MBA: Q3 mortgage performance deteriorates … again

by Mike Larson on November 19, 2009

in Consumer Credit News, Debt, Economy, Housing Market, Real Estate

Q3+2009+MBA+Delinquency+Rate+Chart MBA: Q3 mortgage performance deteriorates ... again
The Mortgage Bankers Association’s figures on home loan performance just keep getting worse and worse. Here is what things looked like in Q3 2009:

* The overall mortgage delinquency rate surged to 9.64% in Q3 2009 from 9.24% in Q2 2009 and 6.99% a year earlier. Once again, this is a fresh record high for the data series, which goes back 37 years. For some historical perspective, the recent low for the delinquency rate was 4.31% in Q1 2005.

* Breaking it down by loan type, the subprime DQ rate rose to 26.42% from 25.35% a quarter earlier and 20.03% a year earlier. The prime-only DQ rate climbed to 6.84% from 6.41% in Q2 2009 and 4.34% a year earlier.

* And how about the “new subprime” behemoth — the Federal Housing Administration? Delinquency rates there continue to march higher, rising to 13.9% from 13.62% a quarter earlier and 12.27% a year earlier. That’s the worst FHA credit performance in U.S. history. The increase occurred despite a large increase in the overall number of FHA loans, which should lower the delinquency rate, all else being equal.

Like I said last quarter, the FHA program has become the “go to” place for borrowers who previously might have taken out subprime or Alt-A loans. By keeping lending standards incredibly lax (3.5% down payments anyone?) FHA is playing with fire. Grab your wallets taxpayers!

* The percentage of mortgages entering the foreclosure process resumed its climb, rising to a record high of 1.42% from 1.36% a quarter earlier. The overall percentage of mortgages in any stage of foreclosure climbed to 4.47% from 4.3%. Just over 14 out of every 100 loans in the U.S. are now distressed in one form or another, the most ever.

* Regionally, delinquency rates were still the worst in Mississippi at 14.4%. Nevada was a close second at 14%, followed by Georgia at 12.93% and Michigan at 12.64%. Florida had the highest percentage of loans in foreclosure at 12.74%, followed by Nevada at 9.44%.

Lousy mortgage performance continued into the third quarter. Both delinquency and foreclosure rates rose to new all-time records, with deterioration virtually across the board. The FHA loan program is now joining the Alt-A and prime markets in the woodshed, which just goes to show how silly it is to maintain lax lending standards in the midst of the worst housing downturn on record. Even the CEO of home builder Toll Brothers, Robert Toll, yesterday called FHA “a definite train wreck and the flag will go up in the next couple of months: Bail us out. Give us more money.”

Going forward, aggressive modification programs and a nascent stabilization in the housing market will eventually lead to a turn in performance ratios. But this process will play out with a lag. And it goes without saying that nothing can change the fact we binged on real estate as a country … and now we’re paying a heavy price.

October housing starts, permits tank

by Mike Larson on November 18, 2009

in Economy, Housing Market, Real Estate

We just got the latest data on housing construction activity. Here’s a recap:

* Overall housing starts plunged 10.6% to a seasonally adjusted annual rate of 529,000 in October from 592,000 in September. That was much worse than the 600,000 units that economists were expecting. Building permit activity was also weak. Permitting activity dropped 4% to 552,000 from 575,000. Economists were expecting a reading of 580,000.

* By property type, single family starts more than reversed the strong gain in September, falling 6.9%. Multifamily starts tanked 34.6%, though it’s worth pointing out how volatile MF figures can be. Single family permits dropped 0.2%, while multifamily permits fell 17.9%.

* What about the regional breakdown? Negative across the board for starts. They fell 8.5% in the West, 9.6% in the South, 10.6% in the Midwest and 18.8% in the Northeast. Building permit activity was marginally better, with declines of 5.8% in the South and 6.7% in the West. Permits were flat in the Northeast and up 2% in the Midwest.

