by Calculated Risk on 9/28/2005 11:28:00 AM

UPDATE: on credit cards, the Post has an explanation of how payments will increase (its not a hard and fast rule): We'll Have to Pay More. Good! (Thanks to Shawn for link)

The Mortgage Bankers Association reports:

The Market Composite Index — a measure of mortgage loan application volume – was 721.2, a decrease of 6.6 percent on a seasonally adjusted basis from 772.2 one week earlier. On an unadjusted basis, the Index decreased 7.1 percent compared with the previous week and was down 0.5 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 3.4 percent to 483.1 from 500.3 the previous week whereas the Refinance Index decreased by 10.5 percent to 2106.6 from 2353.7 one week earlier.

And the American Bankers Association reported:

... the seasonally adjusted percentage of credit card accounts 30 or more days past due rose in the April-to-June quarter to 4.81 percent. That followed a delinquency rate of 4.76 percent in the first quarter and was the highest since the association began collecting this information in 1973.

The rise in late payments was blamed on the increase in gas prices:

The rise in gas prices is really stretching budgets to the breaking point for some people," the association's chief economist, Jim Chessen, said in an interview. "Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations."

And the situation will probably get worse since the minimum credit card payment is set to rise on Oct 1st (hat tip to Paul Williamson at Property Economics):

Next month, people who have held a credit card for some time should get a surprise: each month, they will have to pay 4 percent of the outstanding balance on the card, not 2 percent. This move was dictated by the federal government's comptroller of the currency in 2003. The phase-in for new customers began in the summer, and October is the big month for existing customers. It's not small change. Almost 40 percent of credit-card holders pay only the minimum balance, according to Cardweb.com.

The average household credit-card balance is around $9000, according to Boston's Babson Capital. Previously, families paid a minimum of $180 a month. Now, they will have to pay $360 each month.

A housing slowdown, less equity extraction, rising gasoline bills, rising late payments ... not a good combination.

by Calculated Risk on 9/28/2005 02:45:00 AM

Economists at the UCLA Anderson Forecast will present their quarterly outlook today in Los Angeles. The LA Times previews the report: "Peak for Housing Said to Be Near"

California's housing boom appears to be peaking, and the resultant slowdown is expected to produce "weak growth" in the state's economy during the next two years and a possible recession by the end of 2007.

That's the view of economists at the UCLA Anderson Forecast... "There are some signs that the housing party is ending," said Christopher Thornberg, senior economist at the UCLA group and author of its California forecast.

UCLA forecasts that prices may just stablize, not fall:

Thornberg said that a peaking housing market doesn't necessarily mean prices will plunge. Prices could continue to rise, but at a much slower rate. That's already started to happen in previously hot markets such as San Diego and the Bay Area, he said.

The latest UCLA outlook is slightly more downbeat than its previous report in June "because I think we're at the peak" of housing, Thornberg said. UCLA economists have long warned that a decline was coming and could end badly, but this is their strongest suggestion yet that the top may finally be at hand.

And UCLA projects that the slowing housing market will impact consumer spending, especially in California:

Because the state's job growth and consumer spending have been supported by rising home prices, any flattening of real estate values would cut into overall hiring and prompt consumers to rein in their pocketbooks, the UCLA forecast said. Job creation in other sectors is not strong enough to fully offset declines in housing-related fields such as construction, the state's fastest-growing job sector, the report said.

"When consumers realize they can no longer expect that appreciation bonus to subsidize their consumption habits, they will very likely pull back on spending," Thornberg said.

How soon?

Typically, it takes 12 to 18 months before a slowdown in housing dampens the overall economy, UCLA's Thornberg said. The UCLA forecast calls for the state's job growth — the best indicator of expansion — to slow from 1.6% this year to 1.2% in 2006 and 0.8% in 2007.

I think the economy will slow significantly about 8 to 10 months after the housing peak - sooner than Dr. Thornberg is projecting. I base this prediction on previous housing slow downs. If New Home Sales peaked in July, then I would expect the economy to slow in early '06. However one month does not make a trend, and it is possible but unlikely that housing will rebound.

by Calculated Risk on 9/27/2005 11:08:00 PM

Georgia has an unemployment problem. The Atlantic Journal Constitution reported on a job fair today:

By noon Tuesday, signs of a troubled Georgia job market swollen with storm evacuees were unmistakable inside the massive Georgia World Congress Center.

At a job fair designed to help victims of Hurricane Katrina, organizers had to block the doors to newcomers after the event reached its limit of 15,000 job-seekers. It was still three hours before registration was expected to end.

