by Calculated Risk on 4/18/2006 03:01:00 PM

This morning, DataQuick released their March report on the Southern California housing market: Southland passes half million mark

The median price paid for a Southern California home passed $500,000 for the first time last month as sales continued to decline, the result of higher mortgage interest rates and a real estate cycle that has passed its frenzy phase, a real estate information service reported.

On San Diego, DataQuick noted:

"San Diego County is still the market furthest along in this cycle."

DataQuick reported that prices in San Diego increased 5.7% on a YoY basis. However, for the first quarter, prices declined 2.3% in San Diego.

So far, DataQuick is only showing quarterly price declines in San Diego and Ventura counties in Southern California.

by Calculated Risk on 4/17/2006 08:09:00 PM

The Ports of Long Beach and Los Angeles reported record exports for March and very strong imports.

Import traffic at the Port of Long Beach increased 11.9% compared to February and was 34.4% higher than March 2005. A total of 282 thousand loaded cargo containers came into the Port of Long Beach, compared to 252 thousand in February.

For the Port of Los Angeles, import traffic increased 37.6% in March compared to February, and imports were up 33% from March 2005. March imports were 341 thousand containers.

For both ports, exports traffic set all time records. For Long Beach, outbound traffic was up 8% to 118.7 thousand containers. At Los Angeles, outbound traffic was up 19% to 128 thousand containers.

The previous export record for Long Beach was 110.7 thousand containers set in August 2005. For Los Angeles, the record was 115 thousand containers set in March 2005.

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 record exports to Asia for March and even stronger imports.

Are we looking at the first $70 Billion monthly trade deficit (for March)? Maybe.

by Calculated Risk on 4/17/2006 02:30:00 PM

The National Association of Home Builders reports: Builder Confidence Declines In April


Click on graph for larger image.

Excluding the brief impact of 9/11/2001 on the housing market, the Housing Market Index is at the lowest level since February 1996 - the end of the previous housing down cycle. From the NAHB:

Rising mortgage rates, continued affordability issues and subsiding demand from investors/speculators are prompting single-family home builders to adjust their perspectives on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for April, released today. The HMI declined four points from a downwardly revised reading in the previous month to hit 50 for the latest report.
...
"With mortgage rates back up to the 6.5 percent range and serious affordability issues in the highest-priced markets, today’s HMI numbers are neither surprising nor alarming," noted NAHB Chief Economist David Seiders. "Indeed, a reported reduction in home buying by investors/speculators in the market for new single-family homes is a positive development.

Furthermore, we expect solid growth in employment and household income to essentially offset the minor increases in the interest-rate structure that we’re projecting for the balance of this year."
...
All three component indexes slipped this month, with the largest decline registered for current single-family sales. That component declined five points to 54 in April, while the component for sales expectations in the next six months was down four points to 58 and the component gauging traffic of prospective buyers declined a single point to 39.

by Calculated Risk on 4/17/2006 01:50:00 AM

Carolina Baum writes: Banks Have No Exposure to Mortgages? Think Again.

Every time the subject of banks making risky home loans to bad credit risks -- no money down, no questions asked -- the usual retort is that banks sell the mortgages. They aren't at risk. It doesn't matter if the loan stops performing because they don't own it.

That's not exactly true. According to the Federal Reserve's Flow of Funds report for the fourth quarter of 2005, mortgages accounted for 32 percent of commercial banks' financial assets. Throw in agency- and mortgage-backed securities, and the exposure to outright and securitized mortgage loans is 44 percent.

However the data doesn't tell which loans the banks have kept. Most banks claim they have kept the better quality loans (low LTV).

A few statistics:

-- 43 percent of first-time home buyers made no down payment last year, according to a study by First American Corp.

-- 22 percent of the borrowers with initial interest payments of 2.5 percent or less have negative equity in their homes (the principal balance is greater than the size of the initial loan); 40 percent have less than 40 percent equity.

-- About one-quarter of the jobs created since the 2001 recession have been in construction, real estate and mortgage finance.

by Calculated Risk on 4/16/2006 11:57:00 PM

My post on Angry Bear: $70 Oil.

