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  • Wed, Jul 29 2009
  • 8:52 AM » Zell on Real Estate
    Published Wed, Jul 29 2009 8:52 AM by Calculated Risk Blog
    To preface this post, here are from the April 2008 Milken conference: Sam Zell started by saying we need to separate commercial from residential. Commercial will be fine in his view (not my view). Also Zell thinks losses are overstated for investment banks and CDOs. Zell isn't talking about new construction (CRE), rather he is talking about prices for existing CRE. He feels there is too much global demand ("liquidity") for prices to fall too far - especially for Class-A buildings. A little over a year later several Class-A owners are just walking away. Now today, from CNBC: After posting three straight months of positive data, the residential real estate market has reached an equilibrium where prices will stop falling, said Sam Zell, founder and chairman of Equity Group Investments. This, in turn, will spark stabilization throughout the rest of the economy. If single family housing starts and new home sales have found a bottom, then that will remove a key drag from the economy and employment. That is a positive. But I think Zell is wrong on house prices. I think the pace of declines will slow, but that there will be a . I could be wrong ... and I think different areas will bottom at different times, and some lower priced areas with heavy foreclosure activity might be at or near a bottom (same with some non-bubble areas). But in general, I think prices will fall further.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:51 AM » A Few Comments on Housing Reports
    Published Wed, Jul 29 2009 8:51 AM by Calculated Risk Blog
    This is very different for me ... First, if I've let a little hubris slip into my recent posts, I apologize. My goal is to be the most humble blogger in the world (an old joke). Second, I am not an investment advisor and I do not offer investment advice. I try to provide some hopefully useful data with sources - especially concerning real estate - and then add my own analysis. Nothing here is intended as investment advice. Please keep the above in mind ... and although I rarely discuss investing, I'd like to quickly explain why I went mostly long in my own portfolio in late February and early March. Several readers can vouch for my change in view (like Brian and Michael). I only share my investment ideas with people I know - and who I know are responsible for their own actions. Sentiment in February and March was for a Great Depression II, and it was clear to me that several key indicators were about to change: auto sales, single family starts and new home sales were three I mentioned frequently on this blog. I figured when that data changed, the sentiment would change. Buying at the time was difficult. And yes, I'm still long (although that could change at any time, and I will not disclose it). The reason I bring this up is the Case-Shiller report today really bothered me. To be more accurate, the reporting on the Case-Shiller report bothers me. As I , there is a strong seasonal component to house prices, and although the seasonally adjusted Case-Shiller index was down (Case-Shiller was reported as up by the media) - I don't think the seasonal factor accurately captures the recent swings in the NSA data. I have no crystal ball - and maybe prices have bottomed - but this potentially means a negative surprise for the market later this year - perhaps when the October or November Case-Shiller data is released (October will be released near the end of December). If exuberance builds about house prices, and the market receives a negative surprise, be careful...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:50 AM » CRE: Office Building Owners Walk Away
    Published Wed, Jul 29 2009 8:50 AM by Calculated Risk Blog
    From the SF Gate: (ht John, Jay) The owners of a premier San Francisco office tower plan to forfeit the property to their lenders, the city's second distressed transaction involving a major commercial building in recent weeks ... Hines and Sterling American Property decided to transfer their interest in 333 Bush St. to the original financers, following the surprise dissolution of law firm Heller Ehrman in September ... The 118-year-old law firm defaulted on its 250,000-square-foot lease, leaving the nearly 550,000-square-foot property 65 percent vacant. ... Hines and Sterling bought the tower for $281 million in 2007, near the top of the market, when it was 75 percent leased. The partnership is handing the property to Brookfield Real Estate Finance and Munich Hypo Bank ... ... More distressed deals are expected. Nearly three-quarters of Class A office buildings downtown sold between 2005 and 2007 ... Probably another half off sale (or worse) coming up. It is amazing that 75% of downtown San Francisco Class A office building were sold between 2005 and 2007. Walking away in the City by the Bay will become common. At least it's a nice place to take a walk ...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:49 AM » Worst June New Home Sales Since 1982
    Published Wed, Jul 29 2009 8:49 AM by The Big Picture
    Most of the Media and Wall Street economists have had the inherent tendency to get this data wrong . . . the latest batch of releases is no different . . . Consider these charts before you conclude that Residential RE is improving: > June 2009 NSA New Home Sales Worst Since 1982 Source: M Hanson Advisors As noted, “This was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold. There are twice as many households in America today as there were then, so relative to population this was the worst June ever, by far . > IT’S TAKING A YEAR FOR HOMEBUILDERS TO FIND BUYERS Source: Haver Analytics, Gluskin Sheff David Rosenberg notes in the chart above (United States: New Single Family Homes) that Median Number of Months for Sale (months)is still rising. Sign of a bottom? Hardly. > Builders Are Slashing Prices to Dump Inventory Source: M Hanson Advisors Bbuilders are slashing prices to dump inventory ahead of the slow season after the summer. > New Homes, NSA, Unit Sales and Prices > Source: M Hanson Advisors The chart above shows NOT seasonally adjusted June 2008 vs June 2009 total sales counts and median price. 20% fewer homes sold — at much lower price than last year — is somehow bullish? ~~~ CONCLUSION : The best thing youo can say is the 2nd derivstive argument — Real Estate is now getting worse more slowly. Expect more price decreases. foreclosures and distressed sales. A healthy market cleared out of excess inventory with genuine price increases is likely years away . . .
