by Calculated Risk on 7/09/2014 10:35:00 AM

A few comments from Goldman Sachs economist Alec Phillips:

The House and Senate both appear to be finally moving forward with plans to provide additional funding for the nearly exhausted highway trust fund and to extend the program through at least year end, though there are still several areas of disagreement that need to be worked out. Resolution of the issue by later this month should provide greater certainty to state governments that might otherwise pull back on new construction in the absence of a legislative fix.

The legislation that is beginning to move through Congress is notable in two other respects. First, it makes no changes to international corporate tax rules (i.e., corporate inversions), seemingly taking the prospect for congressional intervention off the table until after the election. Second, the House plan would lower the minimum contribution that defined benefit pension plan sponsors must make for the next few years, reducing DB pension plans' demand for financial assets but increasing their tax liabilities.

... Our expectation is that without a viable long-term funding mechanism a multi-year renewal of the program will be difficult. The gasoline tax that has traditionally funded most federal transportation spending has not been raised since 1993 and receipts have not kept up with the increased spending out of the fund. Unless a solution can be found--either a gasoline tax increase or a new long-term funding source--Congress may simply adopt a series of short-term renewals.

First a few words from Ronald Reagan from November 1982 when he proposed raising the gasoline tax:

This special holiday weekend is a time when we all give thanks for the many things our land is blessed with. It's also a fitting time for us to think about ways in which we can preserve those blessings for future generations.

One of our great material blessings is the outstanding network of roads and highways that spreads across this vast continent. ... Lately, driving isn't as much fun as it used to be. Time and wear have taken their toll on America's roads and highways. ...

We simply cannot allow this magnificent system to deteriorate beyond repair. The time has come to preserve what past Americans spent so much time and effort to create, and that means a nationwide conservation effort in the best sense of the word. America can't afford throwaway roads or disposable transit systems. The bridges and highways we fail to repair today will have to be rebuilt tomorrow at many times the cost.
emphasis added

A few key points:
• This is just a short term fix until after the election, but I expect it will happen.
• Historically both parties supported infrastructure spending and raising user fees to support the spending (see Reagan's comments).
• The gasoline tax hasn't been increased since August 1993 (it is a fixed amount of 18.4 cents per gallon). If the tax was indexed to inflation, it would be 30 cents per gallon now (and the Highway Trust Fund would be in good shape).
• And on budget accounting: Although building a bridge is obviously an investment, the Federal Government does not have a capital account. These investments are just expensed (a company would depreciate the expenditure over a number of years).
• Although downside risks have diminished this year, I expect Congress to be a significant downside risk in 2015 (with more dumb and damaging actions like in 2011 and 2013).

by Calculated Risk on 7/09/2014 07:01:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 1.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 4, 2014. This week’s result included an adjustment for the July 4th holiday. ...

The Refinance Index increased 0.4 percent from the previous week. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.32 percent from 4.28 percent, with points increasing to 0.16 from 0.14 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 75% from the levels in May 2013.

As expected, refinance activity is very low this year.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 10% from a year ago.

Note: Mortgage rates were around 4.75% this time last year, and are down about 50 bps year-over-year.

by Calculated Risk on 7/08/2014 09:00:00 PM

This never gets old: Years ago, whenever there was a market sell-off, my friend Tak Hallus (Stephen Robinett) would shout at his TV tuned to CNBC "Bring out the bears!".

That was because CNBC would usually interview "bears" whenever there was a sell-off, and interview "bulls" whenever the market rallied.

Today was no exception Marc Faber: The asset bubble has begun to burst

All in all, Faber is looking for a 30 percent drop in the S&P 500.

Here is Faber on April 10th: 2014 crash will be worse than 1987's: Marc Faber

"This year, for sure—maybe from a higher diving board—the S&P will drop 20 percent," Faber said, adding: "I think, rather, 30 percent"

And Faber from August 8, 2013:

Faber expect to see stocks end the year "maybe 20 percent [lower], maybe more!"

And from October 24, 2012:

"I believe globally we are faced with slowing economies and disappointing corporate profits, and I will not be surprised to see the Dow Jones, the S&P, the major indices, down from the recent highs by say, 20 percent," Faber said...

Since the market is up 40% since his 2012 prediction, shouldn't he be expecting something like a 50%+ decline now?

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 2:00 PM, the FOMC Minutes for the Meeting of June 17-18, 2014.

by Calculated Risk on 7/08/2014 06:02:00 PM

Using data from other sources than the CPS, Trulia chief economist Jed Kolko writes: Basement-Dwelling Millennials Are For Real

[T]he Current Population Survey’s (CPS) Annual Social and Economic Supplement (ASEC) counts college students who are living in dorms as living with their parents, and college enrollment has indeed gone up. But it does not follow that basement-dwelling millennials are a myth. The ASEC and other Census data show that after adjusting for college enrollment and for dormitory living, millennials were more likely to live with parents in 2012 and 2013 than at any other time for which data are available.

An interesting discussion!

P.S. Great to be back online. SC Edison performed some electrical upgrades on my block on Monday, and one of the "upgrades" was to sever my cable connection. Oh well ...

by Calculated Risk on 7/08/2014 05:06:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported GLVAR reports rising local home prices, fewer cash buyers

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in May was 3,274, up from 3,450 in May, but down from 3,642 one year ago..

GLVAR said 34.7 percent of all existing local homes sold in June were purchased with cash. That’s down from 40.2 percent in May and well short of the February 2013 peak of 59.5 percent, suggesting that investors are accounting for a smaller percentage of local buyers.
...
In June, 10.8 percent of all existing local home sales were short sales. That’s up from 7.9 percent in May. Another 10.1 percent of all June sales were bank-owned properties, up from 9.1 percent in May.
...
The total number of single-family homes listed for sale on GLVAR’s Multiple Listing Service in June was 13,838. That’s up 1.5 percent from 13,637 in May and up 0.6 percent from one year ago.

By the end of June, GLVAR reported 7,126 single-family homes listed without any sort of offer. That’s up 7.7 percent from 6,615 such homes listed in May, and an 86.2 percent jump from one year ago. For condos and townhomes, the 2,333 properties listed without offers in June represented a 3.3 percent increase from 2,258 such properties listed in May and a 59.4 percent jump from one year ago.
emphasis added

There are several key trends that we've been following:

1) Overall sales were down about 10% year-over-year.

2) Conventional (equity, not distressed) sales were up 19% year-over-year.  In June 2013, only 60.0% of all sales were conventional equity.  This year, in June 2014, 79.1% were equity sales. 

3) The percent of cash sales has declined year-over-year from 55.3% in June 2013 to 34.7% in June 2014. (investor buying appears to be declining).

4) Non-contingent inventory is up 86% year-over-year.

Inventory has clearly bottomed in Las Vegas (A major theme for housing last year).  And fewer distressed sales and more inventory (a major theme for 2014) suggests price increases will slow.