Economy Moving Sideways at Best

click on graph for larger size

This graph shows that the National Association of Home Builder's Housing Market Index (HMI) and single family starts mostly move in the same direction.

Residential investment (RI) is one of the best leading indicators for the economy, and the best indicators for RI are the NAHB HMI, housing starts, and new home sales. And these indicators are moving sideways (at best).

Note: The largest components of residential investment are new home construction, and home improvement. This includes brokers' commissions and some minor categories.

2009 Record Foreclosures & More in 2010

A record 2.8 million households were threatened with foreclosure last year, and that number is expected to rise this year as more unemployed and cash-strapped homeowners fall behind on their mortgages. The number of households that received a foreclosure-related notice rose 21 percent from 2008, RealtyTrac Inc. reported Thursday. One in 45 homes were sent a filing, which includes default notices, scheduled foreclosure auctions and bank repossessions. In December, more than 349,000 households, or one in 366 homes, were hit with a foreclosure-related notice. That represents a 14 percent spike from November and a 15 percent jump from December 2008.

Banks repossessed more than 92,000 homes, up 19 percent from November. That increase was likely due to lenders working to clear their books at the end of the year.

Stemming the tide of foreclosures is an important step for the real estate market and the economy to recover. Because foreclosures are usually sold at heavy discounts they can lower the value of surrounding properties. Cities lose property tax dollars from empty foreclosures and declining home values, straining local economies. Home prices have stabilized in some cities, but are still down 30 percent nationally from mid-2006.

The foreclosure crisis isn’t letting up. Between 3 and 3.5 million homes are expected to enter some phase of foreclosure this year.  High foreclosures forced the federal government and several states to come up with plans to prevent or delay foreclosures to help troubled borrowers.

One plan intended to help homeowners is the Obama administration’s loan modification program known as Making Home Affordable. Lenders participating in the program have offered trial loan modifications to 760,000 eligible borrowers since it was launched in March. A loan modification changes the terms of the loan, such as lowering the interest rate, to make the monthly payments more affordable.  As of November, just 31,000 of them had been made permanent. Nearly the same number had dropped out of the program or found to be ineligible. The Treasury Department will release updated figures Friday.

Economic issues, such as unemployment or reduced income, are expected to be the main catalysts for foreclosures this year. Homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.  The Mortgage Bankers Association on Wednesday recommended changes to the government’s program to account for borrowers who’ve lost their jobs. The program, for example, should include a suspension of payments as the first step for borrowers with a temporary loss of income.  The government also should refrain from “endless incremental program changes,” the trade association said.  Since April 2009, there have been nine instances where new program requirements were released, and more than 90 clarifications for new or revised forms, reporting changes and policies. The changes forced mortgage companies to implement new procedures and retrain employees, taking away time that could be spent helping borrowers.

The same three states that led the nation in foreclosure rate in December also posted the highest rates for the entire year: Nevada, Arizona and Florida. More than 10 percent of Nevada housing units received at least one foreclosure filing in 2009, with Florida and Arizona following with about 6 percent each.  The other states ranked in the top 10 for the year were California, Utah, Idaho, Georgia, Michigan, Illinois and Colorado.

Miami, Key West Shatter Cold Temp Records

Ok,ok that's not really an iceberg floating off Key West, but it sure feels that cold to some here.

Monday morning will go down in the record books for one of the coldest days in South Florida's history.

In Miami, the temperature dropped to 36 degrees, breaking the old record for the day of 37 degrees set back in 1927. Across South Florida actual temperatures dropped into the upper 20s inland in some locations, including Kendall, with the 'feels like' temperatures in the teens.

But that wasn't the only record broken.

In Key West, the temperature at the airport dropped to 42 degrees shattering the old record of 48 degrees set back in 1970. This was also the second coldest temperature ever recorded in Key West going back to 1873 when weather records for the island were first kept. The all time record low in Key West is 41 degrees which has only occurred twice; on January 13th, 1981 and January 12th, 1886.

Temperatures will slowly but surely increase the next few days. Tuesday and Wednesday forecasting highs in the 60s and finally enjoying highs back to normal in the 70s by Thursday and Friday with a better chance of showers by the end of the week. Saturday will be warmer with highs in the 80s.

