by Calculated Risk on 12/23/2005 10:11:00 AM

According to the Census Bureau report, New Home Sales in November were at a seasonally adjusted annual rate of 1.245 million vs. market expectations of 1.30 million. October's record sales were revised down slightly to 1.404 million from 1.424 million.


Click on Graph for larger image.

NOTE: The graph starts at 700 thousand units per month to better show monthly variation.



The Not Seasonally Adjusted monthly rate was 85,000 New Homes sold, down from a revised 110,000 in October.

On a year over year basis, November 2005 sales were 1% higher than November 2004.



The median and average sales prices are trending down.

The median sales price of new houses sold in November 2005 was $225,200; the average sales price was $283,300.



The seasonally adjusted estimate of new houses for sale at the end of November was 503,000. This represents a supply of 4.9 months at the current sales rate.

The 503,000 units of inventory is the all time record for new houses for sale. On a months of supply basis, inventory is above the level of recent years.

This report is still reasonably strong.

by Calculated Risk on 12/22/2005 03:01:00 PM

The Ports of Long Beach and Los Angeles reported mixed import traffic for October.

Import traffic at the Port of Long Beach increased 2.0% compared to October. A total of 305 thousand loaded cargo containers came into the Port of Long Beach, compared to 299 thousand in October. The record is 313 thousand set in August 2005.

The Port of Los Angeles import traffic decreased 11% in November. Imports were 325.1 thousand containers, off from the record set in October for the Port of Los Angeles of 368.5 thousand containers.

For Long Beach, outbound traffic was up 3.6% to 107 thousand containers. At Los Angeles, outbound traffic was flat at 98 thousand containers.

The quantity of containers says nothing about the content value, but provides a rough guide on imports from China and the rest of Asia. Given these numbers, I expect imports from Asia to be about the same in November as in October.

by Calculated Risk on 12/21/2005 09:05:00 PM

From the Financial Times, Martin Wolf discusses the world economy:

Podcast: The surprises of the past year

Wolf's discussion starts a little slow, reciting a number of growth statistics, however the second half of the podcast regarding global imbalances is interesting.

by Calculated Risk on 12/21/2005 10:38:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Application Volume Down In Latest Survey

The Market Composite Index — a measure of mortgage loan application volume was 594.6 -- a decrease of 4.0 percent on a seasonally adjusted basis from 619.3 one week earlier. On an unadjusted basis, the Index decreased 5.2 percent compared with the previous week and was down 15.2 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 5.2 percent to 453.1 from 477.9 the previous week, whereas the Refinance Index decreased by 1.6 percent to 1418.1 from 1441.8 one week earlier.

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.

Mortgage rates decreased slightly again last week:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.22 percent from 6.28 percent on week earlier ...

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.76 percent from 5.83 percent ...

Overall this report shows purchase activity might be weakening, but it is still at a very high level.

by Calculated Risk on 12/20/2005 01:28:00 PM

From the FDIC: Federal Financial Regulatory Agencies Propose Guidance on Nontraditional Mortgage Products

UPDATE: I think this paragraph has the most teeth:

Collateral-Dependent Loans – Institutions should avoid the use of loan terms and underwriting practices that may result in the borrower having to rely on the sale or refinancing of the property once amortization begins. Loans to borrowers who do not demonstrate the capacity to repay, as structured, from sources other than the collateral pledged are generally considered unsafe and unsound. Institutions determined to be originating collateral-dependent mortgage loans, may be subject to criticism, corrective action, and higher capital requirements.

This is essentially a warning not to rely on the value of the property to bail out the home buyer. The teeth are "criticism, corrective action, and higher capital requirements.", with the higher capital requirements being the only significant penalty.

The Press Release:

The federal financial regulatory agencies today issued for comment proposed guidance on residential mortgage products that allow borrowers to defer repayment of principal and sometimes interest.

These nontraditional mortgage products include "interest-only" mortgage loans where a borrower pays no principal for the first few years of the loan and "payment option" adjustable-rate mortgages where a borrower has flexible payment options, including the potential for negative amortization. Institutions are also increasingly combining these mortgages with other practices, such as making simultaneous second-lien mortgages and allowing reduced documentation in evaluating the applicant’s creditworthiness.

While innovations in mortgage lending can benefit some consumers, the agencies are concerned that these practices can present unique risks that institutions must appropriately manage. They are also concerned that these products and practices are being offered to a wider spectrum of borrowers, including subprime borrowers and others who may not otherwise qualify for more traditional mortgage loans or who may not fully understand the associated risks of nontraditional mortgages.

The proposed guidance discusses the importance of carefully managing the potential heightened risk levels created by these loans. Toward that end, management should:

* Assess a borrower’s ability to repay the loan, including any balances added through negative amortization, at the fully indexed rate that would apply after the introductory period. The agencies recognize that this requirement differs from underwriting standards at some institutions and are specifically requesting comment on this aspect of the guidance.

* Recognize that certain nontraditional mortgage loans are untested in a stressed environment and warrant strong risk management standards as well as appropriate capital and loan loss reserves.

* Ensure that borrowers have sufficient information to clearly understand loan terms and associated risks prior to making a product or payment choice.

Comment is requested on all aspects of the guidance, particularly on the section regarding comprehensive debt service qualification standards. Comments are due sixty days after publication in the Federal Registrar. The guidance is attached.

Interagency Guidance on Nontraditional Mortgage Products

by Calculated Risk on 12/19/2005 08:52:00 PM

CNN Money asks: Is the party over?

