Sales increase 18% y/y. Existing home sales in the Carolinas rose 18% y/y in December, a notable deceleration from November’s 55% y/y increase. As a reminder though, November’s comparisons were amplified by two key factors: 1) tax credit-driven demand ahead of the credit’s prior November 30 deadline, and 2) dismal sales in November 2008 in the wake of the post-Lehman economic meltdown.

Individually, South Carolina posted a 16% y/y increase in sales, while North Carolina reported a 19% y/y improvement, down from respective increases of 63% y/y and 51% y/y last month. All said, we believe December’s 18% y/y rise in sales, coupled with modest y/y price increases in both states, suggest the region’s housing market is in the midst of a gradual recovery.

Both North and South Carolina post y/y increase in prices. Importantly, the average home price in North Carolina rose 4% y/y in December, the state’s first y/y increase in average prices since November 2007. With respect to pricing in South Carolina, after falling 6% y/y in November, the median home price ticked up a modest 1% y/y. In our view, while these increases suggest prices are indeed stabilizing, we believe a temporary mix shift to higher price point homes could partially be at work here, as lower-priced, entry-level homes sales likely contributed a lower percentage of December sales due to first-time buyer demand being pulled forward ahead of the tax credit’s original deadline. improved 3% y/y.

Foreclosures continue to enter the market slowly. As a reminder, a new state law went into effect October 1 in North Carolina, which allowed the clerk of court presiding over a foreclosure to authorize a 60-day continuance to allow homeowners more time to work with lenders to find an alternative to foreclosure. Thus, we were not surprised to see December REO filings (-3% y/y) continue to moderate according to RealtyTrac. For context, REO filings rose by 97% y/y, 29% y/y, and 1% y/y, in September, October, and November, respectively.

Negative equity not as widespread in the Carolinas. As previously noted, First American Core Logic revised its methodology to determine negative equity among borrowers. As of September, it estimates only 9% of mortgages in North Carolina and 12% of mortgages in South Carolina were in a negative equity position, indicating far fewer households owe more than their house is worth compared to statistics released earlier this year. Importantly, many more households in the Carolinas still possess positive equity in their homes relative to the national average. In our view, while we believe the negative equity phenomenon will remain a slight headwind in the region, the Carolinas are likely to benefit more from the new $6,500 move-up buyer tax credit versus other markets where substantial negative equity is "trapping" relatively more current homeowners.

Raymond James & Associates




U.K. Home Prices Extend Climb to 2 Year High. US Next?

U.K. house prices rose for a ninth straight month in January as demand continues to outstrip supply, lifting the annual measure to its highest level in over two years, data showed Friday.

The Nationwide Building Society said house prices rose a seasonally adjusted 1.2% from December and were 8.6% higher compared with January 2009. That was the highest rise since a 9.7% gain in November 2007.(…)

Did anybody forecast such a turnaround? Could this be soon happening in the US where apparent supply is also pretty low? Price declines and low interest rates result in very high affordability. As prices begin to rise from their lows, would-be buyers get antsy fearing higher prices. Much like equities and art, house prices tend to feed on rising prices. Banks strategy of controlling supply by hoarding foreclosures could work.

The recovery of U.K. house prices last year was unexpected as many economists had forecast a much deeper and longer decline. The strong second-half of last year isn’t expected to be repeated this year, however, and the majority of economists and banks are forecasting little change in house prices over the course of the year.

While house prices may undergo a few more months of gains, the average expectation is that prices will remain steady and even record some monthly declines once the government’s planned tax rises are implemented.

Full WSJ article


Full Nationwide release


BBVA Reignites European Write-Down Fears

BBVA is Spain’s second biggest bank with activities also in the US, Latin America, Asia and China (15% stake in China Citic Bank).

