by Calculated Risk on 10/13/2005 03:32:00 PM

The NC Times reports: North County median home prices decline slightly

Median prices for existing North County homes eased downward in September, according to the monthly report from the North San Diego County Association of Realtors.

Single-family detached homes sold for a median price of $620,000 in September, down 2.8 percent from August's year-to-date high of $637,750.

This is a small one month decline and may not be a trend. Perhaps of more immediate interest is the market dynamics of price reductions and rising inventories:

More sellers appear to be lowering their asking price to reflect those conditions, said Kurt Kinsey, broker/owner of Blue Pacific Realtors.

Often, these properties are being sold by "flippers," people who buy homes with an eye to selling them for a quick profit, said Kinsey, whose firm specializes in Carlsbad and Oceanside real estate. Kinsey estimated that 20 percent of sellers in Carlsbad are flippers, and perhaps half that percent in Oceanside.

"There are as many homes for resale in Carlsbad as in Oceanside, which has more than double the population," Kinsey said.

Added to this abundance of resales are new homes being sold in Carlsbad in developments such as Bressi Ranch, La Costa Greens and Calavera Hills, Kinsey said. That gives Carlsbad buyers a strong bargaining position.
...
Jerry Kalman, a Realtor in the Fallbrook/Bonsall area, reported that September was notable for "an unusually high number of homes that were repriced lower and that eventually sold for less than their original listing price."

by Calculated Risk on 10/13/2005 08:30:00 AM

UPDATE: As always on Trade Deficit / Current Account issues, Dr. Setser has some great insights (on other issues too!): Relative prices do matter

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis released the monthly trade balance report today for August:

"... total August exports of $108.2 billion and imports of $167.2 billion resulted in a goods and services deficit of $59.0 billion, compared with $58.0 billion in July, revised.

August exports were $1.8 billion more than July exports of $106.4 billion. August imports were $2.9 billion more than July imports of $164.3 Billion."

Note: all numbers are seasonally adjusted.


Click on graph for larger image.

August 2005 was 15% worse than August 2004. For the first eight months of 2005, the trade deficits is up 17% over the same period in 2004.

Imports from China set another record of $22,365 Billion. Imports from Japan were up slightly to $11,552 Billion.


The average contract price for oil set a new record of $52.65 per barrel breaking the old record of $49.03 in July.

The SA petroleum trade deficit set another record of $20.6 Billion.

With record imports from China and a record petroleum deficit, I'm surprised that the overall trade deficit wasn't a record; but it was close. The September deficit will be impacted by Katrina and most likely be another record.

by Calculated Risk on 10/13/2005 01:54:00 AM

Some more reading ...

Dr. Thoma reviews a new Fed Study: The Dallas Fed: Has the Housing Boom Increased Mortgage Risk?

CNN reports: Mortgages: Bracing for 6%

30-year mortgage rates look set to rise above 6 percent for the first time since July 2004, potentially helping set the stage for a slowdown in home sales.

And from the LA Times: Life on Financial Edge to Get Tougher

by Calculated Risk on 10/12/2005 06:21:00 PM

Economist Dr. Arturo Estrella of the NY FED provides some answers to Frequently Asked Questions about the yield curve in "The Yield Curve as a Leading Indicator"

Q. What does the evidence say, in short?

A. The difference between long-term and short-term interest rates ("the slope of the yield curve" or "the term spread") has borne a consistent negative relationship with subsequent real economic activity in the United States, with a lead time of about four to six quarters. The measures of the yield curve most frequently employed are based on differences between interest rates on Treasury securities of contrasting maturities, for instance, ten years minus three months. The measures of real activity for which predictive power has been found include GNP and GDP growth, growth in consumption, investment and industrial production, and economic recessions as dated by the National Bureau of Economic Research (NBER). The specific accuracy of these predictions depends on the particular measures employed, as well as on the estimation and prediction periods. However, the results are generally statistically significant and compare favorably with other variables employed as leading indicators. For instance, models that predict real GDP growth or recessions tend to explain 30 percent or more of the variation in the measure of real activity. See Estrella and Hardouvelis (1991). The yield curve has predicted essentially every U.S. recession since 1950 with only one "false" signal, which preceded the credit crunch and slowdown in production in 1967. There is also evidence that the predictive relationships exist in other countries, notably Germany, Canada, and the United Kingdom. See Estrella and Mishkin (1997) and Bernard and Gerlach (1998).

See the link for more FAQs. Dr. Estrella provides this graph to compare the yield curve to previous recessions.

Click on graph for larger image.

Yield curve inversions have preceded each of the last six recessions. To illustrate, the top figure shows the spread between ten‐year and three‐month Treasury securities since 1960, with shading to indicate NBER dated recessions. The bottom panel shows the probability of recession one year ahead, obtained by applying a probit model to the term spread as defined above.

The yield curve is still positive, but the spread has been decreasing. Therefore, according to Dr. Estrella, the probability of a recession is increasing.

by Calculated Risk on 10/12/2005 12:29:00 PM

UPDATE: Dr. Thoma excerpts speeches from Greenspan and Kohn too.

Reuters reports:

Bies warns on risky lending practices Federal Reserve Board Governor Susan Bies issued a warning on Wednesday on risky real-estate lending practices, saying banks could be hurt by higher interest rates or a decline in home prices.

"Banking supervisors have become concerned recently about apparent increased risk-taking in both commercial and real estate lending," Bies said in remarks prepared for delivery to the National Bankers Association annual convention in Beverly Hills, California.
...
"There is some concern that banks' home equity loan portfolios may be vulnerable to a rise in interest rates and, in some markets, a decline in home values," she said.
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She said regulators were conducting a survey of banks' so-called affordability lending practices and said they might offer regulatory guidance on the subject in the near future.

Bies noted U.S. housing prices had jumped 13.4 percent in the second quarter from a year ago -- the biggest gain in more than a quarter century -- and said speculative buying appeared to be a factor behind the increase.

Here is the text of Governor Susan Bies speech: Regulatory Issues.