By ANNIE LOWREY

WASHINGTON — Fannie Mae, the government-backed mortgage financier, said on Wednesday that it made a profit in the first quarter of the year and that it does not need additional bailout money — a first since the federal government took it over in the fall of 2008.

A slowdown in the decline of home prices and the number of homes entering serious delinquency allowed the mortgage giant to eke out a profit after paying its dividend to the Treasury. Fannie Mae also said losses on its legacy portfolio of home mortgages had probably peaked and that it expected better profits going forward, another sign that the worst might be over for the battered American housing market.

The mortgage giant reported quarterly net income of $2.7 billion, up from a $6.5 billion loss in the first quarter of 2011.

Fannie has received about $116 billion from the Treasury over the last three and a half years, and paid back about $23 billion in dividend payments. Its brother institution, Freddie Mac, has received about $72 billion, and paid back about $18 billion.

via Fannie Mae Profit Signals a Stabilizing Housing Market – NYTimes.com.

F&F have barely written off a nickel of the bad mortgages they hold or guarantee. Nationally housing values are down about 30% since the peak in 2006. Of the $5.6 TRILLION in mortgages they hold or guarantee (actually which you guarantee if you are a US taxpayer), only $544 billion has gone away since their portfolios peaked in 2009.

I’d say there’s more pain ahead even if housing prices inflated at 3-4% per year. They’d need to go up 43% to get back to where they were at peak. There will be more people mailing in the keys in the years ahead.

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Some housing sales data now shows prices with a slight year over year increase including the NAR’s existing home sales and the Commerce Department’s new home sales data. The NAR data is from February, representing mostly contracts from December. It tells us nothing about the current market. The Commerce Department data is more current, representing February contracts, but it can be skewed by product mix. Real time listings data, which over time has correlated well with subsequently reported sales data, shows listing prices up an average of 3.8% nationally, on a year over year basis as of April 9.

The supply side of the law of supply and demand is working. There’s less supply offered at these low levels and seller asking prices have firmed up because of that. Numerous measures of active inventory show substantial year to year declines. “Shadow inventory” is a hollow threat as more and more of it becomes non-economic or non-functional. But the demand side is hindered by a broken, dysfunctional, dishonest, and even criminal housing finance system. Buyer willingness to buy is often stymied by this system. At the same time, stymied buyers usually keep trying until they are successful.

Most demand markers, while up sharply over the same period last year, remain extremely weak historically. The number of buyers may have increased, but huge numbers of sales are falling through because of problems with financing.

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The following is the executive summary of the Wall Street Examiner Professional Edition Housing Update. The complete report with illustrative charts and analysis is available to subscribers here.

Housing data continues to be mixed. Lagging closed sales data shows prices still declining. However, the most current sales data represents January closings, which were mostly sales that went under contract in November 2011. That tells us nothing about the current market. Real time listings data, which over time has correlated well with subsequently reported sales data, is actually up on a year over year basis. The supply side of the law of supply and demand is working. There’s less supply offered at these low levels and seller asking prices have firmed up because of that. But the demand side is still broken in spite of an apparent increase in buyer “willingness.”

Most demand markers remain extremely weak. The number of buyers may have increased, but huge numbers of sales are falling through because of problems with financing. Appraisers, unwilling and unable to see prices leveling out, continue to apply downward time adjustments resulting in one third of contracts blowing up. The willingness to buy is there, but the ability to finance is not. At the same time, a high percentage of sales being all cash suggests that many buyers are sensing intrinsic value in some markets. Unfortunately for the market, value and price isn’t the same thing.

Demand depends largely on employment. While there are hints that the employment picture may be improving, it has not improved enough to cause a sustained increase in demand that would lead to a sustained rise in house prices.

The supply of existing houses on the market has been radically reduced, while builders continue to build. They got a boost in January with a surge in new home demand. It appears that the dead in the water new house market may have turned a corner of sorts, but it’s not clear yet whether a sustained uptrend will follow. Sales as measured by the Commerce Department are barely above record lows. Based on the current NAHB builder survey, February sales data should show a substantial increase.

