Some More Observations On Real Estate, Employment and Car Sales

1. Default rates at record: The share of FHA mortgages that are “seriously delinquent” at the end of February was 7.46%, up from 6.16% a year ago. the FHA-insured market now is taking some big market share – this is backed by the taxpayer – and in 4Q represented more than a 30% share of originations compared with just 2% in all of 2006. And Fannie just reported that 2.77% of single-family loans held in its $785 billion mortgage portfolio as of January are in default, an increase of 35 basis points in one month – the largest increase on record and double the default rate of a year ago.

2. While residential real estate is still bad, commercial is getting worse. The deceleration rate across both classes is picking up. Class ‘A’ asking office rents in midtown are off 19% YoY as of February, and more deflation can be expected to come with the vacancy rate doubling to 11.3% from 6.4% a year ago; Class ‘B’ rental rates are down 23% (as per Colliers data). Class ‘B’ vacancy rates have climbed to 14% from 9.9%. As a sign of how the commercial real estate space is playing catch-up to residential, the number of delinquencies has shot up 43% YoY as of 1Q: There are now 3,678 properties in distress (from www.rcanalytics.com)

3. As Zero Hedge pointed out yesterday in the distinction of unemployment peaks as a lagging or coincident indicator, here are some observations. On average, unemployment peaks six months after the S&P 500 has bottomed. Here is what San Fran Fed president Janet Yellen had to say on the jobless rate in her speech last week” “First, as forecasters, we distinguish between growth rates and levels. It’s true that the Blue Chip consensus shows moderate positive growth rates in output in the second half of this year. But even so, the level of the unemployment rate would still rise throughout 2009 and into 2010. So, in this sense, the worst of the recession is not expected to occur until next year”. Assuming a very early Q1 peak, the implication is that the market is headfaking this number yet again (which jives with Roubini’s point earlier) and this is merely yet another bear market rally, as the real equity lows will not be evident until Q3 of 2009.

4. 9.8 million March SAAR versus a 9.2 million estimate? This was due primarily to record incentives (up 30% Y/Y to $3,169 per auto according to Edmunds.com) and new programs that provide guarantees to cover payments in the event of a job loss, which drew in more customers. Also, a rush to beat a 1% sales tax increase starting April 1 boosted activity. Lastly, new information on tax refunds (up 21% YoY in March) likely boosted overall Q1 consumer spending and annualized GDP. Of course, all presented items are one-time in nature, which seems to be the prevalent method the government is using to push "optical" results higher, all the while the recurring basis of the economy keeps slumping lower.