by Calculated Risk on 1/22/2006 06:00:00 PM

The Ports of Long Beach and Los Angeles reported a seasonal decrease in import traffic for December.

Import traffic at the Port of Long Beach decreased 12.7% compared to November and was 1.2% less than December 2004. A total of 266 thousand loaded cargo containers came into the Port of Long Beach, compared to 305 thousand in November. The record is 313 thousand set in August 2005.

The Port of Los Angeles import traffic decreased 1.2% in December compared to November, but imports were up 16% from December 2004. Imports were 321 thousand containers. The record for the Port of Los Angeles was set in October with 368.5 thousand import containers.

For Long Beach, outbound traffic was down 3% to 104 thousand containers. At Los Angeles, outbound traffic was steady 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 lower in December than in November.

by Calculated Risk on 1/22/2006 01:03:00 AM

First, it is fairly clear, as pgl notes, that Iran is not currently an imminent threat to the US. But what about the economic issues with the "Iranian Oil Bourse"?

Dr. Hamilton has a nice post addressing that issue: Strange ideas about the Iranian oil bourse

I agree with Dr. Hamilton, but I'm afraid the actual economic impact (or lack of economic impact) doesn't really matter. What matters is what Bush / Cheney think. Although the Bourse is inconsequential, an attack on Iran could have significant economic implications.

In my economic predictions for 2006, I included this caveat:

So, without trying to predict natural disasters, a pandemic or human stupidity (terrorism, bombing Iran, etc.), ...

And for some reason I'm reminded of the fictional character Forrest Gump's quip: "Stupid is as stupid does." Lets hope the US is not stupid this time, otherwise $68/barrel WTI oil might look cheap, and my 2006 economic predictions wildly wrong.

by Calculated Risk on 1/20/2006 11:42:00 PM

Morgan Stanley's Chief Economist Stephen Roach writes: The Irony of Complacency

So far, so good, for an unbalanced world -- the sky has yet to fall.

... suffice it to say, were it not for another year of solid support from US consumer demand -- our latest estimates put real consumption growth at an impressive 3.5% in 2005 -- the rest of a largely externally dependent world would have been in big trouble.

What did it take for the American consumer to deliver yet again? ... With America’s internal income-generating capacity continuing to lag, US consumers once again tapped the home equity till to draw support from the Asset Economy. According to Federal Reserve estimates, equity extraction by US households topped $600 billion in 2005 -- more than enough to compensate for the shortfall of earned labor income. Comforted by this asset-based injection of purchasing power, consumers had little compunction in stretching traditional income-based constraints to the max. The personal saving rate fell deeper into negative territory that at any point since 1933, and outstanding household sector indebtedness -- as well as debt service burdens -- hit new record highs.

So much for what happened in 2005. The big question for the outlook -- and quite possibly the most important macro issue for world financial markets in 2006 -- is whether the American consumer can keep on delivering. My answer is an unequivocal “no.”

Roach is always interesting reading.

by Calculated Risk on 1/20/2006 10:44:00 AM

More on MEW, IBD reports:

As of the third quarter ... the home equity-piggy bank still looked bright and shiny.

Estimated gross equity extractions rose 10% from the previous quarter to a seasonally adjusted $990.6 billion, according to an update provided to Investor's Business Daily of a September Federal Reserve study on mortgage originations.

Extractions include money left over after a homeowner sells his home and pays off his mortgage, cash-out refinancings and home equity loans. It takes into account equity gains used for the down payment of a subsequent home purchase by excluding the buyer's estimated down payment.

Consumers had also dug more wealth out of their homes in the second quarter, with equity withdrawals rising 27% to an estimated $904.4 billion after falling for two prior quarters, said the Fed.

For the first nine months of last year, equity extraction totaled $2.6 trillion vs. $2.4 trillion for the same period of 2004 and over double withdrawals during all of 2000.

NOTE: This estimate of equity extraction is lower than my estimate of $289.5 Billion ($1.16 Trillion annual rate) for Q3. See GDP Growth: With and Without Mortgage Extraction). The difference is the FED's approach excludes buyer's estimated down payment for a subsequent home.

