Year-over-year home prices up 3.8% in April

But that was affected by the tax credit that ended on April 30th:

Home prices rose 0.8% in April compared with March and were up 3.8% from a year ago, according to the S&P/Case-Shiller Home Price Index of 20 major housing markets.

That good news is tempered by a couple of factors. First, the one-year comparison was against a low-ebb mark. In April 2009, prices were just above a five-year low. Overall, prices are off 30% from their peak.

Secondly, the improvement came during a time when the federal government was heavily subsidizing home sales through an $8,000 homebuyer's tax credit. That credit is about to expire.

"Other housing data confirm the large impact, and likely near-future pullback, of the federal program," said David Blitzer, a spokesman for Standard and Poor's.

Once the tax credit fully expires, home prices are likely to take a beating, according to Pat Newport, a housing market analyst for IHS Global Insight.

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An interview with Robert Shiller

Somehow I missed this when it was published a month ago. Sorry.

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Housing news from the past week

Fannie Mae is getting tough on strategic defaulters:

Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe. ...

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

The government's home buyer tax credit has been subject to fraud. (Duh!)

More than 1,200 prison inmates, including 241 serving life sentences, defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers, according to a Treasury Department report released Wednesday.

Treasury's inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was improperly doled out.

The federal government is doling out more money to help homeowners (but not renters, of course, because they are second-class citizens):

The U.S. Treasury Department said Wednesday it had approved five states' plans to aid homeowners in the hope of thwarting foreclosures in communities hit hard by the recession.

State housing agencies in Arizona, California, Florida, Michigan and Nevada will receive a total of $1.5 billion from the Obama administration's "Hardest Hit Fund." ...

Arizona is set to receive $125.1 million, California $699.6 million, Florida $418 million, Michigan $154.5 million and Nevada $102.8 million.

Five other hard-hit states have plans that are pending. If the plans are approved, those states could get a total of $600 million: North Carolina ($159 million), Ohio ($172 million), Oregon ($88 million), Rhode Island ($43 million) and South Carolina ($138 million).

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When do underwater borrowers walk away?

Apparently, the typical borrower has to be deep underwater before deciding to strategically default:

A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.

The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.

But the silver lining here is that it suggests a rather high threshold for borrowers to walk away.

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Home sales plunged in May

Month-over-month home sales fell by a third in May:

New home sales plummeted to a record low in May, the first month following the expiration of the homebuyer tax credit. This snapped a two-month streak of gains.

New home sales declined 32.7% to a seasonally adjusted annual rate of 300,000 last month, down from an downwardly revised 446,000 in April, the Commerce Department reported Wednesday. Sales year-over-year fell 18.3%.

This is the slowest sales pace since the Commerce Department began tracking data in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000.

"We expected a slowdown, but the extent of this decline was a surprise," said Anika Khan, an economist at Wells Fargo. The figure was even worse than her relatively pessimistic forecast of an annual rate of 380,000 in May. ...

"Clearly, the lack of a tax credit had a lot to do with it, and it's going to be a bit of a bumpy road ahead as we get a few more months of payback," Khan said.

Of course home sales fell in May. After all, with the tax credit expiring on April 30, who wants to be the sucker who buys on May 1?

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Economic activity shifting from construction to manufacturing

Housing and manufacturing are fighting over the fate of the economic recovery:

There's a sharp divergence emerging in the U.S. economic recovery, with housing stumbling and the industrial sector booming.

Ground-breaking for new homes and applications for building permits both plunged last month, as a popular set of tax breaks designed to stimulate home buying expired. The pullback is a worrisome sign that the recovery could face setbacks as the props for demand implemented during the depths of the recession are removed.

Meanwhile, the U.S. industrial sector is providing an unexpected degree of support to growth. Industrial production—the output of factories, utilities and mines—rose 1.2% in May, compared with the month before, the Federal Reserve said on Wednesday, as global demand for a wide range of U.S. goods continued to grow.

