Housing sales fall, factory output increases

The National Association of Realtors said its seasonally adjusted index of sales agreements fell 16 percent from October to a November reading of 96. It was the first decline following nine straight months of gains and the lowest reading since June. The drop was far larger than the 2 percent expected from economists surveyed by Thomson Reuters, and analysts were surprised. "This was bound to happen at some point, although not by this much," wrote a startled Jennifer Lee, senior economist with BMO Capital Markets. "Gulp," she added. "It will be at least early spring before we see notable gains in sales activity as homebuyers respond to the recently extended and expanded tax credit," Lawrence Yun, the Realtors' chief economist, said in a statement.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of future sales. Pending sales were down 26 percent from October in the Northeast and Midwest, 15 percent in the South and 3 percent in the West. "This sudden drop risks the stability housing markets have enjoyed in recent months," wrote Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. The good news is that orders to U.S. factory output posted a big gain in November, according to the Commerce Department. That data was the latest evidence of a strong turnaround in manufacturing as industries from China to Europe show signs of recovery. Orders rose by 1.1 percent in November, more than double the 0.5 percent increase economists had forecast. The increases were widespread with the exception of autos and aircraft, which posted declines. The Institute of Supply Management had reported Monday that its key gauge of U.S. factory activity showed manufactur ing was expanding in December at the fastest pace in more than three years.

Olick on HAMP

Diana Olick from CNBC is back from vacation and is no fan of President Obama's HAMP bailout: "Clearly the housing boom of the past decade was fueled far more by faulty mortgage products than low interest rates, and to find proof of that you need look no further than the government's own mortgage bailout. The Home Affordable Modification Program (HAMP) is trying desperately to keep these faulty mortgages alive by changing their interest rates, but many many borrowers are unable to meet even the lower monthly payments. The underwriting, the lending, the products themselves are simply irreparable. And we're about to find out how monetary policy affects the housing market, as the Fed winds up its $1.25 trillion program to buy Fannie and Freddie securities, thereby artificially keeping interest rates low by keeping demand high. The Fed claims its on track to pull out March 31st, as planned. Add that to current shenanigans in the bond market which are pushing mortgage interest ra
tes up already, and you'll get that monetary policy whether you like it or not. What's interesting in all of this is that the action in the housing market right now is cash-only buyers/investors. They're sidestepping the mortgage market entirely. But as I said, these are investors, by and large, and not real organic home buyers. The housing market, while it may have become a commodities market over the past decade, is inherently not one and therefore cannot recover with investors alone."

Financial crisis not over

According to several top economists at the annual American Economic Association, America's financial crisis is nowhere near over. That stands in sharp contrast to rising optimism in the banking sector, which analysts say has benefited disproportionately from government bailout efforts. "The recession is not over," said Michael Intriligator, professor of economics at the University of California, Los Angeles. He predicted economic output would not return to pre-crisis levels until 2013, while the job market would not fully recover until 2016. U.S. gross domestic product expanded 2.2 percent in the third quarter, but the sustainability of the recovery remains the subject of fierce debate. Simon Johnson, an economist at MIT's Sloan School of Business, said that by propping up the financial sector, government efforts to date are only delaying another inevitable crash. By giving large financial institutions the assurance that they are too big to fail, and thereby offering an
implicit guarantee to excess risk-taking, Barack Obama has made the problem worse. "The crisis is just beginning," Johnson said. "Have bankers won? In the short-term, absolutely. The immediate opportunity for change has already been missed."

Bankers optimistic

As if to bolster what Simon Johnson said above, Jim O'Neill, head of global economic research at Goldman Sachs (a banker), is wildly optimistic, claiming that the global economic rebound is likely to be even stronger than many have anticipated and developed markets have the potential to outperform emerging markets. Goldman Sachs analysts estimate that the world economic growth will be 4.4 percent this year and 4.5 percent in 2011. Investors should be "really hopeful" about the US economy, after Monday's ISM survey results, according to O'Neill. "It looks like you've got an environment with stronger than expected growth, with policy makers at least in the West still saying 'we're not doing anything guys, go ahead and party,'" said Clive McDonnell, a regional strategist at BNP Paribas Securities.

