Pending home sales declined in August

Pending home sales, a leading housing market indicator, fell in August:

A gauge of future home sales fell in August to the lowest level in four months, underscoring the challenges facing the hobbled housing industry.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes decreased 1.2% on a monthly basis to 88.6, the industry trade group said Thursday.

The decrease is the second in a row, following a 1.3% drop to 89.7 in July, and it dragged the index to the lowest point since April. For the month of August, pending sales fell in three of four regions: Only the South saw a gain.

The index tracks agreements to purchase homes, making it a good indicator of what’s to come in the market. A sale is considered pending when the contract has been signed but the transaction hasn’t closed; Pending sales typically close within a month or two. (A score of 100 equals the average activity level in 2001.)

New home sales fell in August

New home sales fell 2.3% in August compared with a month earlier:

New-home sales fell for the fourth-straight month in August to the lowest level in a half year as the bursting of the housing bubble continued to weigh on the U.S. economic recovery.

Sales fell 2.3% from a month earlier to a seasonally adjusted annual rate of 295,000, the Commerce Department said Monday. The pace was the weakest in six months, and the month was the seventh-worst on records dating to 1963. ...

Turmoil in financial markets after Standard & Poor's unprecedented downgrade of U.S. debt, fears of a renewed recession and Hurricane Irene all combined to keep buyers away in August. ...

New-home sales are down nearly 80% from their peak in July 2005. They remain far below healthy levels, which would be more than double August's rate.

Consumers have slowed their spending this year, pulling down economic growth and preventing unemployment from falling. Many people also can't get financing amid tight lending standards.

The Wall Street Journal didn't mention how sales compared with a year ago. The Los Angeles Times reports that new home sales were up 6.1% year-over-year, as if that's a bad thing:

The August read on new home sales showed properties selling at a seasonally adjusted annual rate of 295,000, down 2.3% from a revised July rate of 302,000 and just 6.1% above August 2010, according to the Commerce Department.

Meanwhile, MSNBC reports that 2011 is shaping up to be the slowest year on record for home sales:

Sales of new homes this year could hit the lowest levels in the nearly 50 years the government has been tracking the data. ...

Based on the trend for the first eight months of the year, sales this year are on track for about 302,000 units, which would be even lower than last year's record-low 321,000, said Patrick Newport, economist for IHS Global Insight.

Home prices continue seasonal rise; down 4.1% year-over-year

The S&P/Case-Shiller 20-City Index is down 4.1% from a year ago, but up 0.9% month-over-month. Adjusted for seasonal factors, the index was flat month-over-month:

Home prices in July climbed for the fourth month in a row, but are still down from a year ago.

According to the latest S&P/Case-Shiller home price index of 20 major cities, prices rose 0.9% in July compared with June, but they're still 4.1% lower than 12 months ago.

"We are far from a sustained recovery" said S&P spokesman David Blitzer. "Continued increases in home prices through the end of the year . . . must materialize before we can confirm a housing market recovery,"

Indeed, adjusted for seasonal differences, the 20-city index was flat month-over-month.

Some cities have shown surprising strength recently. In Detroit, prices jumped 3.8% month-over-month, after spiking 5.8% in June. Minneapolis prices increased 2.6% and Washington recorded a 2.4% rise.

Weakness continued in Las Vegas, which was down 0.2% month-over-month and in Phoenix, which edged 0.1% lower.

Since the bounce is entirely seasonal, I expect falling prices in the fall.

Existing home sales spike

Existing home sales jumped in August, but it is likely just a temporary blip:

Sales of existing homes took an unexpected and rare jump in August, rising 7.7 percent from July. Realtors say it's the result of delayed sales from the spring market, which they previously characterized as disappointing. The results were unexpected because the usual indicators no longer apply.

Mortgage applications have been falling steadily, down again over four percent this week, even though interest rates are hovering near record lows. But mortgage volume doesn't tell us much because fewer buyers are using mortgages. 29 percent of home sales in August were all-cash purchases, largely by investors who returned to the market after a brief respite. 22 percent of buyers were investors, up from 18 percent in July. ...

The bump from leftover Spring sales does not appear to have much mojo heading into the Fall, given the dip in consumer confidence and a change in the conforming loan limits that will push some housing markets into the jumbo range next month. Sales contract cancellations also jumped, with 18 percent of Realtors surveyed reporting at least one canceled sale. That's up from 16 percent in July and a norm of around 4 percent.

Here in Centreville, things are going swimmingly

I live on the ground floor of a three story apartment complex. Last night, the sprinkler system in the apartment above my neighbor went off, flooding the apartment. My neighbor's apartment also got flooded. The flooding went above my neighbor's baseboard and some of it spilled into my apartment. I was mopping up my kitchen and bathroom at about 5 A.M. To assist in the drying, maintenance has torn out much of the padding underneath my carpet. Now I've got an industrial fan running all day trying to get the water out of the carpeting. Tomorrow maintenance will bring in a second fan. The work to recover from the flooding is expected to take all week.