"What's taking place is a change in the sources of U.S. growth," said Joe Carson, an economist at AllianceBernstein. Demand for housing used to lead the economy into recovery, he said, but now global demand, particularly from emerging economies like India, Brazil and China, is helping bolster U.S. growth.

Free Marketers argue that in order for the economy to recover from a recession, it is necessary for the economy to shift away from the sectors of previous over-investment toward other economic sectors. This appears to be happening. (Compare this with politicians' inclination to pour money into the declining sector.)

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Flashback: Housing bubble — or bunk?

Here's some interesting reading from five years ago today.

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Some news I missed over the past week

Sorry about slacking off over the past week. Here's some news I missed.

New home construction fell in May:

The government reported Wednesday that new home construction fell sharply in May -- the first month after a homebuyer tax credit expired.

Housing starts fell 10% from April to a seasonally-adjusted annual rate of 593,000 last month, the Commerce Department said.

The oil spill may deal the Florida housing market a second blow:

"This oil coming in is going to affect values for years, and there is no telling how many years at this point," warns McCabe. "So it is not just going to have a temporary effect, this is going to have a long term effect on property values anywhere along the coastal regions."

Some of the nation's immunozones might not be that immune:

A new report shows that the “shadow inventory” of homes, with delinquent mortgages that have yet to go through the foreclosure process, is growing fastest in areas that have so far avoided the biggest home-price declines, according to a report by ratings agency Standard & Poor’s. ...

Indeed, cities that avoided the worst of the housing downturn so far—and which have seen fewer distressed sales—are now seeing a bigger increase in shadow inventory, as prices adjust in some of those late-to-the-party markets. Phoenix and Las Vegas, which have had the sharpest price corrections, also have among the lowest levels of shadow supply, at 18.5 and 21.4 months, respectively.

Fannie Mae and Freddie Mac are going to be delisted from the NYSE:

The federal regulator overseeing Fannie Mae and Freddie Mac ordered the mortgage finance giants on Wednesday to delist their shares from the New York Stock Exchange, dealing another blow to the battered companies. ... Both firms' stock prices plunged by nearly 40 percent after the announcement.

The closing deadline for the home buyer tax credit may get extended until September 30:

More breathing room could be on the way for people racing to meet the June 30 closing deadline to qualify for a home-buyer tax credit.

The Senate recently passed a measure that would give buyers who met the April 30 deadline for signing a purchase agreement an additional three months to close their deals. The legislation, attached to a bill that would extend unemployment benefits, still needs final approval in the House.

The new closing deadline would be Sept. 30.

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Savings gluts

Ben Bernanke would be very disappointed with all of you. (...OK, 99% of you.) In the poll I ran on this blog last month — "What sparked the housing bubble?" — Ben's pet theory of a global savings glut came in dead last. It even lost out to "There was no bubble." For shame!

Old polls are displayed in the sidebar. Just scroll down.

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Renters-in-waiting

New York Fed: Underwater homeowners are renters-in-waiting.

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Thin ice and the FHA

Will home prices fall another 5%? WSJ on the FHA:

Nearly two-thirds of FHA borrowers that took out loans over the past year have less than 5% equity in their homes, illustrating the risks that just a 5-10% decline in home prices could have on the agency’s reserve funds.

Critics say the agency is doing no favors to taxpayers or new homeowners by providing relatively easy loan terms. “Insofar as the FHA was encouraging people to buy homes in bubble markets that were not deflated, that’s not good for the FHA and you didn’t help the homeowner,” says Dean Baker, co-director of the Center for Economic and Policy Research, a liberal think tank.

If two-thirds of recent FHA borrowers find themselves underwater, is it ethical for them to walk away leaving Uncle Sam with the bill?

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Housing after the tax credit

Diana Olick reports on housing data from ZipRealty:

We've been reporting a lot of anecdotal information about life after the home buyer tax credit, but now we're starting to get some numbers. A new report from ZipRealty.com shows:

—The number of homes that closed in May are down more than 5% compared to April.

—Newly signed contracts in May dropped more than 10%, a sign of a real estate drought this summer.

