by Calculated Risk on 11/27/2005 11:58:00 AM

The NY Times reports: Initial Reports Are Mixed for Retail's Busiest Day

Two reports measuring consumer spending for Friday, both released last night, painted an unusually muddy portrait of what has become the busiest shopping day of the year.

Sales Draw Shoppers ShopperTrak, a national survey firm, said sales for the day after Thanksgiving - called Black Friday in the industry because of hopes that it will catapult retailers into the black for the year - fell 0.9 percent over last year, to $8.01 billion.

Visa USA, on the other hand, reported that use of its credit cards had risen 13.9 percent.

Both companies characterized the results as a healthy start to the season, but the wide gap between them raised questions about the strength of the holiday shopping period, which accounts for as much as 25 percent of annual sales for the retail industry.

Click on drawing for larger image.
Drawing from Elaine Supkis.

Meanwhile, the National Retail Federation was very upbeat: Blockbuster Black Friday Weekend Sees Sales Near $28 Billion

The ceremonial kickoff to the holiday season began with a great deal of fanfare as 145 million shoppers flooded stores and the Internet hunting for popular electronics, clothing, and books. An NRF survey conducted by BIGresearch found that the average shopper spent $302.81 this weekend, bringing total weekend spending to $27.8 billion, an incredible 21.9 percent increase over last year's$22.8 billion.

As expected, retailers offered substantial discounts and savings on Black Friday to bring people into their stores and consumers held up their end of the bargain by going shopping, said NRF President and CEO Tracy Mullin. Even though many retailers saw strong sales this past weekend, companies will not be basking in their success. Stores are already warming up for the next four weeks because the holiday season is far from over.

More than 60 million shoppers headed to the stores on Black Friday, an increase of 7.9 percent over last year. Another 52.8 million shopped on Saturday, a rise of 13.3 percent over 2004. The number of shoppers out today is expected to be close to last year, with about 22 million people shopping.

by Calculated Risk on 11/25/2005 11:28:00 PM

The Washington Post offers advice on housing: How to Sell In a Down Cycle

Pretty much everybody in real estate knows what's up ... the boom is well past its peak.
...
Instead of double-digit appreciation rates, look for 4 or 5 percent appreciation in 2006. Instead of mortgage rates at historic lows, look for conventional 30-year rates in the 7 to 8 percent range and a couple of points higher for subprime borrowers. Plan for slower-moving sales, more unsold housing inventory sitting on the market and scaled-back listing prices.

This is the "soft landing" scenario that many, but hardly all, economists expect to be the final phase of the current cycle. Others forecast harder landings if interest rates get out of hand in the frothiest cities of the West and East coasts.

Its amazing that "4 to 5 percent appreciation" is considered disappointing. I would consider flat nominal prices for a few years as a "soft landing" for housing.

Also, I think the WaPo article misses the key point in a down cycle: If you think prices are going to decline, and you NEED to sell, DON'T chase the prices down. Sell now at a discounted price.

The housing market tends to be inefficient because real estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices. This means real estate markets do not clear immediately, and what we usually observe is a drop in transaction volumes.

To be a successful seller in a down cycle, you must adjust your price down quicker than your competitors. Even though transaction activity will fall in a down cycle, a seller is only concerned with one transaction!

A final comment: Although I think the peak of the boom (in transactions) probably occurred last summer, I'm not sure the price boom is over yet. Inventories are rising, but activity is still strong in many areas. The reports this comming week on New and Existing Home sales, and Q3 prices from OFHEO, will be interesting.

by Calculated Risk on 11/23/2005 11:21:00 PM

The Orlando Sentinel reports: Housing inventory balloons

The number of homes for sale in the Orlando area ballooned by more than 2,200 properties last month to hit an eight-year high -- the clearest sign yet that the region's red-hot housing market might be about to cool off. ... the inventory of available homes jumped from 6,786 at the end of September to 8,992 at the end of October, according to the Orlando Regional Realtor Association. That's the largest inventory since 9,129 homes were for sale in May 1997.

But sales activity was still strong and prices set a new record:

Orlando's existing-home sales remained strong in October ... Completed deals in the four-county metro area were up more than 27 percent from October 2004, and the median price of those sold in the market's core crept up for the first time in three months to set another record.
...
With the completion of 2,841 resales in October, the metro area was still running 12.4 percent ahead of last year's record sales pace. And after stalling in August and falling slightly in September for the first time in a year, the median home price in the market's core rose in October from $243,900 to $246,790.

That is just over 3 months of inventory without seasonally adjusting sales. On an adjusted basis (the usual number) inventory is probably well under 3 months - still well below normal.

by Calculated Risk on 11/23/2005 11:04:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Refinance Applications Down 17.4 Percent Since Last Month

The Market Composite Index — a measure of mortgage loan application volume – was 635.4, a decrease of 3.4 percent on a seasonally adjusted basis from 657.6 one week earlier. On an unadjusted basis, the Index increased 4.8 percent compared with the previous week, but was down 11.8 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 1.2 percent to 472.3 from 477.9 the previous week whereas the Refinance Index decreased by 6.9 percent to 1584.1 from 1702.4 one week earlier. The Refinance Index is down 17.4 percent compared to four weeks ago when the index was 2144.5.

Click on graph for larger image.

The graph shows overall and purchase activity since June. Overall activity has fallen significantly due to the drop in refis. Purchase activity is steady.

As expected, mortgage rates declined last week:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.26 percent from 6.33 percent one week earlier...

The average contract interest rate for one-year ARMs decreased to 5.41 percent from 5.46 percent one week earlier...

by Calculated Risk on 11/22/2005 11:16:00 AM

The Federal Deposit Insurance Corporation (FDIC) released their
Quarterly Banking Profile for the third quarter 2005. On Real Estate lending:

Residential mortgage loan growth remained strong, while growth in real estate construction lending is accelerating. One- to four-family mortgage loans increased by $66.6 billion (3.4 percent) in the third quarter. Loans for real estate construction and land development grew by $28.2 billion (7.2 percent) during the quarter, and have increased by 30.9 percent over the past 12 months.

But Home Equity lending has flattened out:

In contrast, home equity loan growth, which was proceeding at an annual rate of 46 percent a year ago, has slowed considerably in 2005. During the third quarter, home equity loans increased by only $4.3 billion (0.8 percent), the smallest quarterly increase in more than four years.