by Calculated Risk on 5/18/2006 12:02:00 PM

From Reuters: Bernanke sees cooling housing market

The current cooling in the U.S. residential housing market looks to be orderly and moderate at this time, Federal Reserve Chairman Ben Bernanke said Thursday.

"In combination with rising interest rates affordability is becoming much more difficult and therefore as you would expect you are seeing some cooling in those markets," Bernanke said in a question and answer session after speaking to the Chicago Fed conference on banking regulation.

The central bank is watching carefully for signs that the slowdown might be faster than expected, Bernanke said.

Still, with the U.S. labor market strong and incomes rising, 2006 could still turn out to be a pretty strong year for real estate, he said.

So far the slowdown has been orderly, but there are definite warning signs of both rising inflation and a slowing economy.

by Calculated Risk on 5/18/2006 10:48:00 AM

The National Retail Federation released the results of a new survey today: Survey Finds Consumers Adjusting to Higher Prices at the Pump

While consumers have seemed resilient in the face of higher energy costs, a tipping point may soon be in sight. According to the National Retail Federation’s (NRF) 2006 Gas Prices Consumer Intentions and Actions Survey, 76.0 percent of consumers believe fluctuating gas prices have impacted their spending habits, up from 67.2 percent in 2005 and 56.8 percent in 2004. The survey will be featured as the cover story in the June 2006 issue of STORES Magazine.

Consumers say they will find a variety of ways to cope with higher prices. Most (44.8%) say they will simply drive less. Additionally, 37.2 percent of those surveyed say they plan to decrease vacation and/or travel, 36.2 percent will cut back on dining out, while only 22.2 percent will delay a major purchase such as a car or television. Also, eight percent of respondents say they will carpool, almost double the amount from the previous year (4.5%).

While the luxury market has been particularly immune to the rise in gas prices, new evidence suggests that even the recession-proof shopper may start pulling in the reins. According to the study, 69.3 percent of affluent shoppers (with household incomes of $50,000 or higher) concede that gas prices are negatively affecting spending, compared to 59.1 percent in 2005.

And from the Stores cover story: Are Shoppers Running Out of Gas?

With per-gallon prices now at or above $3 in many parts of the country, there are signals that often-impulsive shoppers are dangerously close to running out of gas.

Right now they’re in cost-cutting mode — driving and dining out less and scaling back on discretionary spending.

by Calculated Risk on 5/17/2006 10:07:00 PM

MarketWatch has the story: Housing slowdown behind rise in inflation

Beneath the surface of rising core consumer prices over the past two months lies a disturbing trend: The slowing housing market is actually making inflation look worse, economists said.

The housing sector makes up 40% of the consumer price index, which increased 0.6% in April.
...
In the heady days of the booming housing market, more people were buying homes, and fewer were renting, economists said. Supply and demand kept rents comparatively low, and inflation appeared to be contained -- despite the run-up in home prices. But this virtuous circle is now reversing.

With home prices remaining high and mortgage rates rising, more people are being priced out of the real-estate market and are instead looking to rent. This increased demand is pushing up rents.
...
At the same time, the supply of rental properties has been constrained, as many former rental properties have been converted into condominiums, said Mark Vitner, senior economist at Wachovia Corp.

"This dynamic, once it begins, is fairly sticky," said John Ryding, chief U.S. economist at Bear Stearns. "This raises the risk of higher inflation going forward."

Perversely, this slowdown in the market is also pushing up the costs of owning a home, at least, the cost as reported by the government.

The way the government computes the CPI has created a distortion that made inflation look tame when home prices were soaring, but is now making inflation look worse as price gains moderate. It's all because the government measures everyone's housing costs -- renters and homeowners by looking at rents, not at the cost of owning.

by Calculated Risk on 5/17/2006 05:24:00 PM

pgl at Angry Bear notes this comment from Treasury Secretary Snow:

"One thing is pretty clear. With these strong revenues and the continuing attention to spending, the deficit is getting on the right path," Snow said. "The president's target of cutting the deficit in half is going to be met - is going to be exceeded - and that will be done ahead of schedule."