—Internet searches on real estate sites are down 20 percent compared to this time in 2009.

And she quotes Zillow on the overall effect of the home buyer tax credit:

"While temporary tax credits succeeded in lifting buyer psychology temporarily, they essentially shifted demand forward without having a lasting impact on prices or purchase behavior. We expect some payback in the form of decreasing sales after the final closing deadline at the end of June."

The Wall Street Journal has more about the after-effects of the tax credit expiration here.

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Zillow's view of the housing market

From Stan Humphries, Zillow's Chief Economist:

Homes values fell 0.38% nationally from March to April and were down 4.1% from their levels in April 2009 ...

Home values declined month-over-month in 87 (70%) of the 124 metropolitan statistical areas (MSAs) tracked by Zillow this month, and year-over-year declines (defined as a decline of more than 1%) in home values were recorded in 96 (77%) of the 124 metros. Foreclosure activity continued to increase nationally with 0.11% of homes in the U.S. being foreclosed in April. ...

We expect to see pending home sales dry up significantly in the May pending home sales report from the National Association of Realtors. Existing home sales will continue to stay robust through the end of June, when contracts that were signed by the end of April must close in order for buyers to receive the tax credits. Expect them to fall off precipitously thereafter as we pay back the demand we’ve pulled into these months.

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My two year blogging anniversary

Today marks two years of me blogging for Bubble Meter.

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Paul Krugman on the housing bubble

Are politicians responsible? Paul's answer.

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Initial jobless claims stuck so far this year

Initial jobless claims numbers seem to be stuck this year, but they're still much better than a year ago. This graph shows the year-over-year percentage change over the past five years (lower is better).

Today's payroll numbers are expected to show lots of new jobs were created in May. The payroll data probably will have been released by the time you read this (assuming you read this blog at work).

Update: It turns out that the numbers were not nearly as good as expected:

A flood of temporary Census workers in May led to the biggest jump in jobs in ten years, the government reported Friday.

Employers added 431,000 jobs in the month, up from 290,000 jobs added in April. It was the biggest gain in jobs since March 2000.

But Census hiring was responsible for 411,000 of May's increase in employment. Private sector employers also added 41,000 jobs in the period, well below the 218,000 private sector job gains in April. Government payrolls other than Census declined by 21,000 jobs in May, due largely to job cuts by state and local governments.

It was a disappointing number for private sector hiring, as economists surveyed by Briefing.com had forecast an overall gain of 500,000 in May. U.S. stocks traded sharply lower on the report, with the Dow Jones industrial average down more than 200 points in midday trading. ...

Despite the spike in hiring, the unemployment rate declined only modestly, to 9.7% from 9.9% in April. Economists had forecast it would decline to 9.8%.

Here is the year-over-year percentage change in payrolls:

Here is the year-over-year percentage change in aggregate weekly hours worked:

Here is the official unemployment rate:

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IMF economist: home prices have much more to fall

IMF economist Prakash Loungani is not exactly optimistic about global (or U.S.) housing prices:

International Monetary Fund economists Prakash Loungani has found plenty of reasons to remain glum.

Loungani, at a National Economists Club luncheon in Washington Thursday, presented his analysis of housing busts since 1970 in the countries that make up the Organization for Economic Cooperation and Development. His prediction: Home prices will fall much farther and for much longer.

On average, the previous housing slumps lasted 18 quarters, with prices dropping 22% from peak to trough. By contrast, the current housing slump has lasted only 14 quarters, during which prices have dropped just 15%.

But the latest boom was so much bigger than the previous ones that it’s logical to anticipate an even more brutal downturn, Loungani argued. Prices rose 113% over 41 quarters, compared with 39% average price increase over 39 quarters seen in the previous booms. ...

Loungani said his analysis of prices and rents in U.S. metro areas suggests that many markets on the West coast and in parts of the Northeast could yet see prices plummet a further 30-40%.

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Don't blame the CRA

Steven Horwitz says the Community Reinvestment Act isn't responsible for the financial crisis.

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