by Calculated Risk on 9/01/2005 10:53:00 AM

UPDATE: Kash looks at the numbers: House Prices

The Office of Federal Housing Oversight (OFHEO) reports:

LARGEST U.S. HOUSE PRICE INCREASES IN MORE THAN 25 YEARS
OFHEO House Price Index Shows Annual Rise of 13.4 Percent

WASHINGTON, D.C. – Average U.S. home prices increased 13.43 percent from the second quarter of 2004 through the second quarter of 2005. Appreciation for the most recent quarter was 3.20 percent, or an annualized rate of 12.8 percent. The new data represent the largest four-quarter increase since the second quarter of 1979. The figures were released today by OFHEO Acting Director Stephen A. Blumenthal, as part of the House Price Index (HPI), a quarterly report analyzing housing price appreciation trends.

"There is no evidence here of prices topping out," said OFHEO Chief Economist Patrick Lawler. "On the contrary, house price inflation continues to accelerate, as some areas that have experienced relatively slow appreciation are picking up steam."

House prices grew considerably faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 13.4 percent, while prices of other goods and services rose only 3.1 percent.

More to come.

by Calculated Risk on 8/31/2005 06:12:00 PM

Even before the devastation of hurricane Katrina, the US economy was apparently headed for a significant slowdown and possible recession. According to a survey of CFOs completed on August 28th (before Katrina): Housing, Fuel Are Top CFO Concerns

In the four years of the survey, this is the first time that CFOs with growing pessimism outnumbered CFOs with growing optimism. Indeed, the level of optimism is down sharply from last quarter's 40 percent and is strikingly lower than last year's 72 percent.

"This is the greatest increase in pessimism that we have seen," says Don Durfee, research editor of CFO magazine. "We’ve found that this optimism index predicts future economic growth quite well. In a situation like this, where the growth in pessimism outweighs the growth in optimism, we expect to see a slowdown in economic growth."

Emphasis added. And the most recent numbers have not looked good:

Macroblog: Not The Most Bullish Day For Economic News

The Big Picture: PMI, GDP stink up the joint

And here is how Briefing.com described the Chicago PMI report (with chart):

• An unbelievable plunge to 49.2 in August Chicago PMI index (-14.3 pts).
  
  Key Factors
  
• Record sized plunge leaves index in a contractionary sub 50 level -- the first since April '03 after reaching a 17 yr high in March.
• New orders (30% weight) plunged an astounding 23 points to 46.5 -- presumably off the highs in oil prices.
• Production fell to 56.2 from a nose bleed 70.5 in July as it followed orders.
• Employment fell in line to 51.7, March stood at a high 66.
• Prices paid rose to just 62.9 and doesn't reflect the pricing fear we are assuming caused the orders plunge.

So Katrina impacted an already fragile US economy. Dr. Hamilton notes this while discussing the energy related economic impact of Katrina: Day 2:

... this event did not arrive out of the blue. Instead, it came in an environment in which there was already considerable anxiety about gas prices and sound basis for worrying about a possible recession even if Katrina had done no harm.

Could this be enough to tip the whole economic cart over? I'm not certain that it will. But it would seem foolish to deny the very real possibility that it could.

And Kash makes a similar observation - "I’ve been a bit worried about which way animal spirits were heading in the US" before Katrina struck - he writes on Katrina and Psychology over on Angry Bear:

Now add Katrina. ... I think that the current situation contains the seeds for such a shift in sentiment. My personal odds for a recession in 2006 have just gone up, thanks to Katrina.

UPDATE: Dr. Polley adds: Katrina and the probability of recession

"I am reluctant to speculate too much too soon about a recession. It's just too early. But all in all, the economics corner of the blogosphere has been (as evidenced by the links here) very reasoned in its assessment of the situation. My take is closest to Hamilton's. It would indeed be foolish to underestimate the possibility that this could be the straw that breaks the camel's back.
...
Of course, that doesn't mean a recession is inevitable. ... I think it is safe to say, however, that this is a very critical moment for the economy. It could swing either way. If we pass this hurdle, I think it bodes well for the future of the recovery."

OTOH, the Ten Year bond has rallied and the yield has dropped from 4.4% to just under 4.1% over the last few weeks. This will probably lead to lower mortgage rates and could possibly boost equity extraction and support the housing market. Tomorrow the OFHEO House Price Index will be released and I believe it will show stunning widespread gains in house prices and that might help with confidence. But I think the housing boom is almost over, even with slightly lower mortgage rates.

by Calculated Risk on 8/31/2005 03:37:00 PM

After and before photos of the New Orleans area:


Click on photo from larger image.



August 30, 2005.


Photo from NASA Earth Observatory.

August 27, 2005.

by Calculated Risk on 8/31/2005 10:44:00 AM

From The Big Picture: Katrina/New Orleans Disaster Relief Aid

From Movie Guy in comments: Many information links (scroll down - 3 different posts)

by Calculated Risk on 8/31/2005 01:11:00 AM

Bruce Barlett writes in the Washington Times:

Over the weekend, Federal Reserve Chairman Alan Greenspan warned housing boom speculators should be very careful. What goes up fast can come down just as fast.

A key underpinning of the housing price surge is the lenders' belief risks have fallen. They therefore became more willing to lend on terms they would not have extended in the past. This made available mortgages to previously unqualified borrowers and bigger mortgages to those with good credit.

Bartlett then reviews many of the riskier loans available these days. He concludes:

Though he is no alarmist, Mr. Greenspan warned Friday that if lenders should perceive greater risk, rates could rise and borrowing qualifications tighten quickly. "Newly abundant liquidity can readily disappear," he noted.

Access to mortgages will become much more limited, people will have less money to pay for housing, and this must bring prices down. A mild downturn could thereby become a collapse, with consequences throughout the economy.

I suggest reading the entire commentary.