Meanwhile, back in the REAL World ... the deficit will probably set another nominal record this year and will most likely increase significantly next year. The Bush Administration makes this false claim every year (sometimes several times per year).

by Calculated Risk on 5/17/2006 10:25:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Application Volume Up

The Market Composite Index, a measure of mortgage loan application volume, was 588.0, an increase of 4.6 percent on a seasonally adjusted basis from 562.1 one week earlier. On an unadjusted basis, the Index increased 4.8 percent compared with the previous week and was down 14.7 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index increased by 2.4 percent to 426.7 from 416.5 the previous week whereas the Refinance Index increased by 8.4 percent to 1546.8 from 1427.4 one week earlier..

Mortgage rates increased:

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.66 percent from 6.61 percent ...

The average contract interest rate for one-year ARMs increased to 6.07 percent from 6.04 percent ...

Change in mortgage applications from one year ago (from Dow Jones):

Total	-14.7%
Purchase	-8.6%
Refi	-24.1%
Fixed-Rate	-9.5%
ARM	-24.6%

by Calculated Risk on 5/16/2006 04:39:00 PM

CNNMoney reports: Housing slowdown to be widely felt

You don't need to be in the market to buy or sell a home to be affected by the cooling housing market.

Economists, investors and the Federal Reserve are watching home building and home sales carefully because the sector has reached so far throughout the economy in recent years, lifting all manner of consumer spending and economic activity.

Now that the housing "bust" has started, the questions are: 1) How quickly will housing sales and prices fall? and 2) What will be the impact on the US and World economies? I will give my views in future posts - here is more from the CNNMoney article:

Even those who believe that real estate prices are not in any danger of collapsing agree ... that the reach of real estate extends far beyond those actually building, buying or selling homes.

"Housing accounts for between a fourth and a fifth of the GDP (gross domestic product)," said Walter Molony, spokesman for the National Association of Realtors, referring to the broad measure of the nation's economic activity. "So many other industries see sales tied to the purchase of a home. We get calls from Singer sewing machines about our home sales statistics."
...
David Seiders, chief economist for the National Association of Home Builders, agrees ... that it's been the run-up in home values that has helped fuel consumer spending in recent years, even if he also believes that home prices will continue to climb, albeit at a slower pace.

"It's pretty clear that equity growth is what's fueling spending and allowing a negative savings rate," said Seiders.
...
"As we try to clear this inventory of unsold homes, there's going to be a lot of layoffs in construction, and less revenue from the creation of housing," said [Jeoff Hall, the chief U.S. economist for Thomson Financial].

Residential contractors added nearly 200,000 jobs last year during the white-hot building boom, or about one job out of every 10 created in the broader economy.

That means that if the National Association of Homes Builders is correct ... that's 375,000 fewer construction jobs, or the equivalent of about three companies the size of General Motors.
...
"If you're looking for evidence the economy is slowing, it's housing," said [Dean] Baker [co-director of the Center for Economic and Policy Research]. "Everything we've seen the last four to five months shows pretty clearly that housing is slowing."

by Calculated Risk on 5/16/2006 02:45:00 PM

Dataquick reports: Southland home sales at five-year low, single-digit appreciation

Home sales in Southern California decelerated in April to their slowest pace since 2001, the result of higher mortgage interest rates and less buyer urgency. Prices rose at a single-digit appreciation rate for the first time in more than four years, a real estate information service reported.

A total of 24,748 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in April. That was down 16.1 percent from 29,509 in March and down 21.3 percent from 31,431 in April last year.

The year-over-year sales decline was the steepest since April 1995, when home purchases slowed 24.0 percent. Last month's sales count was the lowest for any April since 24,120 homes were sold in April 2001. DataQuick's statistics, which go back to 1988, show an average April for the nineteen years saw 23,660 sales.

"March and April have shown us that the boom phase of this cycle is behind us, so now it's just a question of how the cycle ends. Right now it looks like changes in the real estate market are happening gradually. But there's a lot of uncertainty among analysts regarding the effect of higher interest rates and how fast the economy is generating demand in regional markets," said Marshall Prentice, DataQuick president.
...
Indicators of market distress are still largely absent. Financing with adjustable-rate mortgages has declined in recent months. Foreclosure activity is edging up from its bottom, but is still low. Down payment sizes are stable, as are flipping rates and non-owner occupied buying activity, DataQuick reported.

UPDATE: For Orange County (from the Register): $628,000: April home prices set new record

Orange County home prices set a new record high – $628,000 – in April, however, sales activity hit an 11-year low.