Inventories of existing homes are way down, and that has helped inventory to sales ratios based on contracts, but one third of those contracts are blowing up due to low appraisals and credit rejections on other grounds. Appraisers applying downward time adjustments to comparable sales exacerbates a problem that might no longer exist if it were not for the low appraisals. It’s a chicken and egg problem. Appraisers won’t stop adjusting comparable sales down in price until the price downtrend stops, and the downtrend won’t stop until appraisers stop using negative time adjustments.

So while there appears to be an increase in the willingness of buyers to buy, there’s no increase in effective demand, or the ability to close the sale, and hence no real improvement in the supply demand imbalance in spite of sharp reductions in supply.

One half of the problem, that of oversupply, is well on the way to being solved. The problem of financing deals so that they can close is not. The same mortgage lenders who caused the problem in the first place by being too easy for too long, are now exacerbating the problem by being too tight.

Their stupidity and short-sighted self dealing are boundless, in the end only harming the market they are supposed to facilitate in the due course of the conduct of their business. A little honesty would have gone a long way. Unfortunately, that’s a non existent quality among the big mortgage banks. They’re crooks, and they continue to screw the system as they seek to cover their crimes. The only way out of what is in its essence a criminal morass is to punish the guilty. The only solution is to put a few thousand of the industry’s top players in jail. That’s not happening, and it’s not going to happen. Until there’s punishment of bad behavior, the bad behavior will only be reinforced.

While lenders ironically screw the system by now rejecting deals that they should make, the shadow inventory problem grows like a cancer in the mortgage and banking criminal enterprises. As I have discussed in the past, and have reposted below, it is less of a direct problem for the housing market. A growing portion of that shadow inventory has become, or is in the process of becoming, non marketable. To the market, the shadow inventory boogieman is just that, a boogieman, not a real threat. But to the criminal enterprise itself, it constantly siphons off its lifeblood, and limits the ability of the mortgage mafiosi to skim and divert fictitious profits into their own pockets.

Ultimately, if people lose confidence and the financial system implodes, then it’s game over and prices will collapse again. For purposes of this analysis, I will assume that that’s not going to happen. As long as the Fed and foreign central banks keep their criminal crony zombie banks on life support they can bleed off the losses over a generation or two and the land of make believe will persist. It will never prosper, but it will persist, while those running the scam continue to stuff their pockets.

A real bottom in prices and the beginnings of a housing recovery will require a sustained increase in effective demand coupled with continued reductions in supply. The supply reductions are happening in a real and material way. There are indications of some increase in demand, including large percentages of cash sales and a surge in contracts signed in January, as well as possibly the beginnings of increasing employment. But these seeds of demand growth have to be cultivated and harvested as closed sales, and it’s not clear when or if the dysfunctional criminal banking system will ever be able to fully perform that function. So while there is probably less risk in housing now due to supply reductions that’s a long way from being in a sustained recovery. That requires consistent effective demand, which is being broadly stifled by the massive effort in the industry and in government to sustain the criminal enterprise.

As for the financial system itself, it will remain under pressure for as long as it takes to recognize the reduced value of housing collateral, a process which, in spite of 5 years of declining prices, hasn’t even begun. I’ve long estimated that the collateral value loss is in the vicinity of 30% nationally, and a report out today from CoreLogic more or less verified that. That there will be more foreclosures, and that the banking system will remain a dysfunctional, disreputable cesspool are givens. As long as that’s the case there will be a ceiling on how far prices can rise, even with wave after wave of malfeasant central bank money printing.

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Housing data in the past couple of months has been mixed. Lagging closed sales data shows prices declining. The problem with that is that the most current data represents sales closed in November, which for the most part were sales that went under contract in September. That tells us nothing about the current market. Real time listings data, which over time has correlated well with subsequently reported sales data is actually up on a year over year basis, suggesting that the decline in prices may have ended, at least for the time being.