    Click Here to Read the Full Article

    Source: The Big Picture
  • 8:48 AM » Point/Counterpoint: Does the U.S. Need More Government Stimulus?
    Published Wed, Jul 29 2009 8:48 AM by WSJ
    Most economists say that the U.S. economy will return to growth in the current quarter. But the job market is expected to continue to remain under pressure. Some have argued that another round of stimulus is necessary to prop up the job market. Here Laurence Seidman , Chaplin Tyler Professor of Economics at the University of Delaware , makes the point that the costs of a high jobless rate are greater than the price of more stimulus. John Silvia , chief economist at Wells Fargo , responds that more stimulus would be counterproductive as the economy sits on the cusp of recovery. Laurence Seidman says: There’s no excuse for letting the unemployment rate stay above 8% all next year when it can be prevented for only an additional 2 percentage points in federal debt as a percentage of GDP. Yet, according to the respected macro-econometric model of Ray Fair of Yale, that’s just what we’re doing unless we immediately multiply the magnitude of the fiscal stimulus package. Congress set the magnitude last February when the unemployment rate was 7.6%. Now the unemployment rate is 9.5%. There’s no need to renegotiate the components of the stimulus package. Congress just has to vote to multiply all components of last February’s package by M for the last two quarters of 2009. I recommend M=4, an injection of $800 billion instead of $200 billion; the Fair model’s forecast for M=4 is shown under “Stronger Stimulus.” According to the model, M=4 will cause federal debt as a percent of GDP to be only 2 percentage points higher than if there had been no fiscal stimulus due to positive feedback effects on tax revenue and GDP from the fiscal stimulus. Unemployment Rate Quarter No Stimulus Current Stimulus Reduction Stronger Stimulus Reduction 2009.2 9.1% 8.9% 0.2% 8.9% 0.2% 2009.3 9.8% 9.3% 0.5% 8.7% 1.1% 2009.4 10.4% 9.4% 1.0% 7.8% 2.6% 2010.1 10.7% 9.3% 1.4% 7.1% 3.6% 2010.2 10.8% 9.1% 1.7% 6.7% 4.1% 2010.3 10.8% 8.8% 2.0% 6.7% 4.1% John Silvia says: We have heard repeated calls for another...
  • 8:47 AM » Geithner: China Needs to Be Less Dependent on U.S. Consumer
    Published Wed, Jul 29 2009 8:47 AM by WSJ
    Treasury Secretary Timothy Geithner said China will have to adjust its economy to be less dependent on the U.S. consumer as Americans go back to “living within their own means.” Mr. Geithner, speaking at a dinner marking the end of two days of discussions between the U.S. and China, said the Asian giant is embarking on “a remarkably ambitious set of reforms” that will see China grow more from consumer demand than exports. He added that both countries have taken big steps towards repairing the global economic crisis through a series of stimulus packages and reconstruction efforts that will put the U.S. and China “on a path to a more balanced and sustainable recovery in the future.” Meanwhile, China’s state counselor, Dai Bingguo, took aim at the elephant in the room, saying that China is not planning to use its military or economic might to challenge the U.S. Mr. Dai said China was not “biding its time” and did not have “some hidden agenda.” Americans, he said, “should not lose any sleep over China.” The U.S.-China Strategic and Economic Dialogue is a forum designed to foster closer cooperation between the two global powers. At its close, both vowed to maintain efforts to pull the global economy out of recession and shore up financial markets. They also agreed on a plan to create more balanced global growth in the future. Much of the discussion was dominated by continuing Chinese concerns about the U.S.’s growing pile of debt. Chinese Vice Premier Wang Qishan, in talks with Mr. Geithner and other officials, urged the U.S. to protect the value of the dollar. Mr. Geithner played down the topic, saying the two countries were on the same page when it came to the need for emergency measures to help bring the world out of recession.
  • 8:47 AM » Five Things: Housing Staggers Toward a Bottom...
    Published Wed, Jul 29 2009 8:47 AM by
    1) Housing Staggers Toward a Bottom..."The people who demand pity of you hate you afterward for giving it."- William Gaddis "The Recognitions"There are some weird ideas on the streets these days and not all of them come from the Federal Reserve or Treasury Department... or the President and his apoplectic opponents or even from reality television shows. Some of them stir up recognition from within faint whispers of a shared collective consciousness a silent drumbeat that throbs deep in one's veins. I'm talking about the Case-Shiller Home Price Index of course as if you needed that wholly unnecessary information. ...