The crowd was so big at the United Way Job Fair Tuesday that the 180,000 square feet at the Georgia World Congress Center couldn't hold everyone, so some job seekers were turned away. The limit was 15,000, and most of those, say employers and job seekers, were from Georgia.

Yet the majority of those who made it inside the center, and those who were stuck outside, were not storm evacuees. They were Georgia's jobless — a telling indicator of the state's serious problem with unemployment.

"A Category 5 economic storm is brewing in Georgia, and that's not hyperbole," said Michael Thurmond, commissioner of the Georgia Department of Labor. "The job fair today presents additional evidence as to how difficult the job market is in this state."

Click on graph for larger image.

The job picture is concerning in Georgia. The unemployment rate is rising and has reached the highest level since the recession of the early '90s.

Part of the problem is that Georgia's housing market has underperformed during the housing boom. According to the OFHEO House Price Index, Georgia's housing has only appreciated 12.4% since the end of 2002. This compares to the national average of 26.1%.

So Georgia probably hasn't seen the same housing related employment boom as much of the nation. This is a chicken and the egg problem. Housing might be weak because of relatively weak employment; employment might be weak because of relatively weak housing.

Perhaps partly because of the weak labor market, and as buyers stretch to afford a home, Georgia leads the nation in IO mortgages:

Georgia has become the national leader in an increasingly popular but controversial type of mortgage that lets borrowers postpone payments on the loan principal for years.

More than half of mortgages last year in Georgia were interest-only, compared with fewer than one-third nationwide ...

So it isn't surprising that with a relatively weak labor market, a high concentration of creative loans and minimal house price appreciation:

"Georgia ranked fourth in the nation in the number of properties in foreclosure".

But what comes first? Weak employment or weak housing? And as the housing market slows, will Georgia's problem become a national problem?

by Calculated Risk on 9/27/2005 01:49:00 AM

According to a Census Bureau report, New Home Sales in August were at a seasonally adjusted annual rate of 1.237 million vs. market expectations of 1.345 million. July sales were revised down to 1.373 million from 1.41 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 August 2005 were at a seasonally adjusted annual rate of 1,237,000, 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 106,000 New Homes sold, down from a revised 118,000 in July.

The median sales price of new houses sold in August 2005 was $220,300; the average sales price was $283,400.



Both the average and median sales price rebounded.

The seasonally adjusted estimate of new houses for sale at the end of August was 479,000. This represents a supply of 4.7 months at the current sales rate.



The seasonally adjusted supply of New Homes was 4.7 months, a significant increase from recent months.

With the usually caveat that one month does not make a trend, this report shows a significant downturn in the New Home Sales market. Sales were off. Inventories were up. Revisions were negative.

This may be the beginning of the end for this housing cycle.

by Calculated Risk on 9/26/2005 09:51:00 PM

Greg Ip writes at the WSJ:

]"Federal Reserve Chairman Alan Greenspan, drawing on new research he has personally supervised, said American consumers have become enormously dependent on borrowing against their homes to fuel their spending, and that a rise in mortgage rates could trigger a spending pullback.

Mr. Greenspan's new data show that borrowing against home values added a stunning $600 billion to consumers' spending power last year, equivalent to 7% of personal disposable income -- compared with 3% in 2000 and 1% in 1994.
...
That reversal need not be "disruptive," Mr. Greenspan said. Indeed, he suggested that such a reversal would bring about a needed rise in U.S. saving and a narrower trade deficit. But he also sounded new warnings about speculation in the housing market, focusing on rising sales of second homes, though also playing down the threat of overleveraged homebuyers.

Mr. Greenspan's remarks were among his most extensive to date on the scope and risks of the rise in housing prices and mortgage debt in the past decade, developments to which his own policies have contributed. The remarks suggest that while in the near term higher energy prices may be the greatest threat to consumers, in the longer term Mr. Greenspan sees a cooling housing market as potentially more significant.

Last year's estimate of the value of "home equity extraction," as Mr. Greenspan calls it, was double the value of President Bush's tax cuts, as estimated by Brookings Institution scholar Peter Orszag. It's unclear how much of that home-financed borrowing was spent on goods and services, but Mr. Greenspan suggested it was about half.
...
Mr. Greenspan also repeated his warnings on the increased popularity of some exotic mortgages, which expose the borrower to a greater risk of rising rates or declining home prices.
...
Mr. Greenspan believes this home-equity extraction has been a powerful channel of support to the economy in recent years. Indeed, he believes it's how the Fed's low interest rates propped up the economy after the stock bubble burst in 2001. While the Fed has raised short-term interest rates since last summer, long-term mortgage rates, which are set by bond investors, have stayed surprisingly low. Thus, home-equity extraction has fueled consumer spending longer than Mr. Greenspan thought likely ...