by Calculated Risk on 3/28/2005 03:19:00 AM

I posted a Price-Rent ratio for the US on Angry Bear:"Housing: Speculation and the Price-Rent Ratio". The following is the same calculation for San Diego (one of the hottest RE markets).



Click on graph for larger image.

The price component is from the OFHEO home price index for San Diego-Carlsbad-San Marcos and the rent series is from the BLS San Diego owner’s equivalent rent index.



Obviously San Diego has seen more recent appreciation. San Diego also experiences more volatility, but that is expected since the US is an average of many areas.

by Calculated Risk on 3/28/2005 01:13:00 AM

My most recent post is up on Angry Bear: Housing: Speculation and the Price-Rent Ratio

For a running list of News links on housing, see Patrick's Housing Crash site.

For an interesting graph and some great quotes, see Mish's "It's a Totally New Paradigm".

UPDATE: Another interesting article quoting Merrill Lynch chief economist David Rosenberg and Dean Baker, co-director of the Center for Economic & Policy Research: Bubble in housing will burst

Best to all.

by Calculated Risk on 3/25/2005 03:45:00 PM

Come and get it. Price doesn't matter. Interest rates don't matter. They're giving away free money, right here in Orange County, California. Just buy a home, wait a year, and put the cash in your pocket!

At least that was my reaction to this story in the OC Register: "Loan rates on the rise". The story quotes Gary Watts, a Mission Viejo "real-estate broker and economist" as expressing

... his enthusiasm this way: The recent $100 increase in monthly payments - or $1,200 a year - is nothing compared to what he predicts is Orange County home-price appreciation potential: as much as $70,000 a year.

"There's too much emphasis on interest rates in the marketplace," Watts said. "Who wouldn't trade $1,200 for $70,000?"

A simple calculation: The median home price in OC is $555,000. With 10% down, a buyer's monthly payment for P&I would be $2997.97 (plus property taxes of about $500 /month). This is based on a 30 year fixed rate loan at 6.01% (see FreddieMac)

By my calculation, a speculator's first year risk is: $41.5K + their $55.5K down payment = $97K (minus the utility of the property), not $1200. Of course, with a 1 Year ARM (currently 4.24%) a speculator is only risking $35K + $55.5K = $90.5K (minus utility). And if the speculator can obtain a no money down loan, they are only risking the monthly payments minus the net rental income (or other utility if they occupy the house).

And what is the likelihood that houses in OC will appreciate $70K over the next year? Is there always a greater fool?

by Calculated Risk on 3/24/2005 10:38:00 AM

According to a Census Bureau report, New Home Sales rebounded in February to a seasonally adjust annual rate of 1.126 million.

Sales of new one-family houses in February 2005 were at a seasonally adjusted annual rate of 1,226,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.4 percent (±14.7%)* above the revised January rate of 1,121,000 and is 5.2 percent (±13.3%)* above the February 2004 estimate of 1,165,000.

The median sales price of new houses sold in February 2005 was $230,700; the average sales price was $288,400. The seasonally adjusted estimate of new houses for sale at the end of February was 444,000. This represents a supply of 4.4 months at the current sales rate.

Click on Graph for larger image.

The New Home Sales report shows no sign of a slowdown.

by Calculated Risk on 3/23/2005 07:06:00 PM

Mortgage applications were down 9.5% last week according to the Mortgage Bankers Association (MBA). According to their press release:

The Market Composite Index - a measure of mortgage loan application volume - was 658.8, an decrease of 9.5 percent on a seasonally adjusted basis from 727.6 one week earlier. On an unadjusted basis, the Index decreased 9.2 percent compared with last week but was down 39.3 percent compared with the same week one year earlier.

"The increase in mortgage rates has reduced application activity across the board, particularly for refinances. Refinance applications are down more than 60 percent relative to this time last year," said Michael Fratantoni, MBA's senior director of single family research and economics.

My emphasis added. Is this the beginning of the end of mortgage equity extraction?