DataQuick said today that the median selling price rose $5,000 from the old peak of $623,000 set in March.

But just 3,276 homes sold last month, down 28 percent from a year ago. That's the slowest April since 1995 and the sixth consecutive month that sales fell on a year-over-year basis.

Nationwide median prices fell in Q1, but so far Orange County and So. Cal prices are holding up.

by Calculated Risk on 5/15/2006 02:25:00 PM

The NAHB reports: Builder Confidence Declines In May

Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators from the marketplace are prompting single-family home builders to further adjust their perspectives on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May, released today. The HMI declined six points from an upwardly revised reading in the previous month to hit 45 for the latest report, its lowest mark since mid-1995.

Click on graph for larger image.

“Based on historical experience, particularly the 1994-1995 episode, the pattern of movement in the HMI is not inconsistent with the orderly cooling-down process we’re projecting for home sales and single-family housing starts in 2006,” said NAHB Chief Economist David Seiders. “We expect new-home sales to be off by 12 percent from the record posted in 2005. Single-family starts, supported by large builder backlogs of unfilled orders and reconstruction in the wake of last year’s record-breaking hurricane season, should be down by about 7 percent from the 2005 record.”

Derived from a monthly survey that NAHB has been conducting for nearly 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes declined in May. The index gauging current sales and the index gauging sales expectations for the next six months each fell five points, to 50 and 54, respectively. Meanwhile, the index gauging traffic of prospective buyers declined seven points, to 32.

The decline in builder confidence was broad-based and registered in every region this month. The HMI fell three points to 47 in the Northeast, two points to 30 in the Midwest, six points to 51 in the South and eight points to 61 in the West.

by Calculated Risk on 5/14/2006 05:53:00 PM

On Economist's View, Dr. Duy writes: FED Watch: To Pause or Not to Pause

"... my interpretation of policy at this point is that the Fed intends to pause at the next meeting while awaiting data that calls into question their expectation of slowing demand later this year. In this light, they will discount nominal signals such as prices and focus on real indicators. Currently, real data on housing and consumer spending are consistent with their null hypothesis."

If Duy is correct, ignore CPI and PPI this week, and focus on jobs, consumer spending and housing indicators to predict the actions of the FED in June.

by Calculated Risk on 5/13/2006 12:29:00 AM

From the Rocky Mountain News: Playing mortgage roulette

Thousands of Denver homeowners gambled on adjustable rate mortgage loans three years ago. Now those bets are coming up short. These homeowners are facing the hard truth that their ARM mortgage payments are going up several hundred dollars more each month as their rates adjust skyward.

The higher payments are expected to cost many homeowners in the metro area tens of millions of dollars in extra mortgage payments and drive up the already near-record number of foreclosures.
...
It's a national problem, with an estimated $2 trillion in home loans expected to adjust upward in 2006 and 2007, according to Economy.com, a research firm based in West Chester, Pa.

And the Denver area may be particularly hard hit, because homeowners in Colorado on average have little equity in their homes.

In Colorado, 28.5 percent of homeowners have 5 percent or less equity in their homes, and 47 percent have 15 percent or less equity, according to a report released earlier this year by Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions in Santa Ana, Calif.

Only Tennessee homeowners, on average, have less equity in their homes, according to the report.

This lack of equity is one on the driving forces behind the rising Denver-area foreclosure rate, according to many experts.

This year is on track to eclipse 2005 as the second worst year ever for foreclosures. Last year, more than 14,000 Denver-area homeowners defaulted on mortgages.

Increasingly, people who locked in three-year ARMs with rates in the 4 percent range are finding loan rates rising by 50 percent or more.

Foreclosures In Columbus Are Rising

"Alot of people actually financed homes they could not afford,"says economist Dr. Mike Daniels.

And now some economist say the local housing bubble could burst. Experts say forclosures in Columbus are up 25 percent from last year. The culprit -- rising mortgage rates. Something a lot of homeowners didn't budget for.

"I don't think people really read the fine print about what was going to happen to their payment when the interest rates went up,"says Daniels.

Home foreclosures soar, with Georgia leading the way

New Hampshire foreclosures up; mortgage rates drop

In areas that have seen substantial appreciation, foreclosures are rising, but are still very low. In areas like Denver, foreclosures are already near record levels. Speculation, using exotic mortgages, was nationwide and the negative impact of foreclosures will probably also be national in scope.