by Calculated Risk on 2/07/2013 05:43:00 PM

From economist Tom Lawler:

DataQuick reported yesterday that both the number and the share of California home sales purchased with cash (meaning no mortgage was recorded at the time of sale) hit record levels in 2012. According to DataQuick, 145,797 California condos and homes were bought without mortgage financing last year, representing a record high 32.4% of all home sales, up from 30.4% in 2011 and more than double the average “all-cash” share since 1991. Based on mailing addresses vs. property addresses, DataQuick said that “investors and vacation-home buyers” represented “roughly” 55% of all California homes purchased with cash last year. Dataquick also reported that in 2012 there were “more than” 11,700 buyers who bought more than one home for cash, and that these “multi-home, all-cash” buyers combined purchased “about” 41,450 homes, representing “about” 9.3% of total sales.

Various MLS data on sales by financing indicate that the “all-cash” share of home purchases increased significantly in a wide range of markets starting in the latter part of decade, and remained high last year. Here are a few areas where either (1) local MLS produce annual stats which include data on financing type; or (2) where I went back to monthly reports.

All-Cash Share of MLS Home Purchases (Yearly Totals)
	Phoenix	Orlando	Tucson	Miami MSA: SF	Miami MSA: C/TH	Sacramento	Des Moines	Omaha
2002	14.1%	10.0%
2003	10.8%	9.4%	13.5%
2004	13.5%	10.5%	14.9%
2005	12.1%	9.3%	14.8%
2006	9.2%	6.6%	12.8%
2007	11.6%	9.0%	12.6%			4.4%
2008	12.6%	20.3%	18.8%			15.4%		12.1%
2009	37.2%	41.4%	23.9%			25.1%		11.8%
2010	41.8%	51.5%	28.3%			26.7%	20.1%	16.7%
2011	46.9%	52.9%	34.6%	43.8%	80.8%	30.1%	21.9%	20.2%
2012	46.0%	53.1%	34.4%	45.0%	79.8%	34.0%	21.5%	17.6%

All-Cash Share of MLS Home Purchases
	Dec-12	Dec-11	Dec-07
DC Metro	19.9%	20.3%	6.2%
Baltimore Metro	23.4%	22.5%	9.0%
Florida SF	47.2%
Florida C/TH	73.5%
Toledo	44.4%	45.3%
Akron	33.0%	39.4%	28.1%
Peoria	20.7%	19.9%	8.6%
Las Vegas	55.2%	50.8%
Memphis	39.8%	30.8%	22.6%

The surge in the all-cash share of home purchases in many areas reflects an increase in the investor share of total purchases, though there also appears to have been an increase in the all-cash share of owner-occupied purchases.

In the early-to-mid part of last decade the investor share of home purchases increased significantly in several areas, especially areas that experienced a sharp increase in home prices. However, back then, the bulk of investors buying homes used mortgage financing, often with as much leverage as allowable and often with loan features that many today would view as “risky.” In the early/mid part of last decade few investors bought homes because rental yields looked attractive, but instead the purchases were driven by expectations of price appreciation. When prices started to soften investor buying eased, many investors listed homes for sale at price levels above the new, lower “market-clearing” levels, home listings soared, mortgage defaults surged, and, well, ...

CR Note: This was from Tom Lawler.

by Calculated Risk on 2/07/2013 03:08:00 PM

I rarely mention consumer credit, but the amount of credit outstanding has been steadily increasing as is normal in a recovery. This is OK if the borrowers can repay the debt, unfortunately much of the recent increase has been related to student loans - and student loan defaults are increasing.

From the Fed:

Consumer credit increased at a seasonally adjusted annual rate of 6-1/2 percent during the fourth quarter. Revolving credit was little changed, while nonrevolving credit increased at an annual rate of 9-1/2 percent. In December, consumer credit increased at an annual rate of 6-1/4 percent.

Consumer credit increased $14.6 billion in December, with nonrevolving credit increasing $18.2 billion (this includes auto, student and other loans).

