by Calculated Risk on 6/15/2005 02:02:00 AM

Import traffic at the Port of Long Beach rose 6% over April, almost to the highs of last fall's heavy shipping season. The Port of Los Angeles will report in the next couple of days.

For Long Beach, the number of loaded inbound containers for MAY April was 288 thousand, up 6% from April and up 19% from May 2004. Outbound traffic was off 1% at 106 thousand containers, just below April's record.

And in a related story, the Port of Long Beach hosted the "Peak Season Forecast Conference" on Tuesday.

At the Pulse of the Ports conference, the experts forecast 2005 cargo gains of 10 to 15 percent. In preparation for this year's increase, they said they have added workers and equipment, and cargo has been moving smoothly.

"We may see two-to-three-day delays," during the peak season, said Frank Baragona of CMA CGM.

"We had one-week delays last year and that's not going to happen this year," said Doug Tilden of Marine Terminals.

This shipping data probably indicates near record imports from China. My very preliminary guess is that US imports from China will be over $19 Billion NSA for May compared to $18.12B for April 2005.

by Calculated Risk on 6/14/2005 06:40:00 PM

Dr. Thoma (Economist's View) and Barry Ritholtz (The Big Picture) discuss the Fed's path in the WSJ free feature "Where Will Rates Go From Here?"

Check it out!

by Calculated Risk on 6/14/2005 11:51:00 AM

Federal Reserve Governor Susan Schmidt Bies spoke on "Current Regulatory Issues" today in South Carolina. She touched on the housing market and credit risk issues in her speech to the North Carolina Bankers Association.

In particular, in the commercial and residential real estate sectors, we worry that borrowers could become increasingly speculative, buying beyond their means and hoping for asset price appreciation--whether they are buying for their own use or strictly for the sake of investment. We worry that competitive pressures could drive banks to lower their underwriting standards, implicitly encouraging such speculation. And we worry that, in the inevitable downturn, credit quality could deteriorate to the extent that some banks could experience significant losses.

The residential real estate sector has been experiencing a remarkable bull market, with home prices rising 11.2 percent last year--the fastest rate in more than a quarter-century. Along with the high home prices, we see indications that underwriting standards are beginning to weaken. For example, "affordability products"--such as interest-only loans, negative amortizations, and second mortgages with high loan-to-value ratios--are becoming more popular; subprime lending is growing faster than prime lending; adjustable-rate mortgages, or ARMs, have grown substantially and now account for more than a third of all mortgage originations, the highest level since 1994. Industry experts are increasingly concerned about the quality of collateral valuations relied upon in home equity lending and residential refinancing activities. More homes are being purchased not as primary dwellings, but as vacation homes or pure investments, in which case anticipated price appreciation may be a large factor influencing purchase decisions. According to the National Association of Realtors, purchases of second homes and purchases of residential real estate for investment purposes together accounted for almost 40 percent of all home purchases last year.

Given the vast growth in residential housing markets and the apparent slippage in underwriting standards in certain sectors, it is entirely appropriate for banking supervisors to seek to ensure that banks are employing proper risk-management practices. Last month, the federal banking agencies released guidance on credit-risk management for financial institutions' home equity lines of credit (HELOCs). The recent growth in HELOCs has been remarkable; at the end of 2004, outstanding drawn HELOCs at all insured commercial banks totaled $398 billion, a 40 percent increase over 2003. Meanwhile, the agencies have observed some easing of underwriting standards, with lenders competing to attract home equity lending business. Lenders are sometimes offering interest-only loans and are sometimes requiring very small down payments and limited documentation of a borrower's assets and income. They are also relying more on automated-valuation models and entering into more transactions with loan brokers and other third parties. Given this easing of standards, there is concern that portions of banks' home equity loan portfolios may be vulnerable to a rise in interest rates and a decline in home values. In other words, there is concern that not all banks fully recognize the embedded risks in some of their portfolios.

Also, Gavin sent me this commentary from Australia: Beware the bang if the property bubble bursts. It is possible that both the UK and Australia are leading indicators for the US housing market.

by Calculated Risk on 6/14/2005 01:08:00 AM

From the Telegraph: A Royal Institute of Chartered Surveyors report on Tuesday sparks fears of a housing crash.

Almost half the country's chartered surveyors reported that house prices were falling in May, the highest total since the recession of 1992.

The Royal Institute of Chartered Surveyors will say today that the number of its members reporting price falls has grown sharply - from 37pc in March to 40pc in April to 49pc last month.

The news will spark fears of a house price crash. In the early 1990s, RICS was the first housing market surveyor to predict the market's collapse.

In the latest report, the institute says new buyer inquiries had slipped and the number of completed sales had fallen by 29pc since last May.

The UK bears watching as a possible early indicator for the US market. The UK started raising rates about 8 months before the US: See my Angry Bear post.

by Calculated Risk on 6/13/2005 07:17:00 PM

Harvard's Joint Center for Housing Studies released a new report: "State of the Nation's Housing 2005". From a story in the Union Tribune:

"Desperation is driving people," said Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies. "They think, 'If I don't get it now, I will never get it.' People are not looking at what they are going to have to pay over the long term. They are asking what is the lowest possible payment I have to make over the next 12 months so I can get in."

In high-cost markets such as San Diego County, most purchases are made with adjustable-interest-rate loans, he noted. The greater buying power such "creative" loans offer is offset by the increased risk of default.

In the priciest metropolitan real estate markets, assuming greater risk is becoming the norm, Retsinas said.

"Although interest-only and adjustable loans can initially save a typical home buyer hundreds of dollars in monthly payments, these loans also leave borrowers vulnerable to sharply higher payments when interest rates adjust or principal payments start to become due."

Click on chart for larger image.

One of the startling statistics is that homebuyers' costs have soared in recent years, despite the record low interest rates and use of Interest Only ARMs.

From a SmartMoney.com review: Get Ready for a Housing Slowdown:

"We want to be sure people are aware that, notwithstanding these past few years, buying a house is not a risk-less investment...this is clearly near the apex of the cycle," says Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies.

To be clear, Retsinas isn't predicting a nationwide housing crisis. Indeed, 77 of the 110 largest metro areas show no affordability troubles and would likely be untouched if the housing bubble popped in the hottest markets, says Retsinas.

And a less optimistic view:

Mark Weisbrot, co-director of the Center for Economic and Policy Research, a Washington, D.C.-based think tank, says there's clearly a bubble in the housing market, and that when it bursts it will likely cause a national recession worse than the one following the stock market bubble. In 2001, the strong housing market tempered the downturn. This time, he says, it's difficult to imagine anything that could ease the pain.

Even those markets that didn't experience the huge run-up could be affected. Weisbrot says home prices in those areas won't fall drastically, but the local economies will suffer, as was the case when the stock market popped. And this will eventually dampen demand for housing.

As for first-time home buyers, Weisbrot sees no reason why they should jump in now — particularly with rentals so affordable by comparison. The risks, he says, are so high that he can't understand why anyone would take the gamble.

"Buying a home now in any of the bubble areas is very much like what it was like buying into the Nasdaq," he says. "You could get lucky and it could keep growing [for a little longer], but you are also taking a big risk."