DS News.com - Mortgage-Related Failures Hit Record Level in 2009 According to MortgageDaily.com, a source of mortgage news for the mortgage industry, more than 200 mortgage-related firms ended operations or failed last year, the highest number since the site began tracking the data in 1998. The previous record was set in 2007, but 2009 now marks the worst year in the industry. Up from the revised 124 closings in 2008, the closings of 225 mortgage-related operations were tracked in 2009 at the mortgage graveyard – a journal of failed lenders maintained by MortgageDaily.com. As banks account for most of the country’s residential originations, MortgageDaily.com said the annual surge in mortgage-related failures was fueled by a 400 percent spike in bank failures. In addition, credit union failures, including corporate and state-regulated institutions, were up by more than a third. Ocala, Florida-based Taylor Bean & Whitaker Mortgage Corp. was among last year’s most notable failures. The company was forced into bankruptcy after it was s uspended by the Federal Housing Administration (FHA) in August. Lend America, based in Melville, New York, lost FHA approval in November and suffered a similar fate. Tied to the failure of Taylor Bean, Montgomery, Alabama-based Colonial Bank was seized by the Alabama State Banking Department in August and sold to BB&T.
US auto sales hit 30 year low in 2009

US auto sales are expected to have hit a 30-year low of about 10 million when figures are released today, but analysts expect more than 1 million cars and light trucks to have been sold in December, the best monthly performance since Cash for Clunkers in August. Financial firms wrote 5.5 percent more car loans in the third quarter compared with the prior three months, Experian Automotive says. Fourth-quarter figures aren’t yet available, but Jesse Toprak, vice president of the auto pricing tracker TrueCar Inc., said December saw an uptick in auto-loan approvals for consumers with average or above-average credit. Today, a top-tier borrower can get a 36-month auto loan with an average monthly rate of 5.74 percent, down from 6.65 percent a year ago, according to Informa Research Services. But the cost has risen for people in the bottom tier: The average rate has climbed to 18.56 percent, from 16.47 percent a year ago.

CMBS Delinquencies May Grow 58% in Next Six Months

According to monthly research by credit-rating agency Realpoint, the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) rose “substantially” in November – more than 16% – to $37.93bn from the previous month, and the rate of growth looks likely to continue. Multifamily loans surpassed retail loans in November as the largest contributor to overall CMBS delinquency, Realpoint said. The sector accounted for 1.23% of the CMBS universe, but 26% of total delinquency. The overall delinquent unpaid balance of CMBS rose “an astounding” 440% from one year earlier, when $7.03bn of unpaid balance was delinquent in November 2008. Realpoint indicates the rate of growth in delinquency looks unlikely to let up as the market heads into 2010. “Overall, following the delinquency reporting of the $4.1bn Extended Stay Hotel loan and the experienced average growth month-over-month, we now project the delinquent unpaid CMBS balance to continue along its curre nt trend and grow to between $50bn and $60bn by mid 2010,” Realpoint researchers wrote in the December 2009 report. With these figures, Realpoint expects delinquent CMBS to grow as much as 31-58% by mid-2010. Realpoint researchers project the delinquency percentage to grow between 5% and 6% through Q110, potentially surpassing the 7-8% mark under heavy stress scenarios through mid-2010.
 

Making Home Affordable a disaster

Critics of the Obama administration’s $75 billion program to protect homeowners from foreclosure increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes, and some economists and real estate experts now contend it has done more harm than good. They say many desperate homeowners have sent payments to banks in efforts to keep their homes, wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system. “The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset M
anagement, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.” Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

Jobless claims down

The Labor Department says there were 432,000 initial jobless claims filed in the week ended Dec. 26, down 22,000 from the previous week's revised 454,000, and the lowest since July 19, 2008, when there were 413,000 claims filed. A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 460,000. Jobless claims have been trending downward since the end of March, when they peaked at 674,000, the highest figure since 1982. 4,981,000 people filed continuing claims in the week ended Dec. 19, the most recent data available. That's 57,000 down from the preceding week's revised 5,038,000 claims. The 4-week moving average for ongoing claims fell by 122,250 to 5,101,250 from the previous week's revised 5,223,250. However, the fact that employers are running out of people to lay off isn't necessarily a good thing. The slide may signal that more filers are dropping off those rolls into extended benefits. The employment picture will continue to improve a s jobless claims continue to fall, but Tim Quinlan, economic analyst at Wells Fargo, said they will need to drop near 350,000 for positive job growth.

Not in 2010

Experts from a range of political leanings, speaking at American Economic Association's annual gathering, were in agreement when it came to the chances for a robust and sustained expansion in 2010. It won't happen. Many predicted U.S. gross domestic product would expand less than 2% per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake. Housing was at the heart of the nation's worst recession since the 1930s, with median home values falling over 30% from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada. The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country's growth pattern. The steep drop in home prices has also boosted their propensity to save. "It's very hard to see what will replace it," said Joseph Stiglitz, Nobel laureate and profe ssor of economics at Columbia University. "It's going to take a number of years." One reason is that U.S. consumers remain heavily indebted. Another is that many of the country's largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department. He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines. "There's something of an illusion of profitability," he said.