The article includes "exclusive forecasts" for the 100 largest markets.

... the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.

Indeed, at some point in the next two years, according to the forecast, a third of the nation's 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.

Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops.

As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice. But in the long run the loss of wealth becomes all too real. From 1989 to 1997, for instance, Los Angeles residential real estate dropped more than 40 percent in inflation-adjusted terms.

The nation's most perilous regional market, according to the forecast data: Las Vegas, a speculator-infested hot spot. Prices there are projected to deflate by 7.9 percent next year, the year after by another 5 percent. For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.

Check out the table at the bottom of the article. I think some of these projections are a little optimistic. Will San Antonio home prices increase 15% over the next two years? Will Boston stay flat, even with 8+ months supply (and growing)?

by Calculated Risk on 12/19/2005 03:13:00 PM

Please see Angry Bear for National Association of Home Builders HMI excerpts and links to historical tables.


Click on graph for larger image.

This graph shows New Home Sales vs. the NAHB traffic index from 1988 to 1991. Both series are seasonally adjusted and are normalized to 1988 = 100.

It appears that the NAHB index was generally a coincident indicator for New Home Sales in the previous housing slowdown.

With the fall in the NAHB HMI, I expect a similar fall in New Home Sales on Friday.

by Calculated Risk on 12/18/2005 03:40:00 PM

From Knight Ridder: Boom likely over in housing market. The article contains comments from FDIC Chief Economist Richard Brown and Federal Reserve Bank of Chicago Senior Economist Richard Rosen.

...homeowners will no longer be able to use houses as piggybanks, cashing in on gains in appreciation periodically through low-cost refinancings. And many will be forced to hold on to a house or condominium for a long time as they wait for prices to rise.

The problem is that rising mortgage rates are putting an end to the easy money that underpinned increasing home prices, said Richard Brown, chief economist of the Federal Deposit Insurance Corp. in Washington.

"Price increases have far outstripped income growth for a long time, particularly in the last two years, but that period is coming to an end," he said.

The so-called golden age for mortgage lending is about over after lasting about 20 years, he said.

"The end of the boom probably is not far away," Brown said. "It likely will lead to a long period of price stagnation, but not technically a bust."

And from Federal Reserve Bank of Chicago Senior Economist Richard Rosen:

Home prices "have been rising far more rapidly than rents for the last four years. This probably is what Federal Reserve Chairman Alan Greenspan meant when he pointed to froth in the housing market," said economist Richard Rosen of the Federal Reserve Bank of Chicago.

He said a huge drop in long-term mortgage rates since 1985, when they were around 12 percent, to a recent rate near 5 percent "meant that you could afford more house for the same monthly payment."

Rosen compared the United States with Britain, where mortgage rates have been rising for about two years. Here, the uptick in rates began later.

"In Britain, if housing was a bubble, it didn’t burst," he said. "When mortgage rates rise, prices flatten, but they may not actually decrease."

One warning sign for the housing market, Rosen said, is that more and more owners are putting property on the market, and real estate is taking longer to sell.

"The risk is that if sales slow, there will be too much supply, creating price risk," he said.

Note: this article was orginally published on Dec 9th.

by Calculated Risk on 12/18/2005 01:58:00 AM

From the Washington Post: Agents Aplenty Career-Jumpers Looking For Easy Commissions Made a Low-Percentage Play

The story is interesting, especially these facts:

Seduced by the housing boom and its promise of ever-higher prices with ever-bigger sales commissions for agents, the number of licensees in Maryland, Virginia and the District has just about doubled in the past six years, according to local licensing agencies, with the Northern Virginia real estate association adding about 300 new agents a month. Nationally, the number of licensees was at a record high of more than 2.5 million at the end of 2004.

The previous post showed the increase in agents for California. It appears the D.C. area had a similar increase. But now that the market appears to be slowing:

... a slowing of the market could have big consequences. When the housing market slumped the last time, about 20,000 salespeople and brokers in Maryland jumped ship from 1990 to 2000, regulators said.

Craig Cheatham, chief executive of the Association of Real Estate License Law Officials, said, "I think by now that, with the number of people who are out there in real estate, there are a lot of people who are not making money."

But the NAR says its surveys show that real estate never has been "something you get rich quick in," said spokesman Walter Molony. In its latest survey, in August, those in the business for two years or less earned only $12,850. However, for those with more experience, the past two years were very good. Those with six to 10 years' experience earned a median $58,700, up 18.6 percent from 2002. Those who had at least 26 years earned $92,600, up 37.2 percent.

by Calculated Risk on 12/16/2005 05:34:00 PM

One thing with housing is certain, the Real Estate agent boom continues unabated.


Click on graph for larger image.

This graph shows the number of licensed Brokers and salespeople in California for each November.

The California Department of Real Estate reports the total number of agents in California is now 471,818, up 1.1% from last month, and up 13.7% from last November.

Also California's EDD reported today for November:

Within nonfarm industries, nine sectors saw month-over seasonally adjusted job gains and two sectors saw month-over job declines. Sectors with increased employment, in order of job gain, were:

Construction (8,000);
Trade, transportation and utilities (7,900);
Professional and business services (7,200);
Information (6,100);
Financial activities (1,300);
Leisure and hospitality (1,300);
Manufacturing (500);
Other services (300); and
Natural resources and mining (100).

The good news is the state added jobs in a number of sectors, but construction employment is still the strongest sector - even during a period when, according to the EDD: "It is not unusual to see [construction employment] soften towards the end of the year."