Goldman Sachs is concerned going forward:

... with sales and prices slipping at the end of 2005 and refinancing less attractive, economists have started to place bets on when the country's favorite piggy bank will finally start to crack. If and when that happens, consumers may have to cut back, slowing overall economic growth.

"We expect mortgage-equity withdrawals to decline and therefore not just stop supporting growth in spending and but actually act as a drag on spending," said Goldman Sachs economist Ed McKelvey.

That drag could happen mid-year, he said.

by Calculated Risk on 1/19/2006 02:51:00 PM

DataQuick reports: Decline in Bay Area home sales, prices

Home sales in the nine-county Bay Area declined on a year-over-year basis for the ninth month in a row in December as prices eased back from their November peak, a real estate information service reported.

A total of 9,347 new and resale houses and condos were sold in the region last month. That was down 3.8 percent from 9,717 for November, and down 15.5 percent from 11,068 for December last year ...

"Demand still seems to be there, but the sense of urgency seems to be a thing of the past. We don't expect the market to tumble, but we do expect price increases to level off between now and spring," said Marshall Prentice, DataQuick president.

The median price paid for a Bay Area home was $609,000 last month. That was down 2.6 percent from November's record high of $625,000, and up 14.3 percent from $533,000 for December a year ago. The annual price increase was the lowest since prices rose 13.1 percent to $474,000 in March 2004.

by Calculated Risk on 1/18/2006 05:11:00 PM

In my earlier post I plotted the weekly Mortgage Bankers Association (MBA) Market and Purchase indices since last June. It appears that the purchase activity has weakened a little over the last 6 months.


Click on graph for larger image.

The graph on the right is of the Purchase Index for the 3rd week in January for each of the last 9 years.

This clearly shows that purchase activity is still at a very high level according to the MBA.

by Calculated Risk on 1/18/2006 04:42:00 PM

The OC Register reports: $621,000: record price for O.C. homes

Orange County home prices finished the year at a new record high – $621,000.

DataQuick reported this morning that the median sales price for all local residences in December rose $5,000 from November's $616,000 to top the previous peak of $617,000 set in August.

Overall prices in O.C. are up 12.7 percent in a year. Condo prices had the strongest growth – up 17.9 percent in a year to $460,000. Detached homes rose 16.2 percent to $660,000. New-home prices, which include a recent surge in sales of apartments converted to condos, fell 8.8 percent to $702,000.

O.C. sales activity slowed to 3,826 for December – that's down 9.2 percent from a year ago and the slowest December for sales since 1996. For the year, Orange Countians bought 48,883 residences – up 2 percent from 2004.

O.C. trends mirror regional buying patterns. Southern California's median price in December was up 13 percent in a year to $479,000. Last month's sales volume was down 4.5 percent from December 2004.

The LA Times reports: SoCal Housing Market Cooled in 2005

Southern California's real estate market cooled in 2005 as the rate of appreciation slowed for the first time since 1999 and sales remained flat, according to a real estate report today.

The overall median price last year for the six-county region — spanning from San Diego to Ventura and east to San Bernardino — reached $460,000, up 16.5% on an annual basis. That is down from the 23% gain recorded in 2004, when Southern California was branded as one of the hottest housing markets in the country.

Starting in the second half of 2005, the Southland began to simmer down, as prices leveled off and the pace of sales waned and even declined at certain points.

The slowing trend continued last month, when sales fell 4.5% to 28,952, which was the fewest homes sold in any December since 2001, according to DataQuick Information Systems, the La Jolla-based research firm that compiles and analyzes property transactions.

And here is the DataQuick press release: Southland home sales down, lower appreciation

December home sales in Southern California fell to their lowest level in four years as price increases eased back another notch, a real estate information service reported.

A total of 28,952 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 4.8 percent from 27,637 in November, and down 4.5 percent from 30,317 for December last year, according to DataQuick Information Systems.

A decline from November to December is normal for the season. Last month's sales count was the lowest for any December since 24,913 homes were sold in December 2001. The Inland Empire bucked the regional trend and posted sales increases last month, led in part by record-breaking sales of newly-built homes.

