by Calculated Risk on 8/14/2015 10:01:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

Back in 2005 and 2006, at least every other post was about the housing bubble and the possible impact on the economy. Here are a few examples:

From April 2005: Housing: Speculation is the Key

I have taken to calling the housing market a "bubble". But how do I define a bubble?

A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation - the topic of this post. Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the "bubble" bursts.

This is relevant to the current housing situation. Some analysts are arguing prices are forming a new bubble now - based on fundamentals such as price-to-rent and price-to-income - however there is very little of the crazy speculation that was happening in 2005.  And even on a fundamental basis, the current situation is nothing like 2005.

From March 2005: California Real Estate Prices: Boom and Bust

Today I heard someone comment that California Real Estate never goes down. In fact, California RE has declined in the past in both real and nominal terms.
...
The decline in the '90s lasted 24 quarters from peak to trough. It took 9 years for prices to recover in nominal terms to their early '91 peak. Overall prices declined 12% in nominal terms and 26% in real terms.

Even more important for the economy are the coincident declines in sales volume. Real Estate prices are “sticky downward” since sellers are slow to adjust their prices down, and buyers are reluctant to buy a declining price asset. In this regards, real estate is an imperfect market in that prices adjust slowly to changes in supply and demand (unlike commodities like corn or wheat). Although prices do decline, it’s the decline in volume that leads to declining employment in real estate related occupations like construction, RE sales, mortgages, and more, and impacts the general economy.

And from August 2006: Housing: Inverted Reasoning?

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

CR Note: I do not have a crystal ball, but the housing bubble / bust seemed obvious!

by Calculated Risk on 8/13/2015 09:00:00 PM

NOTE: CR is on vacation and will return on Sunday, August 23rd.

Friday:
• At 8:30 AM ET, the Producer Price Index for July from the BLS. The consensus is for a 0.1% increase in prices, and a 0.1% increase in core PPI.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for July. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 78.1%.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for August). The consensus is for a reading of 93.5, up from 93.1 in July.

by Calculated Risk on 8/13/2015 05:47:00 PM

I'll be on vacation - at an undisclosed location - starting tomorrow morning. I'm going to unplug completely from the internet for 10 days (hopefully nothing too crazy will happen).

I will return on August 23rd.

I've arranged to have posts every day, but there will not be any current reports (so I'll miss housing starts and existing home sales for July to be released next week).

All my best to everyone, Bill

by Calculated Risk on 8/13/2015 02:42:00 PM

From housing economist Tom Lawler:

Based on reports from local realtors/MLS from across the country released through today, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.64 million in July, up 2.7% from June’s pace and up 11.2% from last July’s seasonally adjusted pace.

I also project that the NAR’s estimate of the number of existing homes for sale at the end of July will be about 2.37 million, up 3.0% from June and up 0.9% from last July.

Finally, I predict that the NAR’s estimate of the median existing SF home sales price in July will be up by about 5.3% from last July.

CR Note: The NAR is scheduled to report July existing home sales next Thursday at 10:00 AM. The sales rate in July will likely be the highest since February 2007.

by Calculated Risk on 8/13/2015 11:34:00 AM

Here is the Q2 report: Household Debt and Credit Report.

From the NY Fed: Auto Loans Race Ahead, Foreclosures Plunge, and Overall Household Debt Remains Flat

Household debt balances were largely flat in the second quarter of this year, according to the Federal Reserve Bank of New York’s Household Debt and Credit Report. Total indebtedness increased just $2 billion from Q1 2015. Foreclosures hit their lowest point in the 16-year history of the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.

Auto loan originations reached a 10-year high in the second quarter, at $119 billion, supporting a $38 billion increase in the aggregate auto loan balance, which has now passed $1 trillion. The increase in auto loans also drove most of the $67 billion increase in non-housing debt balances. Credit card balances increased, by $19 billion, to $703 billion, while student loan balances remained flat. Mortgage balances and HELOC dropped by $55 billion and $11 billion, respectively.
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased slightly in Q2.  Household debt peaked in 2008, and bottomed in Q2 2013.

The recent increase in debt suggests household (in the aggregate) deleveraging is over although mortgage debt is still declining (foreclosures of legacy loans continue).

The second graph shows the percent of debt in delinquency. The percent of delinquent debt is declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red). 

The overall delinquency rate decreased  to 5.6% in Q2, from 5.7% in Q1.

There are a number of credit graphs at the NY Fed site.