2009-2010 Real Estate Market as seen by Zillow

Apartment Vacancy Rate Highest on Record

Rents Plunge - Never before have we observed rental properties in so much distress, both on the space and pricing side.

The U.S. apartment vacancy rate rose to an almost 30-year high of 8 percent in the fourth quarter, and rents dropped in the biggest one-year slump in 2009, according to real estate research company Reis Inc.

In the fourth quarter, the U.S. apartment vacancy rate rose 0.10 percentage points from the prior quarter, and 1.3 percentage points for the year. At 8 percent, it was the highest national vacancy rate Reis has recorded in its 30 years of tracking the sector.

In the fourth quarter, U.S. asking rents fell by an average of 0.7 percent to $1,026 per square foot, the largest single-quarter decline since 1999. For 2009 asking rents fell 2.3 percent, also the largest decline in 30 years. Effective rent fell 0.7 percent in the quarter to $964 per square foot. The 3 percent drop for the year was more than three times the deterioration in 2002.

Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a record 11.1% in Q3 2009. This also fits with the NMHC apartment market survey.

A record high vacancy rate and a record plunge in rents! Anyone surprised?

And more rent declines are coming, from Nick Timiraos at the WSJ: U.S. Now a Renters' Market
Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months.

This is one of the unintended consequences of government policy: rising rental vacancy rates, falling rents, more losses for CMBS investors and local and regional banks, more bank failures, downward pressure on CPI (rent is largest component of CPI) ... and eventually more downward pressure on house prices as the massive government support for house prices slows (because of the price-to-rent ratio).

Foreclosure Mediation Ordered!

Florida homeowners facing foreclosure may soon get one last chance to negotiate with lenders trying to take back their homes.

The Florida Supreme Court issued an administrative order last week that requires a third-party mediation program with all new foreclosure lawsuits involving primary residences.  The goal of the order, written by Chief Justice Peggy Quince, is to help handle the state’s glut of foreclosures. An estimated 456,000 foreclosure cases statewide are clogging the court system, she said. Florida has the third-highest mortgage delinquency rate in the nation, according to the order. “The crisis continues unabated,” Quince wrote. 

The order backs a recommendation made in August by the Supreme Court’s residential task force. The court asked the task force to study the problem and offer guidance.  “I’m pleased the court recognized the need of what the task force asked for,” said Alan Bookman, a task force member and former Florida Bar president. “This is going to force lenders and borrowers to talk to each other. They may not be able to work something out, but it’s a start.”

Lenders have spoken out against mandatory mediation and said it would cause even more delays. Alex Sanchez, president and CEO of the Florida Bankers Association, told the Tribune in August that lenders already are in constant touch with borrowers and file foreclosure cases as a last resort.   Sanchez could not be reached for comment Monday.

The mediation order will be executed through the chief judges of Florida’s 20 judicial circuits. Bookman said he expects the program to be in place by mid-February.  The program requires sending all cases involving primary residences to mediation unless the plaintiff and borrower have already done so or both parties agree to opt out.  The cost of mediation is not to exceed $750, according to the order. Lenders would pay the fee initially, though they could recoup some costs if mediation fails and a foreclosure lawsuit is filed in court.  It’s unclear on what date the mediation requirement kicks in, but it does not apply to cases already in the pipeline, Bookman said.



The order likely will apply to cases filed after the chief judges sign orders for each circuit, Bookman said. However, the chief judges could assign a different date. “They could make it affective for cases filed this week, when the order was signed,” Bookman said.

Most areas of Florida continue to see a rise in foreclosure filings.  However, the Tampa-St. Petersburg-Clearwater metro area recently saw overall foreclosure filings slow. The November number dropped 9 percent year-over-year and 1 percent from the previous month, according to RealtyTrac, a California company that tracks mortgage activity.  Even so, the area has been rocked by foreclosures. The category of filings known as new foreclosure lawsuits increased in November, from 31,380 the month before to 32,276.

Thanks for the Memories Mr. Bush

It was, according to a wide range of data, a lost decade for American workers. ...

There has been zero net job creation since December 1999. ... Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 ... And the net worth of American households ... has also declined when adjusted for inflation ...