Here’s the housing mantra I want to keep repeating: “Three steps forward, two steps back.” That is how I have said the housing recovery would play out, and that is, in fact, how it’s progressing. The latest starts figures are no exception. Perhaps out of fear of the expiration of the home buyer tax credit, builders pulled back on both starts and permits in October. The hit was particularly severe in the volatile multifamily sector. But even the single family market fell in a ditch.

As bad as the monthly report was, however, starts are still above the absolute low for this cycle (479,000 in April for overall starts, 357,000 for single-family). Builders also have just 251,000 new homes for sale. That’s the lowest level since November 1982, which tells me a pick up in construction is inevitable.

On the demand front, the tax credit has been extended and expanded. The Federal Reserve’s manipulation of the mortgage market is keeping financing costs down. And improving affordability in many markets — thanks to plunging prices — is slowly bringing buyers out of the woodwork.

So yes, the bubble days are long gone. They won’t be coming back for several years. But I still believe we will see a slow, steady recovery in sales … a gradual decline in the number of homes on the market … a tepid rebound in home construction … and broad-based stabilization in home prices as we head later into 2010. Yesterday’s NAHB report, and this morning’s construction data, makes sense when viewed in that context.

Morning Run … November 17, 2009

by Bryan Rich on November 17, 2009

in General

Key News

 

* International Purchases of Long-Term U.S. Assets Rose  (Bloomberg)

* Fed’s Yellen: Rate Policy May Be Used Against Asset Bubbles (Bloomberg)

* Obama Urges China to Heed Commitment on Currency Appreciation (Bloomberg)

* Japan Deflation Concern Rises Even as Growth Quickens  (Bloomberg)

 

The Event Agenda

nov 17 data2 Morning Run ... November 17, 2009

Morning Run-Down

 

There has been a lot of information to digest over the weekend and through the New York trading session this morning.  After looking like another leg of the dollar sell-off was underway yesterday — as stocks broke to new highs and the dollar index fell to 2009 lows — today the dollar is very bid and decoupling from a fairly quiet stock market.

 

The dollar commentary by Bernanke yesterday in his speech at the Economic Club in New York stirred the market causing a sharp rally in the dollar initially and then an even sharper reversal of that rally.  The commentary was benign, suggesting that if they take care of the economy the dollar will remain strong (a la Geithner).  But it is being digested today as dollar positive for the sole reason that Bernanke made a concerted effort to address the dollar…normally the Treasury’s territory.  Here is the excerpt…

 

“The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.”

 

Overnight, the Reserve Bank of Australia released minutes from its last central bank meeting.  They hiked rates for the second consecutive time at the meeting two weeks ago, but the minutes revealed that the board questioned whether to raise rates at all.  The market expected 50 bps, they raised by 25 bps.  The cautious tone of the minutes indicates that rates will likely stay put for the months ahead.  That’s putting pressure on the Aussie dollar today, down 1.2% after printing a new 2009 high yesterday. 

 

Obama’s visit to China didn’t yield an acknowledgement by the Chinese that they need to allow the yuan to appreciate.  Obama did comment, while in the presence of Hu Jintao, on the prior statements by the Chinese about moving toward market-oriented exchange rates.  Going into the weekend the market was pricing in a 3.5% appreciation of the yuan vs. the dollar by next year.  And today, it’s pricing in just 2.8% appreciation. 

 

Here’s a look at the charts…

Key Charts

 

The S&P 500 breached the two year descending trendline yesterday opening up for a move to 1200.  Stocks are fairly quiet today.  With the dollar moving higher today, this breakout scenario in stocks looks suspect.

 

nov 17 spx 2 Morning Run ... November 17, 2009

The 1.50 area in the euro has proven very challenging, and after another run above that level yesterday the euro is trading very heavy today.  For clues on where the euro goes from here… look for a break of 1.4720 area on the downside (the white line) and 1.5063 (prior high) on the topside. 

nov 17 eur 2 Morning Run ... November 17, 2009

The unemployment rate has reached levels not seen since 1983…I proposed last week in this commentary that unemployment at 10% might mean the same to consumer confidence as $4 gas?  Gas prices reached $4 in June of 2008.  As a result, consumer confidence printed its lowest level since 1980.  The UMich consumer confidence number from Friday was the biggest negative surprise on record (Bloomberg data) going back to 1999.   The market expected 71, the actual number was 66.

