The worst bet in real estate today: Construction loans

[mEDITate-OR:

bet on the wrong things, in all the wrong places, to go bad...

Commercial defaults - both construction and take out lending - are destroying [y]our small, local, community banks. We did bail out the Big Bad Banks, and we did bail out General Motors, Chrysler, and AIG. But, we are not doing anything for small banks and/or small business.

And, if you think it is bad where you are, you should be in one of the sand states.
Really ugly.

But, this article is very good.
------------
Even so, the numbers are already grim:

LOANS TURNING SOUR More construction loans are going bad than any other kind. percentage of loans by category that were 90 days or more past due among FDIC-insured lenders on March 31: All real estate loans 7.6% Construction/development 16.8% Non-farm non-residential 4.2% Multifamily residential real estate 4.6% Home equity loans 1.7% Other 1- to 4-family residential 10.2% Commercial/industrial loans 3.1% Loans to individuals 2.3% Credit card loans 3.1% Other loans to individuals 1.4% All other loans/leases* 1.7% Total loans/leases 5.5% * = includes farms Source: FDIC

============
The worst bet in real estate today: Construction loans
http://www.usatoday.com/money/industries/banking/2010-08-17-banks17_CV_N.htm
=========

AZ ranking jumps with average home closing costs

[mEDITate-OR:
not notice that "costs & fees" make mortgage rates extremely variable.
all mortgages are NOT equal, even from the same lenders.
-----------
Bankrate.com’s 2010 Closing Costs Survey puts Arizona at No. 15 among states, up from 39th in its 2009 study. The average total fees in Arizona stand at $3,950, including a $1,437 loan origination fee and $2,514 in title and other closing costs.


New York topped the list with an average fee of $5,623 with Texas, Utah, San Francisco and Los Angeles rounding out the top five. Arkansas is the least expensive area with an average fee of $3,007
-----------

===========
AZ ranking jumps with average home closing costs
http://phoenix.bizjournals.com/phoenix/stories/2010/08/16/daily9.html?surround=lfn
-------------
Study: N.Y. has highest closing costs

http://www.bankrate.com/finance/mortgages/2010-closing-costs/

============

U.S. credit card losses fall more than expected + Consumers card payment rates up again in July

[mEDITate-OR:
not shift your opinion...

We and many others have been very critical of the misleading use of these credit card balance numbers, bcuz they did not account for the different effects of: 1. major write downs of losses, 2. the huge reduction in authorized limits, and 3. the size of the current use of the cards.

While that has been true, these two articles suggest that most of those write downs and reductions have now been accounted for, and that the users ARE paying down their accounts. At least more so than before.

That is both Good News and Bad News.
Good for them, they are not in as much debt, now.
Bad for the economy, bcuz they are not "consuming" as much.
----------
Here are details:
- CAPITAL ONE: U.S. card charge-offs fell to 8.1 percent of total balances in July from 9.3 percent in June. The company said 4.66 percent of its loans were 30 days or more past due in July, down from 4.79 percent in June and 4.8 percent in May.
For Capital One's international cards, the charge-off rate was 7.86 percent in July, compared with 8.3 percent in June. Capital One's international delinquency rate also eased - to 5.94 percent in July from 6.03 percent in June. The charge-off rate in Capital One's auto loan unit fell to 2.6 percent in July from 2.72 percent in June, and the auto loan delinquency rate fell to 7.72 percent from 7.74 percent.

- DISCOVER: Discover Financial Services said its net charge-offs declined to 7.28 percent in July, from 8 percent in June. Its rate of loans 30 days or more past due slipped to 4.7 percent in July from 4.8 percent in June.

- CHASE: Chase said its net credit losses fell to 7.88 percent of total balances in July, from 8.32 in June. Chase said its rate of loans 30 days or more past due slipped to 4.25 percent in July from 4.3 percent in June.

- BANK OF AMERICA: Bank of America said the share of credit card balances it wrote off as uncollectable fell for the fourth straight month and past-due payments dropped to their lowest point of the year. It said its charge-off rate dropped to 11.39 percent of balances from 11.98 in June.

Bank of America is the among the top three U.S. banks offering credit cards, with about 80 million cards in circulation, according to the Nilson Report, an industry newsletter.

Bank of America said the rate of late payments has fallen to its lowest point of the year, 5.92 percent from 6.16 percent in June. That's a sign that the debt burdens felt by card holders over the past two years is beginning to ease.

- AMERICAN EXPRESS: American Express said its charge-off rate fell to 5.5 percent in July from 5.7 percent the month before and the delinquent card payments 30 days past due slipped to 2.6 percent from 2.7 percent in June.