Policy makers have long feared that European banks are failing to face up to their losses. BBVA‘s fourth-quarter results will hardly dispel those concerns. The Spanish banking group reported Wednesday that net income for the three months to December fell to just €31 million ($43.7 million), after taking an unexpected €1.4 billion of new provisions. This follows Societe Generale‘s surprise warning earlier this month that it faced €1.4 billion of fresh write-downs on its structured credit portfolios. As European banks kick off their 2009 reporting season, investors should brace themselves for further surprises. (…)

BBVA’s total nonperforming asset ratio may now be an eye-watering 4.3% — and 5.1% on its Spanish portfolios — but expected losses are now 57% covered by provisions. Meanwhile, BBVA’s capital position looks strong with a core Tier 1 capital ratio of 8%. The bank’s profitable emerging market operations, notably Mexico, provide strong capital generation. And BBVA’s focus on retail banking rather than risky trading activities makes it less vulnerable to new regulatory capital charges.

The higher provisions in the US were tied to commercial real estate loans.

That leaves BBVA still one of the most promising European banks, despite a 5% fall in the shares on the back of the results. A sustainable return on tangible equity of over 20% plus the potential to pay a generous dividend should support a share price in excess of the current twice tangible book value. But investors will now worry about other banks such as Barclays and Deutsche Bank whose balance sheet valuations have been regularly questioned. Policy makers did warn that investors were being too complacent.

Full WSJ article



In my Jan. 14 post US RETAIL SALES: AN ANALYSIS OF THE LAST 2 YEARS, I outlined the significant market share gain of “non-store” retailers. I wrote

However, the “new normal” can be applied to online shopping, the only segment that, at the end of 2009, is showing sales above its 2008 peak level. Non-Store sales (principally on line at present) in December were 5.1% above their 2 year average, having grown 10.3% in the last 12 months.


Amazon reported an amazing 19% YoY growth in customers, even more amazing when considering that this is a company with $30B in revenues.

For the current quarter, Amazon forecast another sharp revenue gain, of between 32% and 43% to between $6.45 billion and $7 billion, compared with the year-ago quarter. It projects operating net will rise between 13% and 50%, to between $275 million and $365 million.

And here is the other “new normal”:

The company reported that when it has both paper editions and digital editions of books, it sells six Kindle books for every 10 paper books.



California’s existing single-family home sales increased 4% in December on a seasonally adjusted basis relative to November. On a year-over-year basis, sales rose 2% to a run-rate of 558,320 units. Sales activity continues to be supported by a large mix of heavily discounted foreclosure re-sales, which accounted for 41.0% of December’s re-sale transactions, according to DataQuick. Notably, this is up very modestly from 40.1% last month, but still down substantially from its peak last February at 58.8% of all sales. On that note, we believe the recent moderation in sales activity can be attributed to: 1) a decline in the pace of foreclosure sales, which have been affected by various foreclosure moratoriums and efforts by servicers to modify loans, and 2) more challenging year-ago comparisons than in early 2009.

The state’s median home price rose 8% y/y to $306,820, its second consecutive y/y increase. Prior to November, California had posted 26 straight months of y/y declines in median home price. Notably, the median price has increased sequentially in each of the last 10 months and is now up 24% from the low in February 2009. Importantly, however, monthly median prices can be heavily skewed by the mix of homes sold, and we believe part of the upturn in median prices may be the result of a higher mix of sales at the high-end of the market. Earlier this year, we suspect that tightened underwriting standards for jumbo mortgages, higher availability of FHA financing, and interest in the federal and state new home buyer tax credits all helped skew the median price downward. Conversely, seasonal increases in the number of non-distressed sales and jumbo transactions, as well as the effect of fewer bank-owned and other distressed properties hitting the market, have likely helped skew the median price calculation upward in recent months. That said, we have noted for several months now that we believe there are clear signs of true pricing bottom, and recent data from the Case-Shiller Index (measuring repeat sales transactions) continues to support this underlying trend.

Notably, the November seasonally adjusted Case-Shiller index reading for Los Angeles (+1.0%), San Diego (+1.0%), and San Francisco (+1.5%) showed home prices increased in all three cities relative to the prior month. On a year-over-year basis, prices were down 3.5% in Los Angeles, but up 0.4% and 1.0% in San Diego and San Francisco, respectively.