    Click Here to Read the Full Article

  • Tue, Jul 28 2009
  • 5:17 PM » The Greatest Subprime A.R.M. of All is our Debt
    Published Tue, Jul 28 2009 5:17 PM by
    The fact that the Treasury Department must issue a record amount of debt in the ensuing years will put upward pressure on interest rates. Add to that a record-low Fed Funds rate and a $1.7 trillion monetary base, and the prospects for ...
    Click Here to Read the Full Article

  • 5:17 PM » Case-Shiller House Price Seasonal Adjustment and Comparison to Stress Tests
    Published Tue, Jul 28 2009 5:17 PM by Calculated Risk Blog
    Case-Shiller released the May house price index this morning, and most news reports focused on the small increase, not seasonally adjusted (NSA), from April to May. As I noted earlier, the seasonally adjusted (SA) data showed a small price decline from April to May. Case-Shiller reported that prices fell at a 2.5% annual rate in May (SA). However I think the seasonal factor might be insufficient during the current period. The following graph shows the month-to-month change of the Case-Shiller index for both the NSA and SA data (annualized). Note that Case-Shiller uses a three-month moving average to smooth the data. Click on graph for larger image in new window. The Blue line is the NSA data. There is a clear seasonal pattern for house prices. The red dashed line is the SA data as provided by Case-Shiller. The seasonal adjustment appears pretty good in the '90s, but it appears insufficient now. I expect that the index will show steeper declines, especially starting in October and November. The second graph compares the Case-Shiller Composite 10 SA index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts). NOTE: I'm now using the Seasonally Adjusted (SA) composite 10 series. The Stress Test scenarios use the Composite 10 index and start in December. Here are the numbers: Edit correction: All data for May. Case-Shiller Composite 10 Index, May: 151.13 Stress Test Baseline Scenario, May: 150.85 Stress Test More Adverse Scenario, May: 143.81 So far house prices are tracking the baseline scenario, but I believe the seasonal adjustment is insufficient and prices will decline faster in the Fall.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 5:04 PM » U.S. to mortgage firms: Pick up the pace
    Published Tue, Jul 28 2009 5:04 PM by CNN
    Loan servicers will "significantly" increase the pace of mortgage modifications under the Obama foreclosure prevention program, the Treasury Department said Tuesday.
  • 5:03 PM » Home Prices, Jobs Will Come Back Sooner in Some States Than Others
    Published Tue, Jul 28 2009 5:03 PM by WSJ
    Today’s offered some hope that the worst of the economic storm has passed, but they are also a stark reminder that not all regions of the U.S. are equal. Home prices often are discussed on a national basis. Easy credit earlier this decade was a trend that spanned the country, boosting home prices nearly everywhere. But . For example, the huge runup in places like Las Vegas and Miami weren’t mirrored in Cleveland or Dallas, which saw more modest rises, or Detroit, which is facing a housing bust without ever having a boom. Meanwhile, as the financial crisis hit the entire country and credit started to dry up, everyone was affected, but the pain isn’t equal all over. If the banking system has indeed stabilized, and the national story for home prices fades, the markets’ regional faces will begin to take over. Metro area unemployment (which will see ) and regional inventories of unsold homes will be more important than national lending standards. The recession, like the housing market, has had a national reach, but IHS Global Insight points to disparities across regions. “The District of Columbia and Texas have been somewhat insulated from the worst of this recession, thanks to heavy concentrations in federal government and energy, along with their lack of a major housing bubble. Those two will lead the recovery and gain back their lost jobs the quickest,” IHS economists wrote in a research note. Meanwhile, “Numerous states in the Northeast and Midwest … have suffered severely and will not regain those jobs anytime soon. By the end of its recession next year, Michigan will have lost nearly 13% of its job base since 2005; it will need more than a decade to replace them.” The following chart provides IHS estimates for when each state will return to pre-recession levels for jobs: State Return to prerecession job level Alabama 2013 Alaska 2011 Arizona 2014 Arkansas 2012 California 2013 Colorado 2012 Connecticut after 2015 Delaware 2013 District of Col 2010 Florida 2014 Georgia...
  • 5:02 PM » Freddie Mac Launches Effort to Help Servicers Handle Record Demand for Home Affordable Modifications
    Published Tue, Jul 28 2009 5:02 PM by Freddie Mac
    McLean, VA – As part of its support for President Obama's Making Home Affordable program, Freddie Mac (NYSE:FRE) today announced an agreement with Home Retention Services, Inc., a wholly owned subsidiary of Stewart Lender Services, Inc., to help several regional servicers process thousands of additional applications for Home Affordable Modifications.
  • 5:01 PM » The Fed: Commercial real estate is bank danger zone: Yellen
    Published Tue, Jul 28 2009 5:01 PM by Market Watch
    Commerical real estate is the new Achilles heel for the U.S. banking sector, says Janet Yellen, the president of the San Francisco Federal Reserve Bank.
  • 5:01 PM » The Shadow Banking System: Implications for Financial Regulation.