"The frenzied part of this real estate cycle is behind us and what we're seeing so far is a normalizing of the market. Mid-market and entry-level homes are selling well, the move-up and prestige markets are leveling off. It'll be interesting to see how this plays out between now and spring, " said Marshall Prentice, DataQuick president.

San Diego was the weakest market in SoCal. As 2005 ended, price appreciation slowed and transaction volumes decreased.

by Calculated Risk on 1/18/2006 10:42:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Refinance Applications Up In Latest Survey

Click on graph for larger image.

The Market Composite Index — a measure of mortgage loan application volume was 613.3 -- an increase of 2.2 percent on a seasonally adjusted basis from 600.1 one week earlier. On an unadjusted basis, the Index increased 31.4 percent compared with the previous week but was down 10.9 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index decreased by 3.0 percent to 443.9 from 457.4 the previous week whereas the Refinance Index increased by 9.9 percent to 1645.2 from 1497.5 one week earlier.

Rates on mortgages decreased slightly again:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.07 percent from 6.08 percent on week earlier ...

The average contract interest rate for one-year ARMs decreased to 5.39 percent from 5.42 percent one week earlier ...

The MBA survey indicates RE activity is still at a fairly high level.

by Calculated Risk on 1/17/2006 05:27:00 PM

The housing boom has increased tax revenue and boosted the economies of "bubble" states. Naturally, many state and local governments are behaving as if the good times will last forever.

The SF Chronicle reports:

After touting his budget plan to increase funding for education and transportation, the governor sounded a cautionary note.

"It's important to remember, however, that our great good fortune is the result of a strong economy and a surging stock market. And anybody who follows the Dow, and particularly the Nasdaq, realizes how volatile these sources of funds are."

The governor was not Arnold Schwarzenegger, but Gray Davis as he released his budget six years ago when state coffers were brimming with $12.3 billion in extra cash.

And we all know what happened to the California budget and Gray Davis. Is Arnold making the same mistake?

Now, as the state's economy rebounds from the technology bust, some are questioning whether Schwarzenegger is venturing down a similar path by using a windfall in tax revenues on more spending when another key sector of the economy -- the real estate market -- shows signs of softening.
...
The robust economy has been driven by "real estate, real estate and real estate," said Christopher Thornberg, a senior economist at the UCLA Anderson Forecast. He said that market is already starting to cool.

"The question is how much does it cool and how hard," he said, adding that the governor's budget doesn't seem to take the possibility into account. "There doesn't seem to be any contingency planning. There's no downside slack in this budget."

And on a related note, the OC Register is reporting: Late taxes hint at housing's toll

A yellow warning light is shining on the Orange County real estate market's dashboard.

The number of delinquent property tax payments has reached the highest level in a decade.

This worrisome trend may be evidence that high purchase prices and burgeoning payments on popular adjustable mortgages as interest rates rise may finally be taking a toll on the budgets of local property homeowners.

by Calculated Risk on 1/16/2006 05:03:00 PM

The Union-Tribune reports: House resales take a tumble in December

San Diego County resale house prices tumbled last month by the biggest number in 18 years of record-keeping and contributed to the smallest year-to-year rise in overall prices in six years, DataQuick Information Systems reported Monday.

The median resale price for existing single-family homes dropped $15,000 from November to December to stand at $550,000, the largest month-to-month decline since DataQuick began keeping records in 1988.

However, last month's figure was still ahead of what it was in December 2004 by $25,000, or 4.8 percent.
...
Last year was the first time since 2001 that the number of home sales fell from the previous year. The total sold last year was 55,366, down 9.1 percent from 2004's 60,886.
...
On Thursday, the San Diego Association of Realtors, which monitors about 60 percent of the housing market, reported that properties took longer to sell in 2005 than in 2004 – lingering on the market for, on average, 62 days last year compared to 54 in 2004.

And the total number of listings has been growing, reaching a peak of just over 15,000 listings in November, about five times more than at the peak of the buying frenzy in spring 2004.

Rising inventories, fewer transactions and now lower prices.

DataQuick will report on the rest of California over the next few days - it will be interesting to see if other areas are reporting falling prices - San Diego (along with Boston) has been leading the way into this slowdown. Also inventories probably declined in December as many sellers removed their properties from the market for the holidays. I expect inventories to start rising again in the January report.