by Calculated Risk on 7/28/2005 06:09:00 PM

UPDATE: Also see Asha Bangalore's (pdf) Signs of Distress in the Effervescent Housing Market?

Fitch Ratings released a newsletter "RMBS Mortgage Principles and Interest" this week. (RMBS: Residential Mortgage Backed Securities)

There were several interesting trends.
Click on graph for larger image.

The percentage of prime loans using ARMs and IOs has been increasing (IOs have dipped slightly so far in '05). The same pattern can be seen for subprime loans (not graphed).

At the same time, the percentage of loans requiring full documentation has dropped significantly.

UPDATE: tanta points out that these are old pools with "junk that can't prepay". Ignore this section on subprime delinquencies ... nothing of value here! Also of interest is the percent of subprime loans (the fastest growing segment) that are in delinquency. Although delinquency rates were around 30% (over 60 days late) for a number of years, recently the rate has fallen to almost zero.

Lower delinquencies would usually be good, but I am concerned if the housing market slows that delinquency rates will return to the 30% range on subprimes. Also, I believe the extensive use of ARMs and IOs indicates excessive leverage, even in the prime market.

by Calculated Risk on 7/27/2005 10:51:00 PM

Dr. Dean Baker of Center for Economic Policy Research (CEPR) has put out "The Housing Bubble Fact Sheet". (thanks to Ficus for the tip).

1. The unprecedented rise in house prices has dangerous implications for the economy.

2. The housing bubble has created more than $5 trillion in bubble wealth, the equivalent of $70,000 per average family of four.

3. The increase in house prices is not being driven by fundamental factors in the housing market, such as income and population growth.

4. The housing bubble regions are large enough to have a major impact on the national economy.

5. The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession.

6. The collapse of the housing bubble is likely to put major strains on the financial system and require a federal bailout of the mortgage market.

7. The sooner house prices drop, the less economic damage there will be.

8. The housing bubble could pop from higher interest rates, but it could also deflate even if interest rates stay low.

Read Dr. Baker's fact sheet for the details. I agree with most of his points, but Baker is more pessimistic than me.

by Calculated Risk on 7/27/2005 06:02:00 PM

Dr. Thoma excerpts from Bernanke's commentary in the WSJ. Clearly Bernanke has been drinking the Bush Administration Kool-Aid.

How can anyone claim the Bush Administration has been pursuing "good economic policies" with respect to the budget deficit? That is outlandish.

And on jobs, I've cut the Bush Administration slack. But there is a difference between "cutting them slack" and giving them credit - The Bush Administration deserves no credit on jobs! Since Bush has taken office there have been a total of 161 thousand non-farm private sector jobs created. That is the worst net job creation performance in over 70 years.

The entire commentary is bunkum. But instead of correcting each of Bernanke's false assertions, I've found the template for his talking points:

No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquillity and contentment, harmonious relations between management and wage earner, freedom from industrial strife, and the highest record of years of prosperity.

Calvin Coolidge, State of the Union Address, December 4, 1928

Bernanke is now channeling Coolidge's monument to economic shortsightedness.

by Calculated Risk on 7/27/2005 01:12:00 PM

Here are three more stories that back up my prediction for July.

New Hampshire: Real Estate Listings In Area Skyrocketing

Along a 2-mile stretch of Route 302 - from Bethlehem Junction to the Memory Lane Apartments - the landscape is dotted with "for sale" signs.
...
As a result, the number of real estate listings in the greater Littleton area - including Bethlehem - have doubled since this time last year.
...
"Right near me every place is for sale,"

Florida: More Strand homes for sale

Home listings in the second quarter jumped 9 percent, from 2,916 to 3,165. Condo listings increased 36 percent from 2,636 to 3,584, according to the Multiple Listing Service for Horry and Georgetown counties.

California: Higher inventory takes some zing out of sellers' edge that dominated '04

Meanwhile, the latest level of unsold inventory [in Palm Springs], at about 3,296 homes - more than 80 percent higher than a year ago and more than twice the level of April 2004 - suggests that the market is reaching an equilibrium between the needs of buyers and sellers.

"This is not a buyer's market yet," said Greg Berkemer, executive vice president of the California Desert Association of Realtors. "It's just less of a seller's market than it was a year ago."

by Calculated Risk on 7/27/2005 11:00:00 AM

According to a Census Bureau report, New Home Sales in June were at a seasonally adjusted annual rate of 1.374 million vs. market expectations of 1.3 million. May sales were revised up to 1.321 million from 1.271 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 June 2005 were at a seasonally adjusted annual rate of 1,374,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.



The Not Seasonally Adjusted monthly rate was 122,000 New Homes sold, down from a revised 123,000 in May.

The median sales price of new houses sold in June 2005 was $214,800; the average sales price was $267,400.



The average sales price is down and the median price is the lowest since September of 2004.

The seasonally adjusted estimate of new houses for sale at the end of June was 454,000. This represents a supply of 4.0 months at the current sales rate.

The seasonally adjusted supply of New Homes was 4.0 months, about normal for the last few years.