    Published Tue, Jul 28 2009 5:01 PM by NY Fed
    Tobias Adrian and Hyun Song Shin. The Shadow Banking System: Implications for Financial Regulation. Federal Reserve Bank of New York Staff Reports Staff Report Number 382, July 2009.
  • 5:01 PM » Why are there so many excess reserves?
    Published Tue, Jul 28 2009 5:01 PM by NY Fed
    Todd Keister and James McAndrews. Why are there so many excess reserves? Federal Reserve Bank of New York Staff Reports Staff Report Number 380, July 2009.
  • 2:26 PM » Federal Housing Finance Agency Reports Mortgage Interest Rates
    Published Tue, Jul 28 2009 2:26 PM by FHFA
    July 28, 2009: Federal Housing Finance Agency Reports Mortgage Interest Rates
  • 2:26 PM » Asset-Backed Securities Faring Best in Structured Finance
    Published Tue, Jul 28 2009 2:26 PM by Seeking Alpha
    submits: US and EMEA non-mortgage Asset-backed Securities continue to demonstrate the highest level of rating stability among structured finance instruments and are expected to remain resistant to downgrades, particularly at the ‘AAA’ level, according to Fitch Ratings. In its , Fitch said during Q209, the performance of US credit card ABS continued to deteriorate with increasing charge-offs and compressing excess spread compared to the prior quarter. However, the ratings on many trusts remained stable as issuers have taken various actions to increase credit enhancement (CE) and utilised the discount option.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 2:11 PM » Case Shiller Seasonal Adjustments
    Published Tue, Jul 28 2009 2:11 PM by The Big Picture
    See, I say one nice thing about Housing, and I am immediately proven wrong.(heh) Tim Iacono of points out that although the data showed the first monthly increase in three years, we should be wary of reading too much into the data this time of the year. Why? Seasonal Adjustments weak havoc with Case Shiller’s Index: From April to May, the 20-city index rose 0.5 percent while the 10-city index rose 0.4 percent, however, you can see in the chart below that there is a strong seasonal component to the data, monthly price changes improving around this time of the year regularly - look for more of the same in next month’s report. Bill at notes that “ Seasonally adjusted, prices fell in 12 of the 20 Case Shiller cities .” As always, the chart is revealing: > Seasonal Adjustments Source: > See also:
    Click Here to Read the Full Article

    Source: The Big Picture
  • 2:10 PM » Fed and Lenders Meet Over Foreclosures
    Published Tue, Jul 28 2009 2:10 PM by Realtor.Org
    Officials from the Treasury and HUD and 25 executives from mortgage companies plan to discuss programs to keep home owners intact.
  • 2:10 PM » Buyers Shouldn't Wait on Falling Prices
    Published Tue, Jul 28 2009 2:10 PM by Realtor.Org
    Although housing prices are still falling in many areas, consumers should take into account other considerations when determining how much a home will cost.
  • 2:10 PM » Consumer Confidence Numbers Retreat Again, Falling More Than Expected
    Published Tue, Jul 28 2009 2:10 PM by Google News
    After rebounding from the depths of hell in February, the Consumer Confidence Survey shows . The Conference Board Consumer Confidence Index™, which had retreated in June, declined further in July. The Index now stands at 46.6 (1985=100), down from 49.3 in June. The Present Situation Index decreased to 23.4 from 25.0 last month. The Expectations Index declined to 62.0 from 65.5 in June. Says Lynn Franco, Director of The Conference Board Consumer Research Center: " The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. " Those saying business conditions are "bad" increased to 46.3 percent from 45.3 percent, however, those saying conditions are "good" increased to 9.1 percent from 8.1 percent. Those claiming jobs are "hard to get" increased to 48.1 percent from 44.8 percent, while those claiming jobs are "plentiful" decreased to 3.6 percent from 4.5 percent. The percent of consumers anticipating an improvement in business conditions over the next six months decreased to 18.0 percent from 20.9 percent, however, those expecting conditions to worsen decreased to 18.9 percent from 20.4 percent. The labor market outlook was also mixed. The percentage of consumers expecting more jobs in the months ahead decreased to 15.0 percent from 17.5 percent, however, those expecting fewer jobs decreased to 26.3 percent from 27.6 percent. The proportion of consumers expecting an increase in their incomes declined to 9.5 percent from 10.1 percent. Consumer Confidence Falls More Than Expected A few extra details on the Consumer Confidence numbers are in Bloomberg's report...