What is driving that is not an increase in demand. Most demand markers remain extremely weak. The number of willing buyers may have increased, but huge numbers of sales are falling through because of problems with financing. And while there are hints that the employment picture may be improving, employment has not improved enough to cause a sustained increase in demand that would lead to rising house prices.

The supply of existing houses on the market has been radically reduced, but builders continue to build. As a result, there’s no evidence of any real improvement in the supply demand imbalance. That being said, the shadow inventory problem that everyone is so worried about is overstated, for the reasons I have discussed in the past, and have reposted below. While shadow inventory is still a huge problem for the financial system, as long as people are willing to pretend that the banking system isn’t a walking corpse, shadow inventory won’t have much impact on prices in most markets from now on.

If people lose confidence in the system, then it’s game over, and none of this will matter. For purposes of this analysis, I will assume that that’s not going to happen. The land of make believe looks like it will persist for a while.

A real bottom in prices and the beginnings of a housing recovery will require a sustained increase in demand coupled with continued reductions in supply. The market isn’t yet where it needs to be in that respect. Housing remains at risk, and the financial system will therefore remain under pressure for as long as it takes to recognize the reduced value of housing collateral, a process which, in spite of 4½ years of declining prices, hasn’t even begun.

Click here to download complete report in pdf format (Professional Edition Subscribers) including 24 pages of charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.

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The Mortgage Bankers Association has sent me legal notice to “demand that wallstreetexaminer.com immediately remove all WAS data (Weekly Applications Survey) data, from its systems and cease and desist from further reproduction or distribution of all MBA data, past and present, in any format.”

Regrettably, I must comply with this demand. I am not in a position to defend a lawsuit brought by a major commercial organization. The cost would be prohibitive.

I have published my analysis and a chart of the mortgage applications data several times recently. I used only information that was widely disseminated both by the MBA in its press releases and published by major media to illustrate the critical public issues involved. MBA’s demand was based on my use of this data without a license: “The WAS is a revenue-generating data service of the MBA,” and the MBA has not granted the Wall Street Examiner a redistribution license, nor any permission to republish data points from the WAS.

I was not aware, and do not believe, that compiling data from publicly available sources would violate a copyright. However, the MBA has given me notice that the MBA believes that it does. The MBA stated that redistributing the WAS through the Wall Street Examiner deprived the MBA of a redistribution royalty and revenue from users who were able to access the data via this website. The MBA indicated that republishing the WAS data “from any source in the future will cause MBA future harm.”

Finally, the MBA warned that “failure to cease and desist from using MBA’s data without authority may result in legal action.”

I am not in a position to bear the immense costs of defending in court my belief that in compiling freely disseminated publicly available data, that I did not violate the MBA’s copyright. I believe that the public has a vital interest in knowing this data because it represents critically important current information about the state of the housing market. However, due to the realities of the costs of lawsuits, I am not in a position to defend publication of information that I believe is not copyrighted, and is the public’s right to know.

Therefore, to comply with the MBA’s terms of use, and their letter to me, I have removed the instances where this data had been reported on this website and will no longer be publishing any charts or data that quotes or redistributes the MBA’s WAS data. If you would like to access the information, the MBA posts a press release every Wednesday morning at their website.

Apparently the MBAss (Mortgage Bankers Association) didn’t like the fact that someone in the financial blogo-wackosphere actually had the temerity to make use of real, hard data, that they hadn’t massaged. Now, not only do they not report the actual index level of their seasonally smoothed applications indexes, the charts of the not seasonally adjusted indexes have disappeared from Bloomberg.com in the past week. I doubt that Bloomberg would have pulled them on their own. Seems more likely that the MBAss wasn’t too happy about anyone actually reporting the truth. So unless Bloomberg relents or I can find the data elsewhere, it looks like last week’s report will be the last time we get to see what the actual purchase applications look like.

For now, I’ll return to looking at the seasonally smoothed data which, while not the actual numbers, should give us an idea of the trend. The MBAss stopped reporting the actual index levels about a year ago, but they still report the weekly percentage changes, so it is possible to reproduce a close approximation of their index.

