas on the future of housing finance.

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Homebuyers Sign on the Line

Bendix Anderson — 2010-02-02T14:30:00 00:00

Filed under: News

Pending home sales were up in December. The metric -- which measures the number of signed contracts to buy a home -- is considered a key leading indicator of where the housing market is going.

The seasonally adjusted index of pending home sales was 96.6 in December, according to the National Association of Realtors. That's up about 1 percent from November, and the fifth highest monthly tally in two years.
It also beats the index performance for the whole first half of last year, as well as for 2008, when the index averaged 87.1, or 2007 when the index averaged 96.3.

However, the index is still much lower than it was during the mini-housing boom that ran from August through October as homebuyers rushed to take advantage of the federal homebuyer tax credit that was originally set to expire in November. The index peaked at 114.3 in October, only to crash back to 95.6 in November.

"There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded," said Lawrence Yun, chief economist for the Realtors. "These swings are masking the underlying trend, which is a broad improvement over year-ago levels."

Congress has extended the homebuyer tax credit. Buyers who have a contract in place to buy a primary residence by April 30 will have until June 30 to close the deal and qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

Yun expects another rush to buy homes this spring. "While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010," Yun said. Last year there were 5.16 million existing-home sales.

That should firm up home prices, according to Yun.

Other economists agree with Yun that the tax credit will push home sales this spring, though many also worry that foreclosures may offset the activity and drag prices back down. For example, the economists at Freddie Mac predict that the Case Shiller Home Price Index will fall 5 percent in the first quarter, with smaller quarterly losses for the rest of the year.

Pending Home Sales over the Last Year

December 2009 - 96.6
November 2009 - 95.6
October 2009 - 114.3
September 2009 - 110.0
August 2009 - 103.8
July 2009 - 97.6
June 2009 - 94.6
May 2009 - 91.3
April 2009 - 90.6
March 2009 - 84.6
February 2009 - 82.0
January 2009 - 80.4
December 2008 - 87.1
November 2008 - 83.1

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Building Blues Continue

Bendix Anderson — 2010-02-01T14:00:00 00:00

Filed under: News

Remember the good old days, when housing was the engine that kept our economy going?

In 2003 and 2004, housing construction was one of the few sources of new jobs and new spending as the economy limped though its long, "jobless recovery" from the recession of 2001.

The situation is reversed today. This time, the housing business is an anchor around our necks as we try to climb out of recession.

Construction spending continued its fall in December, dropping 1.2 percent to a seasonal adjusted annual rate of 902.5 billion, according to figures released today from the U.S. Commerce Dept.Experts were hoping for better figures, or at least not as bad: Economists surveyed by Dow Jones Newswires estimated spending in December on construction would tumble 0.7 percent.

Spending on residential construction dropped even more quickly: by 2.8 percent in December, to a seasonally-adjusted rate of $260 billion a year. That's the largest decline since May. It's also down from $299 billion in December 2008.

Residential construction includes the construction of new houses (down 18 percent over 12 months); construction of apartments and condominiums (down 45 percent over 12 months); and improvements to existing housing, which made up more than half of the residential construction total.

Home construction will continue to provide little help to the economy over 2010, according to the Janaury 2010 Economic and Housing Market Outlook from Freddie Mac, though this year should be an improvement from 2009. Freddie Mac expects home starts to be 780,000 this year. That's better than 550,000 last year -- but still less than half the 1.8 billion homes started in 2006.

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Mod Program Revamped Again

Bendix Anderson — 2010-01-29T16:05:00 00:00

Filed under: News

Bureaucrats have struggled to get the Home Affordable Modification Program to work -- and they may finally be getting somewhere.

The latest changes to the program, released on Thursday, clarify document requirements that have tied up hundreds of thousands of people already on the brink of losing their homes.

The Home Affordable program is designed to help 3 to 4 million homeowners avoid foreclosure by 2012. By the end of 2009, more than 903,000 homeowners had begun process by getting trial loan modifications through the program. Of those, just 110,000 have been approved for permanent modifications -- and much of that activity was squeezed into the last days of 2009. And a large chunk of those approved permanent mods were still waiting on signed final documents to be returned.