I like the warning on the fan being used to dry out the carpeting:

U.S. household incomes fall to 1996 levels

The U.S. Census Bureau reports that median household income has fallen to 1996 levels:

The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.

The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.

Bank of America foreclosure rate surged in August

Diana Olick points out that new foreclosure notices by Bank of America doubled in August, compared to previous months:

Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge.

The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called "robo-signing" processing scandal and the sheer volume of troubled loans. ...

RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans.

Will this push prices lower?

Labor Dept. investigating home builders

The U.S. Department of Labor is apparently probing the pay practices of home builders:

The Labor Department is investigating pay practices at many of the top companies in home building, hitting them with a broad demand for records that has led to complaints of regulatory overreach.

Recipients of the letters include PulteGroup Inc., Lennar Corp., D.R. Horton Inc. and KB Home, according to people familiar with the matter. A Labor Department spokeswoman confirmed the investigation but declined to discuss details.

A copy of one letter, dated Aug. 1 and reviewed by The Wall Street Journal, said the department was opening a probe under the Fair Labor Standards Act, which governs matters such as overtime pay and limits on using teen workers.

The letter instructed the home builder to immediately turn over the names, addresses, Social Security numbers, pay rates and hours worked for all employees over the past two years. It asked the names of all contractors hired in the past year. The letter didn't allege any specific violations of law. ...

Many larger home builders, while acquiring land for homes and marketing them, entrust much of the construction to carpenters, electricians and others employed by contractors. The contractors rarely are unionized.

Unions have for years complained about pay and working conditions in the industry, alleging pay scales below minimum wage and failure to pay overtime. The Laborers International Union of North America in 2008 issued a study that called employees at home builders the "newest victims" of the housing market crisis because of "underpayment." ...

"There has been a movement afoot in many instances fueled by the unions to force the subcontractors to be employees of the builders, because the next step is to unionize them," said Mr. Howard of the National Association of Homebuilders.

Federal Reserve cracks down on Goldman Sachs

Apparently a unit of Goldman Sachs engaged in robo-signing of foreclosure documents:

The Federal Reserve announced an enforcement action against Goldman Sachs Group Inc., saying the company's mortgage-servicing unit had engaged in "a pattern of misconduct and negligence" in its handling of home-mortgage loans.

The Fed's action on Thursday seeks changes in mortgage-servicing practices and unspecified monetary damages. ...

The Goldman Sachs order is modeled after a series of consent orders issued by federal banking regulators in April to 14 of the nation's largest mortgage servicers that require them to clean up their practices. Federal regulators began looking at other mortgage-servicing companies, including Goldman Sachs's Litton unit, after the initial reviews were completed.

In its order Thursday, the Fed said Litton employees engaged in robo-signing and took actions in foreclosure and bankruptcy cases "without always confirming that documentation of ownership was in order." The company also failed to staff up appropriately to handle a surge in delinquencies or to sufficiently oversee outside lawyers and establish "adequate internal controls," the order said.

The Fed action requires Goldman Sachs to retain an independent consultant to review foreclosures that were pending at any time in 2009 and 2010, and "to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies" identified by the review, the Fed said in issuing the order.

Economic podcast

Friday's Wells Fargo weekly economic podcast has a discussion of last week's economic news, including a four-and-a-half minute discussion of construction and housing from 1:38 - 5:58.

America slowly digging out of economic hole

The Aggregate Weekly Hours Index—one of the best measures of employment—shows that the U.S. is very slowly digging its way out of the recession. In the graph below, the blue line shows an index of the total number of hours that Americans are working per week. The red line shows an index of the growth in the civilian non-institutional population (i.e. civilians not in prison). As long as the blue line rises faster than the red line, it means that America's employment situation is improving.

Government to sue banks for bad mortgage loans during bubble

The bad news for banks just keeps coming:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Speed up foreclosures; don't slow them down

CNN Money says the U.S. should speed up foreclosures, rather than the current approach of slowing them down:

If the Obama administration really wants to save the housing market, it should speed up the foreclosure process — not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

I have long opposed the Obama administration's attempts to artificially keep delinquent borrowers in their homes (unless we are talking about currently unemployed borrowers, who may well have bought responsibly).

That said, I am also opposed to artificially increasing the speed of foreclosures if it weakens private property rights. Banks should still have the burden of proving their right to foreclose on a property.

Theoretically, however, if it could be done without weakening private property rights, I believe getting the pain over quickly is better than dragging it out as long as possible.