Global Economic
Trend Analysis

Recent Posts

Wednesday, February 24, 2010 11:36 AM

New Home Sales Unexpectedly Plunge to Record Low; Fannie Mae, Freddie Mac Post Losses

Mish Moved to MishTalk.Com Click to Visit.

Before we get to new home sales, let's take a look at how the GSEs are doing. Please consider Fannie, Freddie Post Losses on Tax Credit Writedowns.

Freddie Mac posted a $6.5 billion net loss as it marked down $3.4 billion in low-income housing tax credits that the U.S. Treasury Department barred the McLean, Virginia-based company from selling, according to a filing today. Fannie Mae, which plans to report official results this week, said it’s taking a $5 billion charge for the same reason.

Freddie Mac, which buys mortgages and guarantees home-loan securities, has tapped $50.7 billion in Treasury preferred stock investment since November 2008 to remain solvent. While Freddie Mac avoided having to take more federal aid for a third straight quarter, the company said new accounting rules that took affect Jan. 1 will reduce its net worth by about $11.7 billion in the first quarter and require going back to for more aid.

The Treasury found that an agreement Fannie Mae had to sell about half of its credits would have cost taxpayers more than the company would gain from the deal, according to a November letter to that company. The credits can be applied to profits to lower the amount of taxes owed. Because Fannie Mae hasn’t been profitable in almost three years, the company had sought to sell the credits to a business that could take advantage of the tax benefits.

Freddie Mac and Fannie Mae, now own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made last year.

Losses at Freddie Mac are likely to grow with rising unemployment and costs to implement President Barack Obama’s housing plans, the company said.

Fannie Mae and Freddie Mac survived last year on $200 billion each in emergency financing pledged by the Treasury after regulators put the two in conservatorship in September 2008. The Treasury on Christmas Eve raised that lifeline to an unlimited amount through 2012. The U.S. government makes the payments through preferred stock purchases when the value of the companies’ assets drop below the amount owed on their obligations.

We start 2010 with some early signs of stabilization in the housing market, with house prices and home sales likely nearing the bottom sometime in 2010,” Freddie Mac Chief Executive Officer Charles Haldeman said in a statement. “Still, the housing recovery remains fragile, with significant downside risk posed by high unemployment and a potential large wave of foreclosures.”
Early Signs of Stabilization

Inquiring minds are interested in "early signs of stabilization". Indeed we have some. For example, please consider, U.S. January New-Home Sales Probably Rose on Credit Extension.
Sales of new homes in the U.S. probably rose in January as an extension of a first-time homebuyers’ tax credit spurred demand from a nine-month low, economists said before a report today.

Purchases increased 3.5 percent to an annual pace of 353,000 new homes, according to the median estimate of 71 economists surveyed by Bloomberg News. Demand slumped 7.6 percent in December, the month after the incentive was originally scheduled to expire.

Expansion and extension of the credit covering contracts signed by the end of April may give housing a further lift in coming months. Sustained growth in home sales will require payroll gains after the loss of 8.4 million jobs the last two years.

“We expect a bumpy ride for the housing market but for the recovery to stay on course,” said Michelle Meyer, a senior economist at Barclays Capital Inc. in New York. January will “be payback from the sharp decline in December and we suspect the tax credit should start to boost new sales,” she said.
Payback For Sharp Decline In December?
Tax Credits Will Boost Sales?

New-Home Sales Unexpectedly Fell to Record Low

Back in the real world, U.S. New-Home Sales Unexpectedly Fell to Record Low.
Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.

Purchases declined 11 percent to an annual pace of 309,000, below the lowest forecast in a Bloomberg News survey of economists, from a 348,000 pace, figures from the Commerce Department showed today in Washington. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased.

The report underscores Federal Reserve Chairman Ben S. Bernanke’s comments today that the economy is in a “nascent” recovery still requiring low interest rates. Homebuilders face competition from foreclosed properties that have driven down prices at the same time companies are reluctant to create jobs.

Sales were projected to climb to a 354,000 annual pace from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 325,000 to 386,000.

The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year.
It appears the only thing that has stabilized is economists' optimism.

In aggregate, economists are an amazingly optimistic lot, perpetually expecting things to get better any second.

Charting Stabilization

As is always the case, Calculated Risk has some fine graphs after housing reports.

click on chart for sharper image.

As you can see in the first set of columns, January 2010 undercut January 2009 sales and the November-December 2009 lows as well.

The effect of $8000 tax stimulus is now gone and the pool of new buyers is exhausted. This proves once again that it is a huge mistake to equate stimulus with recovery or that stimulus measures can possibly start a recovery.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List

Last 10 Posts

Copyright 2009 Mike Shedlock. All Rights Reserved.
View My Stats