  • 10:02 AM » A Look at Case-Shiller Numbers, by Metro Area (July 2009 update)
    Published Tue, Jul 28 2009 10:02 AM by WSJ
    The S&P/Case-Shiller home-price indexes , a closely watched gauge of U.S. home prices, posted their first month-to-month increase in nearly three years in May, but annual weakness continued. In the 20-city index, no area experienced year-over-year price gains, the fourteenth straight month that has happened. Boston, Cleveland, Dallas and Denver were the only areas with annual declines under 10%. Every other metro area was in double digits. However, 15 cities managed to avoid month-to-month declines, up from nine last month. Prices in Tampa and New York were flat, while just Los Angeles, Seattle, Miami, Phoenix and Las Vegas posted monthly declines. Las Vegas and Phoenix continued to posted the largest monthly and annual declines. Phoenix is down 55% from its peak in June 2006, while Las Vegas is off 53% from its highest level. On the positive side, Dallas and Denver have reported three consecutive months of positive returns. Ian Shepherdson of High Frequency Economics notes that the nose-dive in home prices that followed the collapse of Lehman Brothers and the intensifying credit crisis has begun to stabilize. “The plunge in prices reflected the freezing of credit and all-round panic, which generated a step decline in home sales. Activity is now recovering, and with inventory falling, prices are dropping much less quickly and could even rise a bit over the next few months.” Wells Fargo ’s John Silvia says the month-to-month pattern is more important than the steep annual declines. “Once again TV commentators that emphasize the year-over-year numbers being down 17% are welcome to have their sarcasm but they are missing the point as well as the turn,” he said. “Recession is over, economy is recovering — let’s look forward and stop the backward looking focus.” But Shepherdson says that while the plunge has stopped, sustained increases in home prices aren’t likely in the cards. “We would not expect any gains to last, because prices are still high relative to incomes...
  • 8:35 AM » Real Treasury Yields Highest In History
    Published Tue, Jul 28 2009 8:35 AM by Google News
    Bloomberg is reporting . The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week. Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.10 percent today, compared with an average of 2.74 percent over the past 20 years. The gap helps explain why investors are buying bonds after losing 4.8 percent this year, the steepest decline on record, according to Merrill Lynch & Co. indexes that date back to 1978. June CPI - All Urban Consumers click on chart for sharper image The above chart from by the BLS. The most noteworthy thing is housing costs, supposedly flat for a year. The next noticeable item is auto prices supposedly jumping at an annualized rate of 19.9% over the last 3 months. In the wake of clearance sales, rebates, incentives, cash for clunkers, etc., does anyone believe that? Huge Housing Errors In CPI The biggest error in the the CPI is housing and that error is compounded because housing has the highest weighting in the CPI. I talked about the effect of housing on the CPI in Case Shiller CPI vs. CPI-U click on chart for sharper image The above chart is courtesy of my friend "TC". CS-CPI fell at the fastest pace on record to measure at -6.2% year over year (YOY). Meanwhile the government’s CPI-U declined at the fastest rate since the 1950s at a -1.3% YOY pace. The diverge is to due to the government’s housing metric of Owners’ Equivalent Rent (OER) continuing to show price increases (+2.1% YOY) vs. Case-Shiller data showing price decreases (-18.1% YOY). In fact, since the housing market peak in June 2006 OER is up +7.6%, while the Case-Shiller index is down -32.6%, an amazing 4020 basis point divergence! CS-CPI Year over year has now fallen for 8...
  • 8:34 AM » Economists' Commentary: Regional Round Up, Part 1
    Published Tue, Jul 28 2009 8:34 AM by Google News
    Foreclosures are having a substantial impact in some markets, while unemployment is the primary concern in other locations.
  • 8:33 AM » Did You Know: State Fiscal Conditions
    Published Tue, Jul 28 2009 8:33 AM by Google News
    Did you know that according to the Center on Budget and Policy Priorities, 47 states face shortfalls in fiscal year 2009 or 2010?
  • 8:32 AM » Did You Know: Homeowner Vacancy Rate
    Published Tue, Jul 28 2009 8:32 AM by Google News
    In 2008 the U.S. the homeowner vacancy rate was 2.8 percent, up from 1.6 percent in 2000.
  • 8:31 AM » Did You Know: Home Ownership Rate by State
    Published Tue, Jul 28 2009 8:31 AM by Google News
    Did you know that the U.S. homeownership rate of 67.8 in 2008 is down from 69 percent in 2004, but up from 67.4 in 2000.
  • 8:30 AM » Home Valuation Code of Conduct - NIMBY?! No one is immune to the impact of the HVCC
    Published Tue, Jul 28 2009 8:30 AM by Google News
    Yesterday, my local newspaper published an Associated Press story with a follow up piece by local Pantagraph reporter, Bob Holiday - . It seems that two local appraisers and the local home builders association feel that the HVCC has not impacted their business. "Controversy over new appraisal rules that some contend are undermining the housing market hasn't made its way to McLean County." I've tried to post a comment there but only come up with an error message. I sent a personal email to the reporter, but so far he's "Unavailable for comment". So, not to waste my thoughts . . .I'm posting them here: The Bloomington-Normal market is NOT immune to the effects of the Home Valuation Code of Conduct (HVCC). Appraisal Ordering: The HVCC, in its effort to diminish pressure on real estate appraisers, attempts to place a “firewall” between loan production and the appraiser. When it became apparent that the HVCC would go into effect, most lenders either adopted a “blind” rotation system of assigning orders or began using an Appraisal Management Company (AMC) to handle the appraisal assignment process. Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a . Appraisal Pressure: The HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation. As a result of the HVCC, at least . AMCs are unregulated and can easily blacklist an appraiser when they do not meet value goals. Remember, AMCs are a business and they don’t want to lose a large lender client by assigning appraisals that are coming in “short”. That’s exactly what triggered the HVCC in the first place. Delays in processing: The HVCC can cause significant delays in real estate transactions , hurting real estate agents, title companies and other third parties reliant on turnaround...