- ALLIANCE DATA SYSTEMS CORP.: This manager of credit card programs for more than 90 retailers, including Victoria's Secret, Ann Taylor and Pottery Barn, said its net charge-offs fell to $35.4 million, or 8.6 percent of total balances from $36.7 million, or 8.8 percent in June.

Delinquencies among its company-branded credit cards rose to $271.4 million, or 5.7 percent, as of July 31. On the same date a year ago, $251.6 million, or 6 percent, of balances on the cards was delinquent. The Dallas-based company said the increase is consistent with its historical seasonal rise in late payments.

-CITIBANK: The nation's No. 2 card issuer said its credit losses fell to 9.10 percent of balances, down from 10.72 percent in June, which is a restated figure.

Citibank's charge-off rate had been increasing through March when it peaked at above 11 percent.

The New York-based bank, a division of Citigroup Inc., also said fewer customers were falling behind. For July, payments past due by 30 days or more reached 8.32 percent, down from 8.58 percent in June.

=========
U.S. credit card losses fall more than expected
http://finance.yahoo.com/news/US-credit-card-losses-fall-rb-1979272670.html?x=0
-------------
Consumers card payment rates up again in July
http://www.azcentral.com/business/consumer/articles/2010/08/16/20100816credit-card-rates.html
========

Arizona real estate: Phoenix home prices down = Indicators forecasting housing 'double dip'

[mEDITate-OR:

wonder why even the RE optimists are now pessimistic...

This is one of the better summaries of the Phoenix AZ market's current condition.

While the author has been criticized for being too upbeat, this article was given a lot of approval. It is worth reading.

-------------------

Home prices in metro Phoenix are falling again, and new data about upcoming sales suggest that they are likely to keep falling over the next few months, bringing concerns of a housing-market "double dip" closer to reality.

==========
Arizona real estate: Phoenix home prices down

Indicators forecasting housing 'double dip'
http://www.azcentral.com/news/articles/2010/08/15/20100815arizona-real-estate-phoenix-home-prices-lower.html
=========

Extended mass layoffs + Demographics of multiple jobholding

[mEDITate-OR:
not even know about TED...
BLS issues a new, interesting statistical chart every week day.
And, they send out a Friday summary of that weeks charts.
While not all are as interesting, some are very.

This first chart, of people who hold multiple jobs, raises one, or two.
Why the differences?
-------------

------------

------------

===========
August 09, 2010 (The Editor’s Desk is updated each business day.
Demographics of multiple jobholding
------------
August 12, 2010

Unit labor costs in manufacturing, second quarter 2010

---------
August 13, 2010

Extended mass layoffs, second quarter 2010

=========

The Job Market for Immigrants = The Unemployment Rate Race

[mEDITate-OR:
assume that, as bad as you think it is for you...
it is never as bad for "them"...

Sadly, tain true.
However, what these two NYT charts - there from "Catherine", NOT the news people - show U.S. is that what has happened to U.S. is very different from what happened to "Them".

What we are seeing is a huge increase in unemployment for older people, and for a much longer period of time. They are not only out of a job, but out of "work" - possibly for ever.

This is an "economic shift" of immense proportions.
Not only are we dumping "immigrants", but we are also dumping our parents.

The immigrants cannot "retire" on SS, our parent are doing just that.
Massive increase in apps for SS, massive decrease in people paying INTO their SS.

What was an "incoming" flood, is now of Noah's dimension.
Ugly!
-----------

--------------

==========
The Job Market for Immigrants
http://economix.blogs.nytimes.com/2010/08/14/the-job-market-for-immigrants/
------
The Unemployment Rate Race
http://economix.blogs.nytimes.com/2010/07/12/the-unemployment-rate-race/
=========

U.S. Identifies Vast Mineral Riches in Afghanistan

[mEDITate-OR:

try to get the money..., sweetie...

--------------

==========

U.S. Identifies Vast Mineral Riches in Afghanistan

http://www.nytimes.com/2010/06/14/world/asia/14minerals.html?_r=1

==========

China marches towards world's No. 2 economy = Passes Japan as Second-Largest Economy

[mEDITate-OR:

see that the "Rising Sun" is being eclipsed...

and that what's dragon..., on U.S...

The first pic shows U.S. that we ain't flying so high anymore

The 2nd chart shows U.S. that while Japan and U.S. growing, China is growing up faster than we are.

the 3rd chart U.S. what China has done in the decade of W's foreign trade deficits.

But, the 4th graph shows U.S. that per capita China has a LONG way to go.

------------

----------

China's GDP was smaller than Japan's in 2009 but the IMF expects that wont be the case by the end of this year.

