by Calculated Risk on 8/18/2005 11:24:00 AM

The Mercury News reports: Home buyers get comfy with debt.

One out of five recent buyers have committed more than half their total earnings to homeownership, according to a new study. Slightly over half of home buyers in the past two years spend more than 30 percent of their total income on housing, exceeding a level recommended by the U.S. Department of Housing and Urban Development.

Because the study was based on data from 2003 and 2004, the situation now can only be worse because home prices have continued to rise dramatically since then.

If I remember correctly, the limits for borrowers with perfect credit were approximately 33% of income for housing and 40% of income for total debt not long ago. Now one in five of recent buyers are over 50% just for housing. That seems like extremely loose lending practices.

The Public Policy Institute of California, in a study released today, reports that Californians are strategizing and willing to be house poor as never before.
...
They've been helped by low interest rates and lenient lenders. But more than anything, their success in buying homes results from being inventive and ready to spend an awful lot of their earnings on owning a home.

Here is the PPIC report: California's Newest Homeowners: Affording the Unaffordable

by Calculated Risk on 8/18/2005 12:46:00 AM

The Port of Los Angeles released their July statistics today. Inbound (loaded containers) was 352 thousand compared to 334 thousand in June - an increase of 5%.

Outbound volume was 97.5 thousand loaded containers vs. 96.6 thousand for June. This is an 1% increase from June.

Port of Long Beach traffic indicated a slight decline in imports for July. Looking at both numbers, I expect imports from China to be flat or off slightly from June to July.

NOTE: The OffPeak initiative (adds late night hours to port operations) started on July 23rd to handle the expected heavier late summer / fall imports.

by Calculated Risk on 8/17/2005 11:26:00 PM

Here is a table of the cash out volumes (according to Freddie Mac) since 1993 (note numbers don't exactly match earlier post - these are the revised numbers):

YEAR	Equity Extraction	Equity Extraction
	Billions ($)	Plus 2nd/Heloc $B
1993	$19.9	$39.3
1994	$13.8	$29.2
1995	$11.2	$21.7
1996	$17.4	$34.5
1997	$21.4	$39.1
1998	$39.9	$72.4
1999	$37.0	$71.1
2000	$26.2	$60.4
2001	$82.9	$135.5
2002	$111.1	$170.5
2003	$146.9	$224.4
2004	$139.6	$182.0
2005(est)	$161.7	$200.0
2006(forecast)	$68.7	$93.6

Freddie Mac reports that equity extraction was $102 Billion for the first 6 months of 2005 (they estimate $161.7B for the year).

Some of the surge in the late '90s was attributed at the time to borrowing to invest in the NASDAQ stock bubble. People were concerned by the large jump in equity extraction, especially in '98 and '99. Seems inconsequential now.

The projected drop off next year (of $100 Billion) is approximately 0.8% of GDP (GDP will be over $12 Trillion in '06).

by Calculated Risk on 8/17/2005 09:47:00 PM

Danielle DiMartino surveys this week's housing stories for the Dallas Morning News: First the National Association of Home Builders survey:

The housing market index of the National Association of Home Builders declined three points to 67 in August.
...
"This relationship suggests to us that the purchases of new homes could turn soft in the near term," Northern Trust economist Asha Bangalore wrote recently.

On the FED and lending standards:

... the Federal Reserve's latest Senior Loan Officer Opinion Survey, it was apparent that, as the Bank Credit Analyst put it, "The Fed speaks but banks don't hear it."

A quick history lesson: In the past, bankers tightened up lending standards to match the degree of Fed tightening.

"This makes sense, because rising rates boost the odds of loan defaults," the BCA noted. "This time, banks are ignoring the Fed. The new survey shows an increasing willingness to make consumer loans."

And on the Housing ATM:

...fresh news out of mortgage giant Freddie Mac on Americans' insatiable appetite for cash to fuel their runaway spending habits.... Thanks more to increasing home values than interest rates, in the first half of this year, cash-out refinancings have totaled a record $102 billion.

And from Freddie Mac:

Total equity cashed out in the second quarter is estimated at $59 billion, up from the revised cash-out estimate for the first quarter of 2005 of $43 billion.
... homeowners extracted $140 billion in home equity through first lien refinances in 2004."

Home Equity Extraction:
2001: $83 Billion
2002: $96 Billion
2003: $139 Billion
2004: $140 Billion
2005: $102 Billion (first 6 months)

From former Fed chief Paul Volcker (quotes and video link - worth a repeat):

"Altogether, the circumstances seem as dangerous and intractable as I can remember."

"Boomers are spending like there is no tomorrow."

"Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."

by Calculated Risk on 8/17/2005 03:07:00 PM

Responding to an earlier post, Ken Melvin directs us to some comments in an article in the SF Gate: Want a Wal-Mart job? Join the crowd 11,000 apply for 400 openings at retailer's new Oakland store.

"It's not about Wal-Mart -- it's about the rest of the labor market," [Stephen Levy, an economist for the Center for Continuing Study of the California Economy] said. "If the rest of the labor market was strong, you wouldn't have 11, 000 people applying for 400 jobs."

During the dot-com boom, Levy said, businesses like Starbucks bumped up wages to recruit employees in the middle of a hot job market. But now the situation has reversed, and more people are willing to take whatever they can get.

That sure sounds like slack in the labor market.

On the same topic, MaxSpeak has another post today: Measured for Slack. This was a follow-up to the WSJ Econoblog yesterday with Dr. Altig of Macroblog discussing the labor market with MaxSpeak's Max Sawicky and Tom Walker. If you haven't already, check out the WSJ Econoblog: Debating Job-Market 'Slack'.