  • 8:29 AM » 977,000 Mortgages in California are Toxic Waste: The Misleading Headline Numbers and New Home Sales Increase because of a $13,000 Price cut.
    Published Tue, Jul 28 2009 8:29 AM by Google News
    With any more spinning we would be in a financial carousel. New home sales data was released on Monday and showed a “whopping” increase in sales. This is the primary headline on all mainstream reports. Little is mentioned that the median price of a new home fell to $206,200 in June from $219,000 in May (small caveat). A drop of over $13,000 in one month apparently is not important enough to discuss. This is pure economics with prices falling you will expect new home sales to increase especially in the spring and summer months which are normally stronger. So even if we may be reaching a bottom nationwide in terms of months of inventory the coming wave of will guarantee that we have years of pricing pressure on the downside. In the last 2 weeks, the S&P 500 has rallied by over 11 percent. What would constitute an above average year in terms of gains was accomplished in two weeks. Not because of spectacular earnings but because people want to believe in the financial idols of Wall Street. Mixed earnings is not reason enough for this massive rally but Wall Street as you may have noticed does not reflect main street reality. Let us however focus on housing. The increase in sales is good but is largely being driven by massive price discounts and foreclosures which dominate in many markets including California: A couple of things we should highlight. Existing home sales make up the bulk of sales at any given point. Existing home sales look like they have stabilized but keep in mind that 30 to 40 percent of all homes sold for the past few months have been foreclosure resales (in California the number is more like 40 to 50 percent). So prices have been falling like a lead balloon and we have yet to experience the hit that will take down more prime locations in areas in California but also in places like Florida. The next thing to understand is historical context. The jump in new home sales is largely a price driven jump based on tax incentives and a deep cut in prices. Even...
  • 8:29 AM » How Appraisers Are Threatening Real Estate's Recovery
    Published Tue, Jul 28 2009 8:29 AM by CNBC
    Posted By: The good news is that sales volumes of new construction are rising; the bad news is they're doing so despite growing trouble with appraisals. I can't seem to talk to anyone in the real estate industry on any topic without hearing something about appraisals. Topics: | | Sectors: | MEDIA:
  • 8:29 AM » U.S. Housing Nearing Bottom, But Foreclosures Worrying
    Published Tue, Jul 28 2009 8:29 AM by Seeking Alpha
    submits: The 11% month-to-month rise in US new home sales in June reported yesterday grabbed the headlines, but some of the other indicators are more interesting. A roundup of analyst opinion by the WSJ’s blog finds a degree of consensus that the market is at or near a bottom. The fact that prices were down is in some sense good news as it brings affordability into better balance.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:13 AM » WaPo: Foreclosures Frequently Best Alternative for Lenders
    Published Tue, Jul 28 2009 8:13 AM by Calculated Risk Blog
    Note: I covered this research a few weeks ago: , but this is worth repeating ... From the WaPo: Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded. Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable. If the option is foreclosure or modification - and the modification will work, then the economics favor foreclosure. The problem is it is hard to tell if the borrowers will self-cure or redefault. Nearly a third of the borrowers who miss two payments are able to self-cure without help from their lender, according to the Boston Fed study. Separately, Moody's, a research firm, estimated that about a fifth of those who miss three payments will self-cure. And on redefault: Lenders also worry that borrowers may re-default even after receiving a loan modification. This only delays foreclosure, which can be costly to the lender because housing prices are falling throughout the country and the home's condition may deteriorate if the owner isn't maintaining it. In some cases, lenders lose twice as much foreclosing on a home as they did two years ago, said Laurie Goodman, senior managing director at Amherst Securities. When you compare the losses from foreclosure to the losses from modifications - and include self-cure risk and redefault risk - the researchers argue there are very few preventable foreclosures. Just something to remember, meanwhile from the WSJ: An Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers before they fall behind is failing to help as many people as expected. Among the problems: Some homeowners are being told...
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    Source: Calculated Risk Blog
  • 8:13 AM » "Precipitous" House Price Declines at the High End
    Published Tue, Jul 28 2009 8:13 AM by Calculated Risk Blog
    From the Chicago Tribune: (ht Ann) Real estate agents say they have never seen prices drop so precipitously when dealing with opulent, often empty high-end homes along the North Shore ... "It is a phenomenon we've never seen in our lifetime," said real estate agent Jason Hartong with Rubloff Residential Properties, who has seen some multimillion-dollar price tags cut nearly in half. ... Developers, many now in bankruptcy, were caught by surprise, as well. Vacant and unfinished homes dot the Chicago suburbs, with for sale signs that tout the "New Price." For instance, a custom-built stone home at 750 Sheridan Rd. in Winnetka priced at $5.5 million in November 2007 is going for $3.3 million. The problems are movin' on up the value chain.
