by Calculated Risk on 11/23/2005 11:04:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Refinance Applications Down 17.4 Percent Since Last Month

The Market Composite Index — a measure of mortgage loan application volume – was 635.4, a decrease of 3.4 percent on a seasonally adjusted basis from 657.6 one week earlier. On an unadjusted basis, the Index increased 4.8 percent compared with the previous week, but was down 11.8 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 1.2 percent to 472.3 from 477.9 the previous week whereas the Refinance Index decreased by 6.9 percent to 1584.1 from 1702.4 one week earlier. The Refinance Index is down 17.4 percent compared to four weeks ago when the index was 2144.5.

Click on graph for larger image.

The graph shows overall and purchase activity since June. Overall activity has fallen significantly due to the drop in refis. Purchase activity is steady.

As expected, mortgage rates declined last week:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.26 percent from 6.33 percent one week earlier...

The average contract interest rate for one-year ARMs decreased to 5.41 percent from 5.46 percent one week earlier...

by Calculated Risk on 11/22/2005 11:16:00 AM

The Federal Deposit Insurance Corporation (FDIC) released their
Quarterly Banking Profile for the third quarter 2005. On Real Estate lending:

Residential mortgage loan growth remained strong, while growth in real estate construction lending is accelerating. One- to four-family mortgage loans increased by $66.6 billion (3.4 percent) in the third quarter. Loans for real estate construction and land development grew by $28.2 billion (7.2 percent) during the quarter, and have increased by 30.9 percent over the past 12 months.

But Home Equity lending has flattened out:

In contrast, home equity loan growth, which was proceeding at an annual rate of 46 percent a year ago, has slowed considerably in 2005. During the third quarter, home equity loans increased by only $4.3 billion (0.8 percent), the smallest quarterly increase in more than four years.

by Calculated Risk on 11/21/2005 10:32:00 AM

Fannie Mae's Molly R. Boesel writes: Home affordability suffers as home prices and interest rates rise.

Affordability has dropped sharply over the past 18 months despite low mortgage rates and a pickup in income growth. The National Association of Realtors’ (NAR) housing affordability index is at its lowest level since 1991 (and, using our own calculations, affordability has fallen to the lowest levels since the early-to-mid 1980s in some high cost areas). The NAR first-time homebuyer index is at its lowest level since 1985. What has caused this decline in affordability? We don’t have to go far to find the cause: the unprecedented rise in home prices. Dramatic increases in investor/second home purchases, looser overall underwriting, and the proliferation of low initial-payment ARM mortgages have all contributed to a surge in home prices relative to income growth. With further increases in mortgage rates anticipated over the next year, affordability should drop further.

Just a note - it appears mortgage rates dropped last week and might drop further this week. I'm not suggesting rates have topped, but it is possible (edit: possible short term) and that would help support house prices.

The chart below shows the NAR composite affordability index for the United States as a whole and the four Census Regions through September. An index value of 100 means that a family earning the median income has exactly enough income to qualify for a mortgage on the median-priced home -- and thus that it can afford to purchase 100 percent of the median-priced home. The September U.S. index value of 119.4 indicates that the typical family has 19.4 percent more income than needed to qualify for the median-priced home.

While affordability increased a bit in September, it is still well below year-ago levels, and the trend is clearly downward. Moreover, the biggest portion of the recent increase in mortgage rates has occurred over the past two months -- suggesting that the affordability index will decline once those higher rates are factored in. The last time the national affordability index was this low was when mortgage rates were around nine percent (in 1991). Regional affordability indices have also fallen, especially in the West.

How much of the drop in affordability has been due to house price increases and how much to increases in mortgage rates? The national affordability index fell by 19 points from September 2004 to September 2005. Over that time the median existing home price increased by over 14 percent and the prevailing mortgage rate increased by 20 basis points. Holding income constant, and alternatively holding the median sales price and prevailing interest rates constant, we find that 85 percent of the decline in the index over the past year came from the increase in the median sales price. Mortgage rate increases have been modest over the past year, while increases in income have outweighed any loss in affordability from the rise in rates.

by Calculated Risk on 11/21/2005 01:12:00 AM

From the WSJ: What's Behind the Boom James Haggerty of the WSJ looks at the future for the housing market:

Almost everyone agrees that prices can't keep rising this fast much longer. The debate now is whether the boom will lead to a soft landing, with gentler price increases, or to a long, painful bust, in which prices fall considerably in some places before buyers regain confidence.

However the current boom ends, longer-term forces are reshaping the housing industry. Here is a look at some of them.

If you are looking for an answer to the hard or soft landing question, Mr. Haggerty doesn't provide it. But he does provide an overview of ten factors impacting housing - from limited space in certain areas to risky loans to homeowners using their homes as a "piggy bank".

Haggerty does offer this chart to show that housing might not be overvalued (at the median):



If that 2nd chart is supposed to be comforting, I'm not sure why. Not only is "affordability" dropping rapidly, but the index is at levels not seen since the last housing bust in the early '90s!

by Calculated Risk on 11/20/2005 09:32:00 PM

My weekly post on Angry Bear: Construction Employment in the Inland Empire

Added from Dr. Thoma - A funny photo: The Consumption Boom

And in a related story from Reuters: Californians gamble on career in real estate

Real estate bubble or not, more and more Californians are betting on a future in selling homes.