nov 17 mich2 Morning Run ... November 17, 2009

International purchases of long-term US securities rose in September to 133 billion, the most since October of 2008.

nov 17 tic flows 2 Morning Run ... November 17, 2009

NAHB index flat in November

by Mike Larson on November 17, 2009

in Economy, Housing Market, Real Estate

The National Association of Home Builders just released its latest builder sentiment index. The reading came in at 17. That was unchanged from a downwardly revised 17 in October and slightly below the 19 number economists were expecting.

Among the sub-indices, the one measuring present single family sales was unchanged at 17. The prospective buyer traffic sub-index held at 13, while the sub-index measuring expectations about future sales rose to 28 from 26. Regionally speaking, it was a mixed bag. The Northeast index dropped sharply to 19 from 25, but the West index jumped to 19 from 14. The Midwest index fell to 14 from 17, while the South index was unchanged at 17.

The”three steps forward, two steps back” housing market recovery remains on track. But as I’ve noted numerous times, it won’t be a robust rebound. The home buyer tax credit is helping bolster demand, as is the Federal Reserve’s manipulation of the mortgage market. Improving affordability in many markets — thanks to plunging prices — is also bringing buyers out of the woodwork.

But the bubble days are long gone, and won’t be coming back for several years. Instead, we’ll see a slow, steady recovery in sales … a gradual decline in the number of homes on the market … a tepid rebound in home construction … and broad-based stabilization in home prices as we head later into 2010. The latest NAHB report makes sense when viewed in that context.

THAT’s all the bang Bernanke got for his … er … buck?

by Mike Larson on November 16, 2009

in Commodities, Currency Analysis, Falling Money, Interest Rate News

DXY+chart+111609 THATs all the bang Bernanke got for his ... er ... buck?

Holy cow! That didn’t last long. Look at this intraday chart of the Dollar Index. If that’s all the bang Bernanke can get for his … er … buck, the dollar is sicker than even I thought (and that’s saying something)!

The surprise of the day: Bernanke actually acknowledges the dollar decline

by Mike Larson on November 16, 2009

in Currency Analysis, Economy, Falling Money, Interest Rate News

The text from Fed Chairman Ben Bernanke’s speech in New York was just released. For a change, he actually mentioned the dollar and suggested that its movements could factor into policy decisions. That has led to a bounce in the Dollar Index from its daily low. The operative text is below:

“The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.”

At the same time, Bernanke essentially promised to keep the same policies in place that are leading to a dollar decline. Specifically, he added:

“The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Of course, significant changes in economic conditions or the economic outlook would change the outlook for policy as well. We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability.”

So the question now becomes, “Is talk enough for more than a bounce in the buck?” I don’t believe so, but the market action bears watching.

More dollar drama — and the core reason for the carry trade

by Mike Larson on November 11, 2009

in Currency Analysis, Debt, Economy, Falling Money, Interest Rate News

There’s a lot of chatter on the dollar front today. Treasury Secretary Tim Geithner told a group of Japanese reporters that he “believe[s] deeply that it’s very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar.”

The Asia-Pacific Economic Cooperation forum is also up in arms about the falling greenback, according to the Wall Street Journal. Policymakers are reportedly prepared to give President Barack Obama an earful when he travels to Asia later this week. In the words of one delegate:

“Nobody in Asia, and only some in Europe, will speak publicly about their worries, but they are worried … The world — not only APEC, but the world — needs direction and the only country that can provide this direction is the United States. This can only be achieved through a stable U.S. currency.”

But in a candid moment, the Thai Finance Minister Korn Chatikavanij admitted that his country has wasted $15 billion trying to keep the baht from appreciating against the buck. And he verbalized what currency investors all know about the sorry state of the U.S. economy:

“But there is not much you could do to correct what is reality. The fact is when you’ve got that much debt … the only effective way of repaying that debt is basically devaluing your currency.”