The spot price for wholesale unleaded gasoline just hit $2.12 per gallon, up almost 15 cents in the last week. The gasoline balance in charts from the DOE's This Week In Petroleum.


Domestic gasoline production is still below 2005 levels for the same period. Falling production is a typical pattern for this time of year as refineries shift blends. Also, according to the DOE, there has been "unusually high refinery maintenance in the U.S. ... this spring".




Luckily gasoline imports are still higher than last year. Of course this adds to the trade deficit.




Meanwhile the demand for gasoline keeps rising.


And the end result is falling stocks. However stocks are still in the normal range for this time of year, and domestic production should increase over the next few weeks. Still a 15 cent rise in the wholesale price should lead to higher prices at the pump in the next couple of weeks. Gasoline is already close to $3.00 per gallon for regular unleaded in my town.

by Calculated Risk on 4/14/2006 11:14:00 AM

Here are three articles on house prices and sales volumes:

From the San Diego Union: San Diego housing market continues cooling trend

... the San Diego region's housing market continued its slow cooling trend in March, which marked the 11th month in a row of single-digit price gains.

The end of the first quarter also marked the 21st consecutive month in which sales volumes were down on a year-over-year basis, DataQuick Information Systems reported Thursday.
...
Last month's overall sales count was 4,146, a decline of 17 percent from March 2005. That was the lowest count for March since March 1998, when 4,016 homes sold.

The pace of resale condo sales fell by nearly 30 percent to 841 units, compared to the same month last year. That was a gain over February's resale condo tally of 657 units, however.

The overall median price for all homes sold was $504,000, a 5.7 increase over March 2005 and a slight rise over February's median of $502,000. The county hit a record overall median price of $518,000 in November 2005.

From the LA Times: Housing Prices in L.A. Aren't Letting Up

In March, the median hit $506,000, up 15% from a year earlier and 3% above the prior month, according to DataQuick Information Systems, a La Jolla-based research firm that analyzes property transactions.

Los Angeles County thus joined Orange, Ventura and San Diego counties in crossing the half-million-dollar mark, keeping Southern California's place among the nation's priciest housing markets. Orange and Ventura counties' medians sailed through the $600,000 level in the middle of last year, and San Diego's broke through the $500,000 point last fall.
...
Sales volumes are slowing while more homes are coming on the market. In March, 9,755 homes changed hands in L.A. County, a 10.3% decline from a year earlier, and the fifth straight month of falling sales.
...
Today's combination of prices rising more slowly, fewer sales and growing supply are typical of the first phase of a slowdown, UCLA economist Christopher Thornberg says.

"Prices are still going up, because they always go up even when the market starts to cool," he says. "It will take six to nine months for a cooling market to start to see lower prices. It happens time after time."

From the Arizona Republic: Median resale housing prices still dropping

Median resale housing prices kept falling through most of the Southeast Valley in March, mainly because there are so many more homes on the market. But it's still too early to say if this will continue for the rest of the year.

The main exception was Ahwatukee Foothills, where prices jumped 6 percent from February to March, to $364,250. But that is still below its December median of $386,250. Median home prices from February to March fell 5 percent in Gilbert to $322,500, and almost 4 percent in Tempe to $288,400.

Prices in Mesa, meanwhile, fell less than 1 percent to $243,500, and 1.6 percent in Chandler to $295,000.

by Calculated Risk on 4/13/2006 10:47:00 PM

Dr. Tim Duy presents another Fed Watch: Policy in Transition. Excerpt:

"... recent data reveals that the economy enjoys enough momentum to justify another rate hike in May. That is something of a given at this point; the real question is the June meeting. I continue to feel that the Fed would like to take a pass at that meeting on the expectation of slowing economic growth, but make it clear that the odds of tightening beyond that remain about 50%. The question is whether the data will continue to support such a move, especially since policymakers would likely risk somewhat higher interest rates now to avoid even more aggressive hikes later. Particularly important is the relative impact of possible higher commodity prices versus expectations of slowing demand growth.

Another possible path comes to mind. As the play on housing becomes less stimulative, will market participants find yet another asset play to maintain household wealth? ..."

