by Calculated Risk on 1/14/2007 11:27:00 AM

Excerpt from Jon Lansner at the OC Register: Insider Q&A with local lender

Lansner: What are your home-buying clients thinking? What's the popular financing for this crowd?

Aaron [local lender]: The buyers that I have consulted with lately are first time homebuyers. They are feeling a bit of a pinch, but are able to qualify using strategic financing. We structure the deal using a seller financed buy-down of the interest rate. The beauty of this is that the buyer receives a below market interest rate to help them ease into the home. Additionally, the tax write-off afforded through the pre-paid interest on the purchase loan is given to the buyer in the year the purchase closes. It doesn't matter that the seller paid for the buy-down.

"Strategic financing".

Seller "buy-down" of interest rate.

Help the buyer "ease into the home".

File under phrases no one really wants to hear (at least no one associated with the housing market).

by Calculated Risk on 1/13/2007 01:10:00 AM

This bears repeating:

"The worst is not over. The worst is in front of us."
Dr. Christopher Thornberg of Beacon Economics, Jan 12, 2007

We can debate whether or not the housing bust will significantly impact the economy, but there is no question the "worst is in front of us."

More from the Press Enterprise:

[Thornberg] warned that the housing slowdown has appeared slower and less daunting than it really is, because it takes a while for home prices to drop.

"This isn't going to hit bottom in 2007. This is going to be a mess for quite a while," he said. As a result Thornberg said construction-related jobs should feel a bigger pinch ...

by Calculated Risk on 1/12/2007 02:32:00 PM

UPDATE: I had the title backwards. Trend real GDP is probably around 3.2% and nominal GDP is probably in the 5% to 6% depending on inflation. Since real GDP equals nominal GDP less inflation, it is unusual for real GDP (or real PCE) to be greater than their respective nominal values - unless the PCE and GDP price deflators decline.

Original Post: It is possible in Q4 that real PCE (and maybe real GDP) will be greater than the nominal value. If so, this hasn't happened since the early '50s. This is another way of saying reported inflation was negative for the quarter (I don't want to use the term "deflation").

Click on graph for larger image.

This graph shows Real PCE minus nominal PCE quarterly since 1947 (also GDP).

Looking at the monthly PCE price index, it appears the PCE price index will decline in Q4. This means that real PCE (and probably real GDP) will be higher than expected.

Is this drop in inflation because of "one-time" changes, and inflation is actually higher, and GDP lower, than what will be reported? That seems to be the view of Fed Vice Chairman Kohn this week:

"Core inflation is still higher than it was just a year ago, and, as I noted, some of the very recent decline may result from one-time changes in relative prices rather than an easing in underlying inflation pressures."

If Kohn is correct about inflation being higher than reported due to "one-time" changes, then the same argument can be made about GDP (lower than reported).

by Calculated Risk on 1/12/2007 01:37:00 PM

From the National Retail Federation (NRF): Warmer Weather and Soft Housing Market Lead to Subdued Holiday Gains

... retail industry sales for December (which exclude automobiles, gas stations, and restaurants) rose 3.9 percent unadjusted over last year and increased 0.4 percent seasonally adjusted from November. November industry sales were revised down from 6.3 percent unadjusted to 5.1 percent unadjusted.

December retail sales released today by the U.S. Commerce Department show that total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) rose 0.9 percent seasonally adjusted from November and increased 3.6 percent unadjusted year-over-year.

“Unseasonably warmer weather and the slower housing market had a clear impact on consumer spending,” said NRF Chief Economist Rosalind Wells. “NRF expects these subdued gains to continue into the first half of 2007.”

After the Government report, this is a little surprising.

by Calculated Risk on 1/12/2007 09:21:00 AM

The Census Bureau reports:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $369.9 billion, an increase of 0.9 percent from the previous month and up 5.4 percent from December 2005.

After a weak start in Q4, it looks like retail sales finished reasonably strong.