Small business delinquencies rise again

Severe delinquencies by small and medium-sized U.S. businesses on the loans, leases and lines of credit to finance capital equipment rose again in November as lenders remained reluctant to extend fresh financing, PayNet Inc reported on Monday. Accounts behind 180 days or more, and unlikely ever to be paid, rose to 0.91% in November from 0.87% in October, according to PayNet, which provides risk-management tools to the commercial lending industry. It was the 22nd consecutive monthly increase in loans so far in arrears they ultimately may have to be written off by lenders. Accounts in moderate delinquency, or those behind by 30 days or more, rose in November to 4.33% from 4.19% in October, according to PayNet. But accounts 90 days or more behind in payment, or in severe delinquency, improved modestly in November, slipping to 1.40% from 1.43% in October. It was the fourth consecutive improvement in the measurement. That was not the only glimmer of light in PayNet's monthly report. The company's Small Business Lending Index, which measures the overall volume of financing, fell just 11% year-over-year in November. While that indicates that lenders remain reluctant to extend credit to small and medium-sized businesses, it was the smallest decline in the index since the recession began. "We're not out of this slump yet," said Bill Phelan, president and founder of Skokie, Illinois-based PayNet. "But the year-over-year decline in the small-business lending index is smallest so far in this downturn and continues an encouraging trend line. From January through May, the index was falling 25 to 33%. And then from June to October, we saw moderating declines of 16 to 21%. So 11% is really another step in the right direction."

Everyone on government payroll?

"Why don't we just put everyone in the United States on the federal government payroll and call it a day?" asks Rep. Jerry Lewis, R-Calif. He's talking about the latest "Jobs for Main Street Act" title that House Democrats put on their $174 billion package last month. Republicans are calling it "son of the stimulus," the $787 billion economic recovery plan of nearly a year ago that they say was ineffective at producing jobs. Jobs from the House bill's $75 billion in infrastructure and public sector spending include tens of thousands of new construction jobs, 5,500 more police officers, 25,000 additional AmeriCorps members, 250,000 summer jobs for disadvantaged youth, 14,000 part-time jobs for parks and forestry workers - basically all government jobs in one form or another. Absent from the House plan were President Barack Obama's proposals to attack unemployment through tax credits for small businesses that create jobs and for homeowners who make their dwellings more ener gy efficient.

Even the investment in "shovel-ready" highway and bridge projects may not immediately translate into a reduction in the nation's 10 percent unemployment rate. Republicans cited government figures showing that, as of Sept. 30, only 9 percent of $27.5 billion for highways in the first stimulus bill had been spent. The Congressional Budget Office estimates that of the $39 billion in the new House jobs bill directed to the departments of Transportation and Housing and Urban Development, only $1.7 billion will get spent before next October. A lot of the money "hasn't even gotten out of Washington yet," said Rep. Eric Cantor of Virginia, the House's second-ranked Republican. "Why is it still here if it was designed to create jobs?"

Wall Street Journal scorches Obama

The Wall Street Journal released an editorial today that doesn't have nice things to say about " the Treasury's Christmas Eve taxpayer massacre." It's referring to the lifting of the $400 billion cap on potential losses for Fannie Mae and Freddie Mac as well as the limits on what the failed companies can borrow. According to the editorial, "The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. Most of their losses are still coming from subprime and Alt-A mortgage bets made during the boom, but Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter." And that's not all the WSJ has to say, either. " The government wants taxpayers to think that these are profit-seeking companies being nursed back to health, like AIG. But at least AIG is trying to make money. Fan and Fred are now designed to los e money, transferring wealth from renters and homeowners to overextended borrowers. Even better for the political class, much of this is being done off the government books. The White House budget office still doesn't fully account for Fannie and Freddie's spending as federal outlays, though Washington controls the companies. Nor does it include as part of the national debt the $5 trillion in mortgages—half the market—that the companies either own or guarantee.

The companies have become Washington's ultimate off-balance-sheet vehicles, the political equivalent of Citigroup's SIVs, that are being used to subsidize and nationalize mortgage finance. This subterfuge also explains the Christmas Eve timing. After December 31, Team Obama would have needed the consent of Congress to raise the taxpayer exposure beyond $400 billion. By law, negative net worth at the companies forces them into "receivership," which means they have to be wound down. Unlimited bailouts will now allow the Treasury to keep them in conservatorship, which means they can help to conserve the Democratic majority in Congress by increasing their role in housing finance. With the Federal Reserve planning to step back as early as March from buying $1.25 trillion in mortgage-backed securities, Team Obama is counting on Fan and Fred to help reflate the housing bubble." Surely "hope and change" didn't mean the sort of slimy Chicago politics the WSJ claims the Obama admini stration is playing? The editorial ends with this scorcher: "In today's Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money. The politicians have used the panic as an excuse to reform everything but themselves."
 

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