Of course, if the news gets bad enough, like if purchase apps drop to new lows, they can always stop publicizing the data altogether. These are after all, the very same people who brought us the housing crisis in the first place. Things like fudging, lying, cheating, stealing, and committing fraud are part of their natural order. Getting the truth out–not so much. In fact, before joining the organization a prospective member needs to pass a sociopathy test.

Chart Removed by Demand of Mortgage Bankers Association

The seasonally adjusted mortgage purchase applications graph broke a long term downtrend line this week, but it remains below the one year moving average, which is flat. While the trend of purchase applications has apparently stopped weakening, it hasn’t turned up. Comparing the week ended November 4 with the same week last year, applications are down 2.9%. They remain down over 65% from the May 2005 peak. Furthermore, taking into account the 18% of deals that the NAR is reporting have recently been falling through, versus 9% a year ago, and an increase in cash deals of about 1% since last year, effectively purchases are down by around 11%.

That’s not the news the housing industry wants to hear, and certainly not news it wants potential market participants to hear. So organizations like the MBAss do their best to hide it, because it’s the truth, and from their perspective, you can’t handle it. ___________________________________________

I just posted the housing market update for subscribers to the Professional Edition yesterday. That report includes all of the relevant housing market data from the past month. Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!

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Housing data over the past month has weakened. Part of that is normal seasonality, but the drop in contracts on existing homes in September was the worst in percentage terms since the housing collapse began. Although I believe that the supply problem is overblown, the last thing the market needs is further weakening in demand. But there’s more to the story. Here are the pros and cons. Click here to download complete report in pdf format (Professional Edition Subscribers). including 24 pages of charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.

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Purchase mortgage applications rose 6.4% last week according to the Mortgage Bankers Association and major media outlets. As always, the media report only the seasonally adjusted data fed to them by the MBAA. Rarely should a week to week change have any seasonal effects, although last week would be an exception because the week before included Columbus day, when only a few hardcore addicts would be out taking apps. So the suppliers of the data make up a number to account for that, and off they go. By the same token, the not seasonally manipulated week to week figure is probably of equally little use.

Week to week changes are rarely meaningful to begin with. We’re always more interested in the trend, and whether that trend is showing signs of change. For that purpose, the year to year change is far more important. Bloomberg provides a chart of that data, not seasonally massaged, going back 5 years, which includes the beginning of the housing meltdown. The year to year change in the latest reporting week (October 21) was a decline of 2.6%. That’s not good, considering that the market was already at rock bottom levels. But the picture of the last 5 years tells a different, and somewhat more hopeful story. The rate of decline has slowed to a crawl. The market is no longer collapsing.

Chart removed on demand of Mortgage Bankers Association

Additional considerations are the fact that real estate brokers continue to report that large percentages of contracts are falling through. In the latest NAR report for September brokers reported a fallout rate of 18% versus 9% in September 2010. Combined with the current mortgage applications data, that suggests an overall decline in effective purchase demand of 12%. OK, so that really is terrible. But it is at least a hopeful sign that buyers are willing, if not not able, sometimes through no fault of their own. Some of this is due to credit rating (effective demand), and some is due to low appraisals, which is an external constraint on demand.

The willingness to buy is a first step, but prices must stabilize so that appraisers can stop applying downward adjustments that result in a value opinion below the contract price. Appraisers also have a problem with listing comparables in some markets, when REOs are listed at prices less than the contract price between buyer and seller. A house cannot be worth more than a house down the street listed for a lower price, regardless of who owns the listing, man or beastly bank.

In that respect, distressed supply constrains effective demand. This problem is concentrated in the hardest hit, post bubble areas like Florida, California, Nevada, and Arizona, where lender REOs are listed in the MLS listings in large numbers. It is less of a problem in most other areas of the country, and we are seeing prices stabilizing in many metro areas. Less distressed markets can recover sooner than distressed markets even though distressed markets have had much larger price declines and are cheap relative to median market household income in many cases.