Realtor hopefuls are arriving every day -- a troubling trend for veterans, say economists who note that there soon will not be enough homes for sale to support all the newcomers.

Nearly 2 percent of adults in California hold a license to sell residential property in the state, where $30,000 commissions on million-dollar homes have become commonplace.
...
"Some of these agents will be flushed out" of the industry, said economist Stuart Gabriel, director of the Lusk Center for Real Estate at the University of Southern California.

"It's difficult to imagine that there will be an adequate volume of home sales" that would sustain the new arrivals, he said.

Since the beginning of 2004, statewide sales activity among existing single-family homes has risen 2 percent, according to the California Association of Realtors. But during the same period, the population of agents grew 26 percent.
...
"There's a precarious situation out there right now," he said, citing frustration among novices who find themselves regularly outfoxed by more seasoned realtors.

Rohrbach added that if sales slow even moderately, "it's going to be more and more difficult for them to be earning a living wage."

by Calculated Risk on 11/19/2005 08:34:00 PM

Four articles on Housing and Employment.

From the NY Times: As the McMansions Go, So Goes Job Growth

THERE'S a growing consensus that the housing market is cooling off. ... ... in recent years, housing, real estate and the related industries have become a huge factor in another crucial economic area: employment growth.

After the brief and shallow recession of 2001, the resilient United States economy stubbornly failed to create payroll jobs at the rate of past recoveries. ... amid the gloom, the real estate sector shouldered the burden of job creation.

Asha Bangalore, an economist at Northern Trust in Chicago, tallied figures from the Bureau of Labor Statistics for sectors like construction, building material and garden supply stores. She found that from November 2001 to October 2005, housing and real estate accounted for a whopping 36 percent of private-sector payroll job growth. "In four years, 2.3 million private-sector jobs were created in the U.S., and 836,000 were related to the housing sector," she said.

...virtually all the labor associated with housing - the roofers, the investment bankers who securitize mortgages into bonds, the clerks at Home Depot - is based in the United States.

As a result of the boom, the economy is more concentrated on housing than ever before. "Residential investment as a share of gross domestic product is at the highest level in 50 years," said Jan Hatzius, senior economist at Goldman, Sachs.

Mark Zandi, chief economist at Economy.com, notes that real-estate-related industries accounted for 9.7 percent of total domestic employment in the second quarter of 2005, up from 9.0 percent in the fourth quarter of 2001. And in areas with the hottest markets, housing plays an even more important role. In California, 13.4 percent of jobs in the second quarter of 2005 were housing-related, versus 12.3 percent in the fourth quarter of 2001. In Las Vegas, the figure rose to 14.6 percent from 12.9 percent; in Panama City, Fla., it rose to 15.4 percent from 11.7 percent.

So what should we expect, now that housing appears to be cooling off?

... "Housing and the job markets are joined at the hip," Mr. Zandi said. "And if housing cools, so too will hiring and the job market more broadly, particularly in the more juiced-up housing markets."

If housing prices are flat in 2006 and residential investment falls 5 percent, there could be a direct loss of a few hundred thousand jobs related to real estate, Mr. Hatzius said. And the indirect effects will certainly be larger, Mr. Zandi said: "Housing is going to go from being a key contributor to the job engine to being a significant drag on job growth."

But there's some good news. Ms. Bangalore notes that while housing's contribution to job growth has declined in recent months, "other sectors are picking up the slack."

And now from the LA Times on California: State Posts Tepid Job Growth

Can [California] weather a softening housing market?

The real estate sector, including construction, mortgage finance and home sales, has been the state's single largest engine of job growth. Construction added 63,400 jobs in the last year, nearly double the 32,400 jobs added by the next-strongest category,
leisure and hospitality.

But amid rising mortgage rates, home price increases are stalling and sales activity is slowing. Homes are staying on the market longer, as sellers find it harder to get their asking prices. These factors could result in slowing job gains or even job losses like those that hit Orange-based Ameriquest Mortgage Co., which said Thursday it would cut 10% of its workforce nationwide.

And in Orange County, California, from the OC Register: O.C. Unemployment up as job growth slows

Construction employment in the county fell by 1,100 in October to 98,300 ... Financial activities, which include real estate, posted a slight increase of 100 jobs in October, but the number was unchanged from a year earlier at 132,500.

"We expected construction and financial activities to show gradual slowness in terms of job growth, and that's kicking in," said Esmael Adibi, an economist with Chapman University's A. Gary Anderson Center for Economic Research.
...
The figures released Friday don't reflect two big layoffs by Orange County companies this week.

On Thursday, ACC Capital Corp., the Orange-based parent of Ameriquest Mortgage, laid off 1,500 people nationwide. On Wednesday, Anaheim's Automotive Caliper Exchangeshut down, putting 300 people out of work. The impact of those layoffs should show up in November employment figures that EDD will release next month.

