by Calculated Risk on 5/26/2005 10:33:00 PM

The Telegraph reports that Barclays warned "of soaring bad debt on cards":

Barclays yesterday became the first major bank since the recession of the early 1990s to issue a warning that bad debts are growing sharply.

As the biggest provider of credit cards in the country, with nine million Barclaycard customers, it told the City that provisions for bad debts "rose significantly" in the first quarter of the year.

Earlier I commented that the UK might be a leading indicator for the US. See also comments by Kash and General Glut.

The good news is that financial stress indicators are still low.

The number of people in serious financial difficulties is still low compared with the last recession. Personal insolvencies have jumped by a third in a year but that can be explained in part by a relaxation in the rules, allowing bankrupts to be discharged after one year instead of five.

Analysts say that a better indicator of financial duress is the repossession of houses by mortgage lenders. Only 6,320 houses were repossessed last year, compared with 78,000 in 1991.

However, the number of people in arrears with their mortgages is rising for the first time since 1998. The latest figures show that nearly 54,000 households are three to six months in arrears, a rise of 5,000 on a year ago.

But it appears the writing is on the wall.

by Calculated Risk on 5/25/2005 09:53:00 PM

Atlanta Federal Reserve Bank President Jack Guynn hinted at more rate hikes in his speech today. In the Q&A he commented on housing:

"There are some local markets, especially in coastal Florida, where I've heard stories for more than a year about behavior that's got to be characterized as nothing other than speculation," Guynn said it response to questions after his speech.

"It makes me very uncomfortable," he added. "Some buyers, some builders, some lenders are going to get burned, could very likely get burned, in some of those local markets."

On rates, Guynn said:

"Given the current outlook for the economy, my personal view is that we've not yet reached a neutral policy stance."

UPDATE: Dr. Polley earlier posted the same excerpts with a link to Guynn's speech.

by Calculated Risk on 5/25/2005 02:28:00 PM

On May 13, 2005 the Senate Democratic Policy Committee held a hearing on Social Security. "An Oversight Hearing on President Bush's Social Security Privatization Plan: Will You and Your Family Be Worse Off?"

There were statements from Senators and five witnesses:

Robert Shiller
Professor of Economics at Yale University

J. Bradford DeLong
Professor of Economics at the University of California-Berkeley

Derrick Max
Executive Director of the Alliance for Worker Retirement Security and the Coalition for the Modernization and Protection of America's Social Security

Peter Orszag
Senior Fellow in Economic Studies and Director of the Retirement Security Project at the Brookings Institution

Beth Kobliner
Personal Finance Columnist and Author of Get a Financial Life: Personal Finance in Your Twenties and Thirties

Many of us have read Dr. DeLong's testimony on his blog. Here is an excerpt from Dr. Shiller's testimony:

I conducted a study in March 2005 that simulates the long-term performance of personal accounts, and the paper, data and simulation program are available on my book website irrationalexuberance.com. The paper uses historical returns from 1871-2004 to assess the likely outcomes of the President’s proposal for various worker choices among the options. It does 91 different simulations for a worker born in 1990 assuming that he or she experiences the actual returns from 1871-1914, 1872-1915, 1873-1916, all the way through 1961-2004.

This sample has a U.S. historical average real stock market return of 6.8% annually, slightly above the 6.5% annual return assumed by the Social Security actuaries. My study also included “adjusted” stock market returns designed to match the median stock return in 15 countries from 1900-2000, 2.2 percentage points lower than the U.S. returns over the same time period. I believe that the international return figure is more realistic.

I found that using U.S. historical returns, a benchmark life-cycle portfolio loses money 32% of the time (i.e., 32% of the time the internal rate of return is less than the 3% real return required to break even in the proposal). The median rate of return is 3.4% annually. Using more realistic adjusted returns, the benchmark life-cycle portfolio loses money 71% of the time and has a median rate of return of 2.6%.

The conclusion is that the president’s personal accounts, even the life-cycle portfolio, would subject Americans to serious risks. The Ownership Society is a long-term and elusive goal, and we should not expose people to unnecessary risks in an overambitious attempt to attain that goal.

For those following the housing market, yes, the same Dr. Shiller.

by Calculated Risk on 5/24/2005 06:38:00 PM

According to a Census Bureau report, New Home Sales set a record in April to a seasonally adjusted annual rate of 1.316 million vs. market expectations of 1.35 million. March sales were revised down significantly to 1.313 Million.


Click on Graph for larger image.

NOTE: The graph starts at 700 thousand units per month to better show monthly variation.

Sales of new one-family houses in April 2005 were at a seasonally adjusted annual rate of 1,316,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent above the revised March rate of 1,313,000 and is 13.3 percent above the revised April 2004 estimate of 1,162,000.



The Not Seasonally Adjusted monthly rate was 122,000 New Homes sold, down from a revised 128,000 in March.

The median sales price of new houses sold in April 2005 was $230,800; the average sales price was $283,500.

Both the median and average are in line with previous months.



The seasonally adjusted estimate of new houses for sale at the end of April was 440,000. This represents a supply of 4.1 months at the current sales rate.

The seasonally adjusted supply of New Homes was 4.1 months, about normal for the last few years. The supply for March was also 4.1 months, revised from just 3.0 months.

The surprise was the significant downward revision in the March numbers.

by Calculated Risk on 5/24/2005 03:28:00 PM

The head cheerleader for the housing market acknowledged the housing bubble today.

"Fifteen percent price appreciation is too much, even for me," David Lereah, chief economist at the National Association of Realtors, told CNBC's "Morning Call." "The real estate market is taking on a life of its own right now and we need to get a handle on it."

Also, Equity loans alarm experts:

"If we return to prudent lending standards, that'll be the death of this housing market," says Keith Gumbinger of loan analysts HSH of Pompton Plains, N.J.

I have nothing to add to those two statements!