Also, talking about credit, from Fed Governor Jeremy Stein: Overheating in Credit Markets: Origins, Measurement, and Policy Responses

The question I'd like to address today is this: What factors lead to overheating episodes in credit markets? In other words, why do we periodically observe credit booms, times during which lending standards appear to become lax and which tend to be followed by low returns on credit instruments relative to other asset classes? We have seen how such episodes can sometimes have adverse effects on the financial system and the broader economy, and the hope would be that a better understanding of the causes can be helpful both in identifying emerging problems on a timely basis and in thinking about appropriate policy responses.

This is an important topic.

by Calculated Risk on 2/07/2013 10:39:00 AM

This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008, so all readings are very low.

From the NAHB: Builder Confidence in the 55+ Housing Market Ends Year on a Positive Note

Builder confidence in the 55+ housing market for single-family homes showed continued improvement in the fourth quarter of 2012 compared to the same period a year ago, according to the National Association of Home Builders’ (NAHB) latest 55+ Housing Market Index (HMI) released today. The index increased 10 points to a level of 28, the fifth consecutive quarter of year over year improvements.
...
Although all components of the 55+ single-family HMI remain below 50, they have improved significantly from a year ago: present sales climbed 10 points to 27, expected sales for the next six months increased 12 points to 38 and traffic of prospective buyers rose nine points to 24.
...
“Like the overall housing market, the 55+ segment of the market is undergoing a slow but steady recovery,” said NAHB Chief Economist David Crowe. “That said, there are serious obstacles to a continued and stronger recovery. While problems with tight credit conditions for buyers and obtaining accurate appraisals are still lingering, new problems like spot shortages and rising costs for labor, materials and lots are beginning to emerge.”

Click on graph for larger image.

This graph shows the NAHB 55+ HMI through Q4 2012. All of the readings are very low for this index, and the index dipped in Q4 - but the general trend is up. Still, any reading below 50 "indicates that more builders view conditions as poor than good."

This is going to be a key demographic for household formation over the next couple of decades, but only if the baby boomers can sell their current homes!

There are two key drivers: 1) there is a large cohort moving into the 55+ group, and 2) the homeownership rate typically increases for people in the 55 to 70 year old age group.

The second graph shows the homeownership rate by age for 1990, 2000, and 2010. This shows that the homeownership rate usually increases until 70 years old or so.

So demographics should be favorable for the 55+ market.

by Calculated Risk on 2/07/2013 08:38:00 AM

The DOL reports:

In the week ending February 2, the advance figure for seasonally adjusted initial claims was 366,000, a decrease of 5,000 from the previous week's revised figure of 371,000. The 4-week moving average was 350,500, a decrease of 2,250 from the previous week's revised average of 352,750.

The previous week was revised up from 368,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.


Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 350,500.

Weekly claims were above the 360,000 consensus forecast, however the 4-week average is at the lowest level since early 2008.

by Calculated Risk on 2/06/2013 07:45:00 PM

The light week for economic data continues ...

I guess we have to start paying attention to the "sequester" negotiations. From the WSJ: Sequester Triggers Delay in Deployment

The Pentagon’s decision to delay the deployment of a carrier to the Middle East could give opponents of the sequester some added ammunition in their battle to undo the across-the-board Pentagon spending cuts.

Sen. Kelly Ayotte (R., N.H.), a member of the Armed Services Committee, called the decision to delay the carrier deployment “deeply disturbing.”

“I hope what has happened here with these very stark examples of how [the sequester] is going to undermine our national security will move people to resolve this,” Ms. Ayotte said. “There are ways forward.”
...
Cuts totaling $85 billion are scheduled to start March 1 and run through Sept. 30; after that, about $110 billion in annual spending cuts would kick in.

My prediction at the beginning of the year was:

Although the negotiations on the "sequester" will be tough, I suspect something will be worked out (remember the goal is to limit the amount of austerity in 2013).

The only thing that seems certain is that negotiations will go down to the wire. The sequester cuts would be an additional drag on the economy on top of the "fiscal cliff" agreement.

Thursday economic releases:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 360 thousand from 368 thousand last week. The 4-week average could fall to the lowest level since early 2008.

• At 3:00 PM, Consumer Credit for December from the Federal Reserve. The consensus is for credit to increase $14.5 billion in December.