The other consideration is the level of cash purchases. These will put a floor on the market where they constitute a significant percentage of sales because appraisals are not necessary. Where there’s no appraisal contingency in the contract, a real, effective meeting of the minds has been established. Brokers reported cash sales were 30% of the market in September, little changed from 29% last September. As a result, price declines, while continuing in many areas, have leveled off over the past year.

The slowing of the rate of decline in mortgage purchase applications is a hopeful sign, but the market cannot stabilize until purchase applications increase and the rate of denials stops increasing.

As lenders hold more shadow inventory off the market, it becomes less of a supply threat over time, because the physical, and in many cases locational, deterioration of those properties renders them noncompetitive with non distressed inventory. An appraiser would not need to consider a listing that has been stripped of all its copper wiring, or where needed repairs are so great that the typical buyer would not consider the property competitive. In many cases the obsolescence becomes so great that these properties, and indeed whole communities, may become unmarketable altogether. It’s inventory that ceases to be inventory for all practical purposes, but I know of no one who has attempted to deduct those numbers from shadow inventory. For this reason the shadow inventory threat is grossly overrated in most areas that still retain long term viability.

I’ll be posting a more complete review and analysis of the housing picture, including an analysis of the just released Commerce Department monthly new home sales report in the Wall Street Examiner Professional Edition Housing Market Update soon. Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!

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Data released today by the Mortgage Bankers Ass. suggest that housing demand is again cratering. In the last week of September mortgage purchase applications were down about 12% versus the same week last year. This is similar to the difference at the end of August, when the drop was about 13%.

Chart and data- Bloomberg

The data conflicts with the NAR’s report that pending home sales (sales contracts) were up 13% percent year to year in August. One of these organizations must have it wrong. Cash sales haven’t increased enough to make up for a 13% drop in mortgage applications.

Once again, there’s a suggestion that there’s something wrong with the NAR’s data. The NAR has previously revealed that its pricing data could not be trusted. Apparently neither can its volume data. This conflict between the mortgage applications data and NAR data on sales contract volume only raises more questions about the NAR’s objectivity and competence in reporting data in which the public has a critical interest.

In the meantime, I need to rethink my thesis that the housing market has at least stopped getting worse. If the latest data on mortgage applications is correct, then demand may again be falling off a ledge. The inventory to sales ratio which the NAR’s data had shown to be improving would again be worsening. That would translate to another ratcheting down in price.

So far that’s not showing up in the real time listing price data reported by Housingtracker.net. The trend of this index has tended to correlate well with subsequently reported transaction prices. Nationally, prices are flat over the past month, and down just 1% since the June peak. If the indications of weaker demand are correct, sellers should soon begin to reflect that in their asking prices.

____________________________________________

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The mainstream financial media is widely misreporting the NAR’s Pending Home Sales data this morning, simply parroting the NAR’s seasonally manipulated data. As it turns out, the NAR is screwing its own pooch because the actual, not manipulated data is actually much better than the seasonally smoothed numbers imply. That’s not to say sales are great. They remain 25% below the peak levels reached during the bubble, but the fact is that sales were up in August, and not just by a little. They were up by 9.4% month to month, and were 13.1% above the level of last August. That’s the strongest August gain since at least 2001.

It is clear that the collapse in prices is beginning to at least bring some buyers back into the market. While a high percentage of contracts are still falling through, this increase in demand over last year’s levels is not a one month wonder. It has now persisted for 4 months. It is not yet up to 2009 levels when the market was falsely stimulated by government tax breaks to buyers, but it is 3.4% above 2008 levels.

Another key metric is the inventory to contracts ratio. That fell to 6.96 in August from 7.77 in July. It is down from 9.06 last August. This is the lowest this ratio has been since August of 2006, at 6.40 as the bubble was peaking.

All of this data fits my thesis that the housing market has stopped getting worse. Is it bottoming, or is it the calm before the next storm? I think the former, but it could be a very long time before a sustained recovery in home prices takes hold. That will depend largely on employment growth.

Get regular updates on the US housing market, and stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!