by Calculated Risk on 2/16/2006 05:15:00 PM

The Financial Times reports: Bernanke upbeat about housing effect

... Ben Bernanke suggested that the discussion around the Federal Reserve’s boardroom table in coming months may focus on ... house prices.

The outlook ... Bernanke presented ... were based on the assumption that the US housing market is slowing after the sizzling growth ... in recent years.

Mr Bernanke’s remarks ... suggested that the Fed expects the housing market to cool but not to undergo a dramatic slowdown ...

"Low mortgage rates, together with expanding payrolls and incomes and the need to rebuild after the hurricanes, should continue to support the housing market. Thus, at this point, a levelling out or a modest softening of housing activity seems more likely than a sharp contraction," Mr Bernanke said.
...
Since rising household wealth and home equity withdrawal have supported consumer spending, there may be an impact on spending. But it is not expected to be dramatic. The Fed expects households to raise their savings rate from near zero, but only gradually. Residential investment is expected to slow, but business investment is expected to take up the slack.

... It is quite likely that policymakers may not know how much further they need to raise rates. Policy will be data-driven – and one of the key questions will be the course of, and the spillover effects from, the housing market.
...
But the housing market presents both upside as well as downside risks for growth and the federal funds rate. If low long-term rates mean the housing market continues to soar, then the FOMC may have to raise rates by more than what is currently expected, to prevent the economy from overheating.

"On the one hand, some observers believe that home values have moved above levels that can be supported by fundamentals and that ... a realignment - if abrupt – could materially sap household wealth and confidence and, in turn, depress consumer spending," the monetary report to Congress said.

"On the other hand, if home values continue to register outsized increases, the accompanying increment to household wealth would stimulate aggregate demand and raise resource utilisation further ... adding to inflation pressures."

At least Bernanke is being open about the problem, even if he is more optimistic than I am.

by Calculated Risk on 2/15/2006 08:27:00 PM

MarketWatch reports: Washington Mutual to cut 2,500 jobs

Washington Mutual announced 2,500 job cuts at its home-loan business late Wednesday, another sign of a cooling real-estate market.

The bank, one of the largest mortgage lenders in the U.S., said its network of processing offices that provide administrative support to its home-loan businesses will be reduced to 16 from 26.

The job cuts represent more than 4% of Washington Mutual's total workforce of about 60,000.

...the bank also said in a statement on Wednesday that it's cutting costs at its home-loan business to "better match current and anticipated mortgage-market conditions."

Signs that the once-hot housing market is beginning to cool have accumulated this year.

U.S. banks reported weaker demand for mortgages in the past three months, a Federal Reserve survey of senior loan officers found in January.

by Calculated Risk on 2/15/2006 03:12:00 PM

Last March, I excerpted a quote from an OC Register article: Loan rates on the rise by Orange County "real-estate broker and economist" Gary Watts:

"There's too much emphasis on interest rates in the marketplace," Watts said. "Who wouldn't trade $1,200 for $70,000?"

Last March the median home price in OC was $555,000. Today the median home price is $582,000, an increase of $27K or just under 5%. Mr. Watts has two months for the median prices to hit his prediction.

And now Mr. Watts is being quoted in Fortune's A tale of two markets

"Fifteen percent is pretty much in the bag for Orange County in 2006," [Gary Watts] says. "It's impossible for prices to go down this year."

I'm going to have to disagree with Mr. Watts again!

by Calculated Risk on 2/15/2006 03:04:00 PM

DataQuick reports: Five-year low for Southland home sales

The number of Southern California homes sold in January edged down to the lowest level in five years ...

A total of 20,085 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was ... down 7.4 percent from 21,680 for January last year, according to DataQuick Information Systems.

Prices were down too (a typical seasonal pattern), but still up 13% from last January.

In Orange County, the Register reports: Housing prices slip 6% in January

DataQuick reported today that the median sale price for all residences sold in January was $582,000 – down more than 6 percent from December's record $621,000 but still up 9 percent from January 2005. Sales volume was weak, too, as 2,594 homes sold – down 11 percent in a year. This was the slowest January since 1997.

by Calculated Risk on 2/15/2006 10:47:00 AM

The Mortgage Bankers Association (MBA) reports that mortgage applications declined for the week ending Feb 10th.

Click on graph for larger image.

The Market Composite Index — a measure of mortgage loan application volume was 574.1 – a decrease of 7.3 percent on a seasonally adjusted basis from 619.3 one week earlier. On an unadjusted basis, the Index decreased 4.4 percent compared with the previous week and was down 21.7 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 7.9 percent to 391.7 from 425.1 the previous week, whereas the Refinance Index decreased by 6.5 percent to 1636.7 from 1751.0 one week earlier.

Mortgage rates were steady:

The average contract interest rate for 30-year fixed-rate mortgages remained at 6.25 percent ...

The average contract interest rate for one-year ARMs increased to 5.52 percent from 5.48 percent...

Activity continues to fall and mortgage rates are expected to rise again this week. The unadjusted Purchase Index is 401.9, off from 437.2 for the same week last year.