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    Source: Calculated Risk Blog
  • 8:13 AM » Which Are the Credible Industry Trade Groups?
    Published Tue, Jul 28 2009 8:13 AM by The Big Picture
    On Sunday, I the Association of American Railroads “ Rail Time Indicators.” It was not showing any green shoots. That post, plus yesterday’s rant on the NAR (), led to a friend at Columbia University asking the following question: “Which of these associations are credible versus those that are NAR-like?” The best way to determine that is to look at the data they release, juxtaposed against any quotes from their spokesman/economist. Are they spinning, sugarcoating or otherwise “prettying up” the news release? Once you get through that review, take a closer look at their disclosed methodologies. Are they defendable approaches that produce negative as well s positive outcomes? Or are they biased, and unlikely to ever say a bad word about their respective industry or economic sectors? My favorite example of worthless data comes from the NAR — specifically, their . During the entire housing boom and credit bubble, they NAR HAI showed when houses were considered “less than affordable.” That is simply a pathetic joke making that . Other trade groups seem less biased and more reliable. The AAR seems like a legitimate group. As another example, let’s also take a look at the American Trucking Associations’ data. Specifically, the monthly advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index , released late yesterday afternoon. Following May’s 3.2% jump (seasonally adjusted of course) it fell 2.4% in June. This dropped the index to 99.8 (2000=100). The change in tonnage hauled by fleets before any seasonal adjustment was up 5.2% in June from May. Compare this with June 2008, when tonnage fell 13.6%. So far, the June 08 contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2 percent drop in April. Now consider the “no-spin” statement from the ATA’s Chief Economist, Bob Costello that accompanied this data release: “While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage...
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    Source: The Big Picture
  • Mon, Jul 27 2009
  • 4:59 PM » Adverse Selection
    Published Mon, Jul 27 2009 4:59 PM by Google News
    With health care reform in the news, there's been quite a bit of talk about adverse selection and the degree to which it is actually a problem in health care and health insurance markets. Some people have even gone so far as to question whether significant adverse selection effects exist at all outside of textbooks since when they look at the marketplace, they have a hard time finding it. But the thing is, if you go looking for it in the marketplace, you aren't likely to find it. Unless the problem has been largely overcome either the government intervention or the through private sector institutions constructed to fix the problem (generally intermediaries who can solve the information problem that generates the market failure), the market will fail to exist at all. So you will either observe a fairly well-functioning market that has overcome the problem, or you won't see a market at all. So if you want evidence of adverse selection, you should look for the institutions designed to overcome the problem - used car dealers with the expertise needed to overcome the one-sided information problem on car quality, and then issue quality guarantees (or develop a reputation for quality) acting as intermediaries, that sort of thing - and those types of intermediaries are easy to find. Evidence of the institutions needed to overcome adverse selection - and evidence thqat the problem exists - aren't hard to find. Furthermore, very often government intervention isn't needed, the market can solve this on its own. And the market will solve it on its own in the case of health care, but we may not like the solution the market comes up with. First, it violates our sense of equity since the solution will be to prevent people likely to have high health costs from getting insurance (or the price of insurance will be so high that they are effectively excluded). But we will still have to provide for them, we can't just abandon them to suffer when help can be provided...
  • 4:59 PM » Option ARMs: Good News, Bad News
    Published Mon, Jul 27 2009 4:59 PM by Calculated Risk Blog
    The good news, according to a Barclays Capital report, is not as many Option ARMs will recast in 2011 as earlier by Credit Suisse. The bad news is borrowers are defaulting en masse before the recast. From Bloomberg: (ht Brian) The wave of “option” adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller “than feared” because many borrowers will default before their bills change, Barclays Capital analysts said. ... About 40 percent of borrowers with option ARMs are already delinquent, and “many” of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. ... “The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,” the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote. ... More than $750 billion of option ARMs were originated between 2004 and 2008 ... Also some of the loans (mostly Wells Fargo) will later than the Credit Suisse chart. Also on Option ARMs from the WSJ a couple weeks ago: This suggests the recast related problems will happen sooner than the Credit Suisse chart suggests. That is good news in that the problems might not linger as long, and also suggests further price pressure in the short term for the mid-to-high end areas with significant Option ARM activity. UPDATE on Wells Fargo Option ARM portfolio, from (ht ): The Pick-a-Pay portfolio also performed as expected as we continued to de-risk the portfolio. I want to highlight some key points that are important for every investor to understand about this portfolio: First, not all option ARM portfolios are alike and we believe we have the best portfolio in the industry. While recently reported industry data, as of April 2009, indicates 37 percent of all industry option...