But China still trails the United States by a wide margin

--------------

China may overtake Japan as the world's second-largest economy this year

but it remains a developing economy despite its fast pace of growth

economists said

----------

Despite emerging as an economic power, China remains far behind many countries if per capita GDP is taken into account.
----------------
A look at the 10 largest economies in the world by Gross Domestic Product for 2009, according to the International Monetary Fund. Figures all are in U.S. dollars
United States $14.26 trillion
Japan $5.07 trillion
China $4.91 trillion
Germany $3.35 trillion
France $2.68 trillion
United Kingdom $2.18 trillion
Italy $2.12 trillion
Brazil $1.57 trillion
Spain $1.46 trillion
Canada $1.34 trillion
=============
China marches towards world's No. 2 economy
http://money.cnn.com/2010/08/16/news/international/japan_china/index.htm
----------
China 'overtakes Japan in economic prowess'
http://english.eastday.com/e/100817/u1a5396370.html
-------------
China Passes Japan as Second-Largest Economy
http://www.nytimes.com/2010/08/16/business/global/16yuan.html
-----------
Largest 2009 economies by gross domestic product
http://news.yahoo.com/s/ap/20100816/ap_on_bi_ge/us_china_surging_ahead_glance
=============

PLS in the next chart

[mEDITate-OR:
not see the significance of that portion of the REO spectrum...

What you NEED to appreciate is that, according to a recent article/study, over 80% of all those bad subprime and ARM loans that were issued between 03 and 07 were/are in trouble = severely behind in monthly payments,    substantially underwater, about to be or in foreclosure (part of the estimated 1 Million this year), in bankruptcy, or trying to do a short sale.

As you also know, 50% of all RE loans between 03 & 07 were non-agency loans, in the sand states, made by Countrywide/BoA, WAMU/Chase, Wichovia/Wells and New Century/ BK

The point of the article is that MOST of those bad ARMs - the resets we all are worrying about - do NOT exist anymore. There will BE no flood of reset this & next year, and therefore no flood of foreclosures from them.

That IS really good news, if tis true.
Not for you personally, but for U.S. and especially those in the sand states.
======

Fannie Mae: REO Inventory doubles, expected to increase "significantly" + Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY + Fannie, Freddie, FHA REO Inventory Increases 13% in Q2 from Q1 2010

[mEDITate-OR:

not see the most amazing RE charts any of U.S. have seen in some time.

While the first three are mentioned by others, this is the best graphical demonstration of how bad thing have gotten.

The 3rd is the "composite" view.

The 4th is literally brand new, and shows U.S. the non-agency Wall Street investment banks "secutitized" RE loans on top of the rest of this mess.

---------
Remember to go to CR's web site for the LARGE charts.
---------
Fannie Mae reported that their REO inventory more than doubled since Q2 2009, from 62,615 to 129,310 in Q2 2010.

----------
Freddie Mac reported that their REO inventory increased 79% year over year, from 34,699 in Q2 2009 to 62,178 in Q2 2010.

-------------
This graph shows the REO inventory for Fannie, Freddie and FHA through Q2 2010.

The REO inventory for the "Fs" has increased sharply over the last year, from 135,868 at the end of Q2 2009 to 236,338 at the end of Q2 2010.

This is a new record for Fannie and Freddie; the FHA's REO inventory decreased slightly in Q2 2010.

-------------

Economist Tom Lawler has added private-label RMBS REO in the following graph.

Note: The private-label securities have one advantage - they essentially stopped making new loans in mid-2007!

==========
Fannie Mae: REO Inventory doubles, expected to increase "significantly"
http://www.calculatedriskblog.com/2010/08/fannie-mae-reo-inventory-doubles.html
-------------
Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY
http://www.calculatedriskblog.com/2010/08/freddie-mac-47-billion-loss-reo.html
------------
Fannie, Freddie, FHA REO Inventory Increases 13% in Q2 from Q1 2010
http://www.calculatedriskblog.com/2010/08/fannie-freddie-fha-reo-inventory.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
------------
REO Inventory including private-label RMBS
http://www.calculatedriskblog.com/2010/08/reo-inventory-including-private-label.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
=======

Lowell: "Slam Dunk Stimulus" - The Natural History of a Rumor

[mEDITate-OR:
not love "rumors"...

Many years ago, Tom Dickson, AA to the Sen Maj Leader, Jim Camel, Aty 2 SML, and we started "The Legislative Rumor of the Day".

To win you had to start your rumor after the session adjourned for the day, and your rumor must have spread completely through the Leg BEFORE the session convened the next day.

No points were added for the rumor being factually true, nor completely ridiculous. Obviously that would be irrelevant. Belief, too. All that mattered was that it was passed on, and spread out.