And finally, the Ameriquest announcement: Ameriquest parent cuts jobs

ACC Capital Holdings, the Orange-based parent of Ameriquest Mortgage Corp., said Thursday that it is laying off about 10 percent of its staff, or about 1,500 people nationwide.

"The mortgage industry is entering a challenging phase of rising interest rates," ACC Capital said in a statement. "In response to these changing market conditions, the ACC Capital Holdings family of companies is reducing its current workforce by
approximately 10 percent. In cyclical industries such as mortgage lending, periodic workforce reductions are not uncommon."

by Calculated Risk on 11/18/2005 07:12:00 PM

Much has been made about the Seasonally Adjusted October drop in housing starts and permits reported yesterday. As an example, Reuters reported:

"A sharp drop in U.S. housing starts and permits for new building in October pointed to some cooling in the red-hot real estate market...".

And the Indianopolis Star headline screamed:

"Housing starts plunge in October"

But did starts really "plunge"?


Click on graph for larger image.

This graph shows the NSA housing starts for the last four years. Every year housing starts decline in the fall, yet the October housing starts are still near the peak summer pace for 2004. That is hardly a plunge.


The second graph shows October housing starts since 1980.

Total starts in Oct, 2005 showed a small decline from Oct, 2004. But for one unit structures (SFR), 2005 was an all time record for October starts.

Hardly a plunge.

With rising inventories and rising interest rates, it is understandable that analysts are looking for confirmation that the housing market has slowed substantially. This isn't it.

Besides, permits and housing starts are historically lagging indicators for a housing slowdown. In addition to rising inventories, I believe the more timely indicators are falling mortgage applications and declining sales.

by Calculated Risk on 11/18/2005 05:47:00 PM

CNN reports: Homeowners with ARMs face big bill jump

The Mortgage Bankers Association estimates that some $330 billion worth of ARMs will adjust in 2006 and $1 trillion worth will reset by the end of 2007.

Since the average ARM loan is about $300,000, according to Freddie Mac, a trillion dollars probably represents more than 3 million homeowners who will face bigger bills in the next two years.

If you took out an 3/1 ARM for $300,000 back in late 2002, your initial interest rate was probably around 5 percent and your monthly payment has been about $1,610.
...
Your new payment: $1,995 a month -- a difference of $385, or more than $4,600 a year.

For more details on adjusting ARMs, see this NY Times article from June: The Trillion-Dollar Bet

by Calculated Risk on 11/18/2005 05:13:00 PM

The Financial Times reports:

The Organisation of the Petroleum Exporting Countries, the cartel that controls 40 per cent of world oil exports, will on Saturday lift a four-decade veil of secrecy and begin regularly to reveal how much oil it is actually pumping.

China and India, the fastest growing major oil consumers, will also supply consumption and storage data for the first time.

The Joint Oil Data Initiative (Jodi), which will be launched on Saturday in Riyadh by energy and finance ministers of the biggest oil producing and consuming countries, will meet a persistent demand of the Group of seven industrialised countries for more transparent energy data.

The price rise of the past three years, which this year saw oil hit nominal highs of $70.85 a barrel, could in part have been avoided by better data, analysts said. It would provide a more accurate basis for industry investment decisions, which in turn help determine long term supplies.

But analysts also suggested that the new database was unlikely to transform the currently unscientific art of guessing world demand and supply into a simple task.

One person close to Saturday's event said that the data would reveal little difference to existing output estimates for some countries including Saudi Arabia, the world's biggest oil producer but would show a five to 10 per cent disparity in the production levels of other Opec countries.

Traders said they would have to wait until the numbers came out to know whether they would move the oil price when markets reopen on Monday.

More transparency is a positive for the oil market, but it doesn't appear this will lead to more transparency on reserves - the key to peak oil predictions.

by Calculated Risk on 11/17/2005 10:15:00 PM

The SF Chronicle on the DataQuick report: Gaming the housing peak

A few added quotes:

"I don't get the feeling that prices have declined," [a potential buyer] said. "Homeowners are seeking prices that are in line with comps (comparable listings) of homes that sold a few months ago.''

John Karevoll, an analyst with DataQuick, said that is exactly what happens at the end of a real estate cycle. "We always see people trying to game the peak -- trying to get the most for their properties,'' he said.

According to Karevoll, this doesn't indicate a housing bubble about to burst but rather the end of a cycle in which sales will drop off and prices will reach a plateau.

In effect, the market had been robust because house seekers who would have waited to buy purchased this year instead because of low interest rates. "We were stealing (housing activity) from the future,'' he said.

Karevoll now expects a long lull in the market as it stabilizes.

Tapan Munroe, an economist and director for LECG, a worldwide consulting firm, agreed. "Sales are flattening, and prices are also going down a bit, but I doubt very much it is a bursting of a bubble. It's more like a slowdown and a soft landing.''

But Munroe said the situation could change if interest rates were to reach 7 to 8 percent. "That would certainly create a significant slowdown.''