Sales at higher price points continue to outperform. First-time buyers continue to drive overall sales volume, however, on a year-over-year basis sales in the more expensive regions of the state were stronger than the more affordable ones. Specifically, home sales in the more expensive Santa Clara (+39% y/y), Santa Barbara South Coast (+37% y/y), and Santa Cruz County (+28% y/y) regions outpaced the more affordable Riverside/San Bernardino (-19%), Sacramento (-15%), and High Desert (-12%) regions. That said, the y/y comparisons can be misleading and it is important to note that the majority of homes being sold continue to be low-priced entry level homes or foreclosures, and mortgage availability at the high-end of the market continues to be constrained.

As of September 30, over 2.4 million mortgages were "underwater" in California, of which ~1.3 million loans had loan-to-value ratios (LTVs) of 125% or more, according to First American Core Logic. Unfortunately, we believe the staggering number of homes in negative equity combined with weak employment trends (statewide unemployment at 12.4% in December) may result in more foreclosures and/or distressed sales, which, in our view, could prevent home prices from materially appreciating for an extended period of time.

California single-family listed inventory declined 31% y/y to ~177,000 units, which on the surface represents 3.8 months of supply, down from 5.6 months a year ago. Very importantly though, we believe banks and mortgage servicers have continued to extend the foreclosure process for millions of homeowners. Accordingly, there has not been a material acceleration in property repossessions from the foreclosure backlog. This, in turn, has kept the amount of active real estate-owned (REO) inventory in the market at relatively low levels. Nevertheless, a significant amount of distressed "shadow inventory" (REO homes, seriously delinquent loans, and recent foreclosures) not actively listed in statewide MLS systems continues to conceal the true inventory situation, in our view. For reference, according to Mortgage Bankers Association data, as of September 30, more than 800,000 California mortgages were either in foreclosure or seriously delinquent. Even assuming a 50% workout rate on those loans, we estimate this implies an additional 8.6 months of supply statewide above what is currently being reflected in the realtor data.

Raymond James & Associates



Yesterday, the Federal Reserve acknowledged that the private sector was beginning to contribute to economic growth through increased image business investment in machinery & equipment. The just released
data on U.S. durables confirms this. Shipments of nondefence capital goods rose 2.2% in December, the fourth consecutive rise and is the largest monthly increase since March 2008. This is important since this component is very highly correlated with business investment.

As today’s Hot Chart shows, shipments of nondefence capital goods are picking up much faster than they did after the 2001 recession. Back then, it had taken no less than three years for shipments to finally start rising. It is encouraging to see that recent improvement in businesses confidence is translating into action. History shows that investment must come back before job creation materializes.

NBF Financial



Not a good month for housing. Existing home sales dropping, new home sales weak, and now more evidence that the shadow inventory is growing and spreading out, just when recent employment trends are turning weaker.

RealtyTrac®,  the leading online marketplace for foreclosure properties, today released its  Year-End 2009 Metropolitan Foreclosure Market Report, which shows that cities  in four Sun Belt states accounted for all top 20 foreclosure rates in 2009 among metro areas with a population of 200,000 or more, but foreclosure  activity showed signs of spreading into previously insulated areas as  unemployment became more of a driving factor.

While it was expected that cities from states with the highest levels of  foreclosure activity would top the charts, there is evidence that we’re  entering a new wave of foreclosures, driven more by unemployment and economic  hardship than what we’ve seen over the past few years.

Areas like Provo,  Utah, Fayetteville,  Ark., Portland,  Ore., and Rockford,  Ill., all posted foreclosure rates above the U.S. average in  2009. And markets like Honolulu, Minneapolis and Seattle saw  foreclosure activity increase at more than twice the national pace over the  past 12 months — although all three of those markets still had 2009 foreclosure  rates that were at or below the U.S.  average. (…)

Full RealtyTrac release