by Calculated Risk on 3/07/2007 04:43:00 PM

From Bloomberg: Toll Cancellations Drop; Horton to Miss Projections

``I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year,'' D.R. Horton Chief Executive Officer Donald Tomnitz said at a Citigroup Inc. conference in New York. ``Our future is not as bright as what we would like it to be.''

by Calculated Risk on 3/07/2007 01:03:00 PM

The following graph shows the quarterly "Net Percentage of Domestic Respondents Loosening Standards for Mortgages to Individuals" from the Federal Reserve vs. the year-over-year change in real Personal consumption expenditures (hat tip: John).

Source: Federal Reserve, Figure 2, Panel 3 (inverted), and BEA.

Click on graph for larger image.

Changes in real PCE have tracked changes in lending standards fairly well since 1990 (start of available data from the Fed). The one period of divergence, from 1998 to 2000, might be related to the stock market bubble.

At the start of the year, I proposed three strikes from the housing bust: a sector-specific credit crunch leading to a further decline in the housing market, significant residential construction job losses, and less consumption due to declining homeowner equity extraction.

This graph is related to the third strike, and suggests that tighter lending standards might lead to lower YoY changes in consumption in the coming quarters.

Note: The correlation used data by quarter since Q3 1990. There are 14 degrees of freedom (since some of the YoY changes are not independent). We can be 99% confident that the YoY changes in real PCE are positively correlated with loosening mortgage lending standards.

by Calculated Risk on 3/07/2007 12:31:00 PM

From the BofA Monthly Real Estate Agent Survey for February:

Market Downshifts in February, the Start of the Key Selling Season

Agents noted that traffic fell short of expectations in February, after coming in essentially in-line with expectations in January. Responses worsened over the month, suggesting that traffic lost steam.

by Calculated Risk on 3/07/2007 10:25:00 AM

NOTE: It's important to note that the ADP report is for private sector jobs only, and that the headline BLS number includes government jobs. Over the last year, the BLS has reported an increase of 2.148 million nonfarm jobs, of which 1.866 million were private nonfarm jobs. So about 15% of the overall net jobs added were government jobs, and these are not included in the ADP report.

Click on graph for larger image.

According to ADP:

Private nonfarm employment grew a modest 57,000 from January to February of 2007 on a seasonally adjusted basis.

After taking quite a beating, ADP has revised their methodology:

The February 2007 ADP National Employment Report released on Wednesday March 7, 2007 is the first regularly released ADP Report to incorporate key methodological revisions, including: (1) a larger sample of payrolls; (2) improved procedures for seasonal adjustment; (3) better detection of outliers; and (4) additional detail on private nonfarm employment by select industry and by size of payroll.

I've looked at the differences between the ADP and BLS reports before (see More BLS vs. ADP), and I'll update the analysis soon since ADP has changed their methodology.

by Calculated Risk on 3/07/2007 09:42:00 AM

The Mortgage Bankers Association (MBA) reports: Refinance Applications Jump As Mortgage Rates Decline

The Market Composite Index, a measure of mortgage loan application volume, was 671.6, an increase of 7.3 percent on a seasonally adjusted basis from 626.1 one week earlier. On an unadjusted basis, the Index increased 19.9 percent compared with the previous week and was up 15.6 percent compared with the same week one year earlier.

The Refinance Index increased 15 percent to 2234.2 from 1943.5 the previous week and the seasonally adjusted Purchase Index increased 1 percent to 405.3 from 401.3 one week earlier.

Mortgage rates declined:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.04 percent from 6.16 percent ...

The average contract interest rate for one-year ARMs decreased to 5.79 from 5.92 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is up slightly to 397.2 from 397 for the Purchase Index.

The refinance share of mortgage activity increased to 46.1 percent of total applications from 43.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 21.4 from 21.1 percent of total applications from the previous week.