In other words, all this is talk. The U.S. likely won’t do anything about the dollar decline as long as it remains orderly … which virtually guarantees at some point that the decline will NOT remain orderly.

By the way, if you’re wondering why the dollar is being sold in so many carry trades, the answer is quite simple. It’s the cheapest currency on the block to borrow! Three-month dollar LIBOR rates were recently 0.27%. That’s less than the 0.32% cost of borrowing Japanese yen … the 0.61% rate to borrow money in pounds sterling … and the 0.68% rate for euro-based loans. In other words, as long as the Fed continues to keep the taps wide open, leveraged global investors are going to get drunk off of the cheap money.

Morning Run … November 10, 2009

by Bryan Rich on November 10, 2009

in General

Key News

 

* Fitch: U.K. Most at Risk of AAA Downgrade (WSJ)

* Europe’s industry slams China over currency (WSJ)

* IEA Cuts 2030 Oil Demand Forecast on Economy, Climate Policy (Bloomberg)

* Brussels to rebuke Greece over budget deficit (FT)

 

 

The Event Agenda

nov 10 data Morning Run ... November 10, 2009

Morning Run-Down

 

With the central bank events of last week behind us, the markets jumped back on the “risk taking” theme. 

 

Yesterday, the dollar was under pressure from an IMF report over the weekend.  The IMF said within the report that the dollar was “on the strong side.”  It also said the euro was “on the strong side” and that emerging market currency strength was causing problems.  It later made a direct statement about the undervalued yuan in China, which was the purpose of its statement on currencies.  Nonetheless, the markets don’t need much of an excuse to sell dollars, and so they did. 

 

Yesterday’s selling pressure in the dollar left key currencies testing critical lows/highs of this risk rally.  The euro neared its post March highs of 1.5063, the dollar index is sitting on the post March lows, and some key emerging market currencies are testing highs against the dollar…Brazil  Korea, Thailand…  These levels are important to watch.  So far, they have held and the dollar is trading on firmer footing today.

 

Some key developments over night…

 

Fitch says the country most at risk of a downgrade from AAA is the UK.  The pound has been under pressure since, following the unexplainable strength over the past month.  Overall the data has been heavily pound negative relative to almost every currency.  The UK economy surprisingly shrank last quarter and the BOE is, again, expanding its asset purchase program—big growth and policy differentials, yet the pound has experienced some recent strength.

 

There are a slew of Fed speakers coming up… 

nov 10 fedspk Morning Run ... November 10, 2009

 

Here’s a look at the charts…

 

Key Charts

 

The S&P 500 continues to be contained by the downtrend from October of 2007 highs, though the breakdown of the uptrend from March (the red line) failed yesterday, with prices reversing back toward highs for the year.

nov 10 spx Morning Run ... November 10, 2009

The euro 1.5063 prior high is critical for the risk trade.  A breakout would likely coincide with a breakout in stocks. 

nov 10 euro Morning Run ... November 10, 2009

The unemployment rate from Friday reached levels not seen since 1983…Will unemployment at 10% mean the same to consumer confidence as $4 gas?  Gas prices reached $4 in June of 2008.  As a result, consumer confidence printed its lowest level since 1980.  With a bounce back in confidence to 70, look for the number on Friday to disappoint…

nov 10 unem2 Morning Run ... November 10, 2009

The VIX (the fear gauge) after spiking to post Lehman levels has settled back quickly … A sign that conviction is light, but complacency is dangerously heavy.

nov 10 vix Morning Run ... November 10, 2009

 

 

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by Martin Weiss on November 10, 2009

in General

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Ex-Fed Governor Mishkin is an idiot

by Mike Larson on November 10, 2009

in Economy

I’m sorry, I can’t make it any more plain than that. To argue that financial bubbles aren’t dangerous, and that the Fed shouldn’t try to combat them — which is what ex-Fed governor Frederic Mishkin just did in the Financial Times — is monumentally stupid. Can this guy be serious? Haven’t we seen what a huge disaster the Fed’s “Don’t fight bubbles when they’re inflating — just ‘mop up’ when they pop” approach has been? I seriously hope sitting members of the Fed don’t believe this claptrap.

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