Why are there still so many many trial modifications compared to permanent ones?

Up until now, many borrowers have gotten trial modifications with little more than a phone call to their mortgage company. The problems start when they want to have those mods made permanent. That's when, they claim, mortgage companies demand a list of documents that keeps changing and repeatedly lose the documents they send.

The new rules aim to get the hard stuff out of the way at the start. Beginning June 1, homeowners seeking a trial modification must fill out a written application and submit basic evidence of their income, such as pay stubs. They must also give the mortgage company permission to electronically access their tax forms.

The new requirements will make it a little more rigorous to get a trial modification, but that trial mod will automatically become permanent after three loan payments are made on time. The more formal process should cut down on confusion and delay.

To handle the backlog of more than 800,000 trial loan modifications waiting for lender approval as of December, the Treasury created a review period that lasts through January 31 for lenders and borrowers to clear up any confusion about documents. During this period, Treasury sharply limits the reasons that mortgage companies can use to cancel trial modifications.

Program officials say they've sent administration representatives to servicer offices to ensure that the outstanding cases were being resolved.

To get an idea of what's at stake, there could be an additional 4.8 million foreclosure sales between 2009 and 2011, almost twice the 2.7 million foreclosure sales that happened between 2006 and 2008, according to economists like Mark Zandi, chief economist at Moody's Economy.com. A new wave of foreclosures could derail our recovery and send the economy back into recession.

If Home Affordable reaches its goal of rescuing up to 4 million homeowners from foreclosure, the program could soak up much of Zandi's foreclosure wave. With the surge of activity in December, administration officials now say the program is on track.

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Terrible Idea: Trump Eyes Stuy Town

Bendix Anderson — 2010-01-29T14:00:00 00:00

Filed under: News

Can Donald Trump handle Stuy Town?

The real estate mogul, known for his glitzy towers, is mulling a bid for Stuyvesant Town and Peter Cooper Village, the sprawling New York City apartment complexes that were seized by creditors last week.

"People have asked us if we would get involved in running it or buying it," Trump told the New York Post. "We are looking at it right now very seriously."

The prior owners, led by Tishman Speyer, had paid $5.4 billion to buy the 11,000-unit complex - that's about half a million per apartment. But their plan to hike up the rents was killed by New York's tough rent stabilization laws.

What is the Donald thinking?
The Trump portfolio doesn't include any rent regulated buildings. His apartment and condo buildings in New York are concentrated along Park Avenue and Central Park South and promise a certain "Trump" quality of life.

Just check out the Trump website. "The grand entrance of exquisite marble invites residents to leave an ordinary lifestyle behind," the site gushes. "Trump Parc exemplifies all the grandeur, elegance and lifestyle synonymous with Trump."

The somewhat proletarian, red brick design of Stuy Town would seem out of place among the grandiose towers of Trumpland -- to say nothing of Stuy Town's residents! The complex was built to provide housing to normal, working people -- veterans, cops, teachers. And, thanks to New York's tough rent regulation laws, thousands of working folk earning less than "luxury apartment" wages still live there.

Trump's got some competition. Others that have expressed an interest in owning or managing Stuy Town include WinnCompanies and the Related Companies, both of which have loads of experience with affordable housing. There's also the LeFrak Organization, one of the largest owners of rent-stabilized apartments in the city.

These companies might at least have a chance at navigating the complicated rent regulations that drove Stuy Town's former owners into foreclosure. How thorny are the regulations? Tishman Speyer worked feverishly from the moment they bought Stuyvesant Town in 2005 to raise the rents on as many apartment as they could. They had billions on the line -- and they failed.

But maybe Trump is more patient than we think. Maybe he has a very, very long term plan. If the Donald can buy the complex at a low price that can be supported by the current low rents, and clear up the legal problems surrounding Stuy Town's property tax abatement (a big if), then maybe he could afford the painstaking process of taking apartments back out of the rent stabilization program one by one. Of course, for each apartment, he'd have to wait until the rent has reached $2,000 a month and the tenant had voluntarily moved out before putting the apartment through "luxury decontrol." And as anyone who's ever lived in a rent stabilized apartment knows, people don't give them up easily.