IF you appreciate That Little Game, you will - this is mandatory, not permissive - LOVE this "news/views report" by Linda.

As Paul Harvey oft said to U.S. - and now, the Rest of the Story.

Enjoy.

----------   Said Jim @ CR:
Linda Lowell at HousingWire wrote a great piece chronicling the history of that ridiculous rumor last week of a massive bailout of underwater homeowners
"Slam Dunk Stimulus" – The Natural History of a Rumor
http://www.housingwire.com/2010/08/10/slam-dunk-stimulus-the-natural-history-of-a-rumor
I'd like to thank Linda for mentioning my reaction ("nonsense"). I usually ignore these rumors, but this one was getting significant coverage and was obviously nonsense.

Linda's piece is excellent.

-----------

Lowell: "Slam Dunk Stimulus" - The Natural History of a Rumor

by LINDA LOWELL

Tuesday, August 10th, 2010, 4:01 pm

How I long for the days when MBS research was about dry, specialized stuff like prepayments and relative value, projecting cash flows, building data bases and models of prepayment and yield curve processes. Dull matters you would be careful not to mention at a dinner party or drinking with pals in a bar. Tedious topics that could put Main Streeters to sleep. Conversation stoppers.
That changed in 2008. Mortgages and houses and mortgage-backed securities have transmogrified into filthy politics. Nowadays, opinionating about mortgage markets is a free-for-all with no barriers to entry, in which unsupported theories and poorly reasoned malarkey are spewed by politicians, no-experience academics, economists with no mortgage experience, the dying print media, the new electronic media, the blogs and the social nitworks.
The idea is not to monetize good information, but to get attention, attract site traffic, raise great winds of popular response. To stir the pot.
Problem is, that little coterie of data-respecting nerdalysts of which I was once a member now must spend an inordinate portion of the work day dissecting government half-measures (Hope Now, HAMP, HARP and so forth ad infinitum) and weighing rumors of more on the horizon.
With increasing frequency, nervous institutional investors call on the professional analysts for a reality check on wildfire speculation, canards and outright lies about what the government intends to do to fix the housing-mortgage mess and, unintentionally, sabotage investment performance.
The worst patch yet, I think, has been seen in the last couple of weeks, thanks to deliberate rumormongering about a backdoor stimulus plan ^[1], in which the government compels the housing agencies to forgive principal on millions of underwater mortgages and refinance them into the lowest published mortgage rates on record. Rumor mongering intended to further confuse public discourse going into the elections.

=========
Lowell: "Slam Dunk Stimulus" - The Natural History of a Rumor
http://www.housingwire.com/2010/08/10/slam-dunk-stimulus-the-natural-history-of-a-rumor
=========

BLS: Low Labor Turnover in June + Weekly Initial Unemployment Claims increase, Highest since February

[mEDITate-OR:
not get a real jolt outa da JOLTS...

While even the main line media does not show U.S. any chart for the new unemployment numbers any more, Jim @ CR not only shows U.S. that, but also the JOLTS report.
As you can see in the 1st chart, there are a LOT of hires, layoff, quits & fires, and job openings.
A recession does NOT mean that things stop.
So, what this tells U.S. is what is changing and in which direction.

As you can see in the 2nd chart, we are wallowing in the doldrums.
While "everyone" has been trying to tell U.S. that we are on the way UP...!!!
The facts are, we are not.
mcCain't be getting worser..,, but tis not gettin better, nor wise.
---------
The following [First] graph shows job openings (purple), hires (blue), Total separations (include layoffs, discharges and quits) (red) and Layoff, Discharges and other (yellow) from the JOLTS.

Unfortunately this is a new series and only started in December 2000

-----------

This [Second] graph shows the 4-week moving average of weekly claims since January 2000.

The four-week average of weekly unemployment claims increased this week by 14,250 to 473,500.

The dashed line on the graph is the current 4-week average. The 4-week average of initial weekly claims is at the highest level since February, and suggests further weakness in the labor market.

===========

BLS: Low Labor Turnover in June

http://www.calculatedriskblog.com/2010/08/bls-low-labor-turnover-in-june.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

------------
Weekly Initial Unemployment Claims increase, Highest since February
http://www.calculatedriskblog.com/2010/08/weekly-initial-unemployment-claims_12.html
=======

Social Security Benefits and Maximum Contribution Base: Probably No Increase for 2011

[mEDITate-OR:
not understand why Congress gave themselves a +V- US$ 6,000 pay raise...
but WE did not.