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    Source: Calculated Risk Blog
  • 1:37 PM » Economists React: Housing ‘News Sounds Better Than It Looks’
    Published Mon, Jul 27 2009 1:37 PM by WSJ
    Economists and others weigh in on . The June gain for both new and existing homes sales puts housing on a firmer foundation, but at a highly reduced sales pace — the firm foundation now sits in a very low valley. With mortgage rates and the unemployment rate higher in June, it is easy to see some giveback in new home sales next month. Looking farther ahead, a return to positive net job creation by early 2010 will go a long way toward building the first floor of a recovering housing market. –PNC This was a surprisingly strong report , and it adds to the growing body of evidence pointing to a modest rebound in the U.S. housing market. In fact, it is hard not to get a tad bit excited about the outlook for the U.S. housing market, as it appears that U.S. homebuyers may be beginning to take advantage of the favorable buying environment, particularly given the low mortgage rate, affordable prices and the many inducements coming from the federal government. Even so, the dismal state of the U.S. labor market will continue to cast a long shadow over the prospects for a meaningful recovery in the sector in the near term. –Millan L. B. Mulraine, TD Securities A couple of cautionary notes . First, the report showed a sharp 6% sequential decline in June suggesting that much of the sales activity was concentrated at the lower end of the market. Second, sales contracts that were signed in June may have been tied to the lows in mortgage rates that were recorded in April and May… If the June sales pace can be sustained then the months’ supply should approach the normal range of 5.5 to 6 months by early 2010. However, if the sales pace turns lower in coming months and housing starts continue to rebound, then the inventory imbalance will persist. –David Greenlaw, Morgan Stanley Unlike the prices of existing homes , the median sales price of new homes sold fell in June by 5.8% from the May median and 12% from a year ago. However, the average sales price was essentially unchanged in June...
  • 1:26 PM » Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
    Published Mon, Jul 27 2009 1:26 PM by
    Members of Congress probing threats to the global financial system — especially the threat of concentration of risk — will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an "overwhelming majority of the exposure is concentrated among financial institutions," according to the rating agency's review of first-quarter financials.
  • 11:49 AM » Secondary Sources: Bernanke Reappointment, Federalism, Decoupling
    Published Mon, Jul 27 2009 11:49 AM by WSJ
    A roundup of economic news from around the Web. The New York Times opinion pages this weekend had a pro and con look at whether Ben Bernanke should be reappointed. Anna Schwartz isn’t impressed: “As Federal Reserve chairman, Ben Bernanke has committed serious sins of commission and omission — and for those many sins, he does not deserve reappointment.” Nouriel Roubini takes : “Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.” James Surowiecki of the New York writes about the problems with state governments. “If you came up with a list of obstacles to economic recovery in this country, it would include all the usual suspects—our still weak banking system, falling house prices, overindebted consumers, cautious companies. But here are fifty culprits you might not have thought of: the states. Federalism, often described as one of the great strengths of the American system, has become a serious impediment to reversing the downturn.” Sébastien Wälti looks at the decoupling myth. “Have emerging market economies decoupled from advanced economies’ business cycles? This column, looking at emerging markets’ trend growth rates, argues that decoupling was always a myth and that globalization brings national business cycles closer together.” Compiled by
  • 11:02 AM » Bernanke Live: Fed Chairman Faces PBS Viewers
    Published Mon, Jul 27 2009 11:02 AM by WSJ
    After testifying at three congressional hearings in the past week, Ben Bernanke takes his show on the road tonight for a different kind of audience. Bernanke, seen here during congressional testimony, faces a different kind of audience in a town-hall meeting Sunday night. (Getty Images) The Federal Reserve chairman is in Kansas City, Mo., for a town-hall forum hosted by The NewsHour’s Jim Lehrer . The taped program will appear this week . But we’re here at the Federal Reserve Bank of Kansas City to bring it to you live on Real Time Economics. It’s pretty good timing for Mr. Bernanke. He has six months and five days left in his four-year term as chairman. In the coming months, President Obama will decide whether to reappoint Mr. Bernanke or choose someone else (that is, someone with Democratic credentials) to lead the central bank. The Fed chairman’s from the deep recession and his decisions ahead of it. At the same time, the Fed is who want the central bank’s power reined in after its extraordinary actions to keep the economy from falling into another depression. So the former professor has spent this year moving beyond the Fed’s usual forums. He appeared before the National Press Club in February, sat down for and to explain his actions and show he’s not afraid to take on public criticism. You also can see a rundown of the event on . An executive with The NewsHour was telling reporters the program’s goal for tonight. Then Mr. Bernanke stopped by to say hello before the forum started, so one reporter asked him his goal for the event. His answer: “My goal is to talk to people outside the Beltway to hear what they are thinking, and do the best I can to try to explain what’s happening in the economy.” Discussions to do the forum began in March after the “60 Minutes” program featuring Mr. Bernanke, said Robert Flynn, a spokesman for The NewsHour. Why Kansas City? “We wanted to be somewhere in the middle of the country, away from the coasts and away from Washington,” he said...
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