Just think: Within a decade, Trump might be able to charge whatever rent he wants for... several apartments.

In 50 years, it might even make sense to redo the lobbies in marble.

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To Refi Your Mortgage, Write a Check

Bendix Anderson — 2010-01-29T12:15:00 00:00

Filed under: News

About a third of all the people who refinanced their home loans in the last months of 2009 lowered their principal balance, typically by writing a check to their bank for tens of thousands of dollars.

It used to be that many people refinanced to squeeze money out of their homes. Higher home values, lower interest rates, or both allowed borrowers to increase the size of their original home loans and get their hands on thousands of dollars in cash.

Now, people seem more interested in lowering their debt than treating their house like an ATM. No wonder refinancings are down.In the fourth quarter of 2009, 33 percent of borrowers who refinanced their prime, conventional home loans lowered their principal, according to Freddie Mac's quarterly Refinance Report. This is the biggest "cash-in" rate since Freddie Mac began tracking the characteristics of refinance transactions in 1985.

Why would homeowners write a check to refinance? Most homes have lost value in the real estate crash. Roughly a quarter of all mortgages are larger than the sale value of the underlying homes, according to American First Core Logic. This has made it difficult for many homeowners to refinance and take advantage of low interest rates that averaged just 4.9 percent in the fourth quarter, according to Freddie Mac's Primary Mortgage Market Survey. To get the best interest rate, a new loan needs to be for less than 75 percent to 80 percent of the home's current value.

"The main causes of the decline in cash-out refinancings are declining home prices in many areas of the country that have eliminated equity that could have been extracted and tighter underwriting standards for loan-to-value ratios," said Amy Crews Cutts, Freddie Mac deputy chief economist.

The median loan refinanced in the fourth quarter was for a home that had lost 2 percent of its value, according to Freddie Mac. That means that half of the homes refinanced in the fourth quarter had lost more value than that, perhaps significantly more.

Some people are still squeezing money out of their houses, but far fewer than in the real estate boom. Roughly a quarter, or 27 percent, of the homeowners who refinanced in the fourth quarter significantly increased their loan size. That's down from 88 percent, or nearly everybody, at the peak of the boom in the third quarter of 2006.

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New Jobless Claims Fall Again

Bendix Anderson — 2010-01-28T16:00:00 00:00

Filed under: News

Rarely are home values and the job market as closely tied together as they have been during this recession. So last week's employment numbers offer a good omen for both.

The number of initial unemployment claims dropped last week, according to the Department of Labor. The rate of new claims is now close to a number economists are willing to call stable-the point at which overall unemployment stops rising.
Unemployment rates effect home values because the more people there are with paying jobs, the bigger the pool is of potential home buyers. But in this recession the connection has also worked the other way: Job losses have been causing foreclosures, which have depressed the values of surrounding properties.

In the week ending Jan. 23, the advance figure for seasonally adjusted initial claims was 470,000, according to the Labor Department. That's 8,000 less than the previous week's revised figure of 478,000. That's also down from 590,000 last year at this time.

Analysts say that a rate of initial claims of 450,000 a week indicates stability in the labor market. To bring down the unemployment rate, we'll have to get below that.

Economists predicted we would hit that rate last week, according to Wall Street economists surveyed by Thomson Reuters. But a backlog of more than 43,700 new claims from California got in the way. Turns out they built up over the holidays and Californian bureaucrats only got around to counting them last week.

Looking past the sunshine state though, 30 other states reported significantly fewer initial claims last week than the week before. But during that previous week, several other big states piled their holiday backlog onto the initial claims data.

Before this month, claims had been dropping for several months. In late December, claims fell to their lowest level since July 2008, before the financial crisis.

(Photo: An employment office in 1916, from the Engineering Department Photographic Negatives, Record Series 2613-07, Seattle Municipal Archives.)

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