Jim @ CR explains why we - you, me and U.S. - didn't.
Probably the best explanation you gonna get.
Thank him, not me.
U 2 can see if this "satisfies" you.
U 2 can blame him, too; but not me.
--------
This graph shows CPI-W over the last ten years.
The red lines are the Q3 average of CPI-W for each year.

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010.

Even though there was no increase last year, and there will probably be no increase this year, those receiving benefits are still ahead because of the huge increase in Q3 2008.

For 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average ... the 215.495 in Q3 2008. This means CPI-W in Q3 2010 has to average above 215.495 or there will be no increase in Social Security benefits in 2011.

In July 2010, CPI-W was at 213.898, so CPI-W will have to average above 216.294 in August and September for the Q3 average to be at or above Q3 2008.

That suggests an increase in COLA is very unlikely right now

==========
Social Security Benefits and Maximum Contribution Base
Probably No Increase for 2011
http://www.calculatedriskblog.com/2010/08/social-security-benefits-and-maximum.html
===========

MBA: Mortgage Applications Essentially Unchanged Despite Lowest Rates + Freddie Mac: 30 Year Mortgages Rates fall to series record low

[mEDITate-OR:
not see what is not there...

What Jim @ CR predicted is coming true - RE sales, both new & existing - have collapsed.

What we did not expect to see is that REFIs are NOT expanding anything like they should.
You have better have a very GOOD reason why you haven't taken advantage of this "Golden" opportunity - literally and figuratively - both with your reason and your opportunity.
----------
This [First] graph shows the MBA Purchase Index and four week moving average since 1990.

The purchase index has increased slightly for four straight weeks - but is still 40% below the level of the last week of April (and about 32% below the last week of April using the 4-week average).

This recent collapse in the purchase index has already shown up as a decline in new home sales (counted when the contract is signed), and will show up in the July and August existing home sales reports (counted at close of escrow).

-------------

This [Second] graph shows the 30 year fixed rate mortgage interest rate based on the Freddie Mac survey since 1971.

The decline in mortgage rates is related to the weak economy and falling Treasury yields. Rates will probably fall again this week with the Ten Year Treasury yield down to 2.7%.

==========

MBA: Mortgage Applications Essentially Unchanged Despite Lowest Rates

http://www.calculatedriskblog.com/2010/08/mba-mortgage-applications-essentially.html

------------

Freddie Mac: 30 Year Mortgages Rates fall to series record low

http://www.calculatedriskblog.com/2010/08/feddie-mac-30-year-mortgages-rates-fall.html

===========

Q2: Office, Mall and Lodging Investment

[mEDITate-OR:

wonder why they are offering more space, more improvements, more of everything...

including lower rents...

We are only just beginning to see the CMBS problems.

This quarter there was huge increase in defaults, refinances and foreclosures.

What you and CR may be missing is that many properties are "changing hands"...

we are NOT going to accuse "them" of the West Seattle S&L "bad loan" trades from that mess...

however, what we DO see is the IF there is any "equity" in these they are being rolled over and/or sold for cash.

IF there is NO equity, they are still being rolled over, with a delay and pray game plan.

Many of these have already been converted into "interest only" loan payments.

Some have been converted into "how much you getting in rent" loan payments.

But, most of the new REITs that were formed to buy "on the cheap" troubled RE still have not found anyone willing to sell, and take the loss. Just as most CMBS lenders, particularly the small local banks, simply do not have the "equity" themselves to cover the write downs. They HAVE to hold these properties. So, there are few sellers.

Lenders do NOT want to "own" these properties, and they do NO want to manage them. So, no matter how bad the current "owner"/managers are, they will be left in place.

------------
This [First] graph shows investment in offices as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q3 2008 and has declined sharply to a new series low as a percent of GDP (data series starts in 1959).

REIS reported that the office vacancy rate is at a 17 year high at 17.4% in Q2, up from a revised 17.3% in Q1 and 16.0% in Q2 2009. With the office vacancy rate still rising, office investment will probably decline further - although most of the decline in investment has already happened.

-----------

The second graph is for investment in malls.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by over two-thirds (note that investment includes remodels, so this will not fall to zero). Mall investment is also at a series low (as a percent of GDP) and will probably continue to decline through 2010.

Reis reported that the mall vacancy rate increased in Q2 2010, and was the highest on record at 9.0% for regional malls, and the highest since 1991 for strip malls.

--------

The third graph is for lodging (hotels).

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 70% already. And I expect lodging investment to continue to decline through at least 2010.

As projects are completed there will be little new investment in these categories for some time.

===========

Q2: Office, Mall and Lodging Investment
http://www.calculatedriskblog.com/2010/08/q2-office-mall-and-lodging-investment.html
==========