Interesting speculation! And just a reminder, every Monday, Dr. Dave Altig presents the market based probablities on Fed Funds rates.

by Calculated Risk on 4/13/2006 08:15:00 PM

One year ago, Gary Watts predicted:

Watts expressed his enthusiasm this way: The recent $100 increase in monthly payments - or $1,200 a year - is nothing compared to what he predicts is Orange County home-price appreciation potential: as much as $70,000 a year.

"There's too much emphasis on interest rates in the marketplace," Watts said. "Who wouldn't trade $1,200 for $70,000?"

At that time (March 2005), the median Orange County home was selling for $555K according to DataQuick.

DataQuick announced today that the median Orange County house is selling for $625K.

That is an increase of $70K in one year.

Watts prediction for 2006:

"Fifteen percent is pretty much in the bag for Orange County in 2006," [Gary Watts] says. "It's impossible for prices to go down this year."

by Calculated Risk on 4/13/2006 02:51:00 PM

At the Bankers and Business Leaders Luncheon in Kansas City, Federal Reserve Governor Donald L. Kohn spoke on the economic outlook today. Overall Kohn was very positive on the economy, but expressed some concern about the housing market:

"If the past is any guide, the effect of rising interest rates is likely to be felt most visibly in housing markets. The rate for a thirty-year, fixed-rate mortgage is up 70 basis points from its level in the middle of last year, and one-year adjustable-rate mortgages have risen more than 100 basis points over the same period. In addition, house prices have increased considerably relative to rents, incomes, and returns on alternative assets. Already there have been signs that housing demand has begun to moderate. Sales of both new and existing homes are down substantially from their levels last summer, and information on mortgage applications and pending home sales point to further softening in the next few months. With demand slowing, house prices also seem likely to decelerate. Indeed, we are beginning to see hints of moderation in some of the data on housing prices.

As a consequence, spending for new housing construction, after contributing nearly 1/2 percentage point to overall GDP growth last year, may not increase much this year. Moreover, the slowdown in house price increases could well hold back growth in consumption spending on a wide variety of goods and services. The rapid run-up in prices over the past few years and hence in household wealth, perhaps combined with the increasing ease of tapping that wealth, probably has been a major reason that households have been saving so little of their current flow of income. As house-price appreciation slows, the personal saving rate likely should begin a gradual ascent.

To be candid, however, the behavior of the housing market and the response of spending are among the great uncertainties about the economic outlook. I have sketched a benign scenario of gradual adjustment that lines up very nicely with the Federal Reserve's assessment that overall growth should slow to a sustainable pace. But our ability to predict asset prices is very limited, especially when the trajectory of those prices is shifting, as that of house prices appears to be doing right now. Moreover, we have particular difficulty in assessing how consumers will respond to changes in their perceptions of future capital gains and actual home prices. The housing market and its effects on spending will be among the areas that Tom and I and our colleagues on the FOMC will be monitoring most closely as we try to discern the emerging pattern of economic activity and inflation."

by Calculated Risk on 4/13/2006 02:17:00 PM

From the Contra Costa Times: State's housing market retreats. The Contra Costa Times excerpts from a new Wells Fargo report on the California economy.


Click on graph for larger image.

Wells Fargo provides this graphic of unsold inventory in California by county. The caption reads:

California housing inventories can no longer be considered lean. Orange County and San Diego appear most at risk for near-term home price deceleration.

From the Times article:

The housing market in California has fallen into a visible slump, and the downturn could erode economic expansion in fast-growing regions such as the East Bay, economists warned Wednesday.

Existing home sales have skidded, houses now languish on the market for longer periods, and the rate of home building has slowed, according to the report issued by Wells Fargo Bank.

...the Wells Fargo economic study warned of a chill for real estate.

"California housing market conditions have noticeably deteriorated since September," Scott Anderson, Wells Fargo senior economist, wrote in his report.
...
"The California housing market may have skipped a beat, but the patient is not dead yet," Anderson stated in his study. "The decline so far appears manageable for the industry as well as for the California economy."

Still, some of the recent trends in housing portray a sector in retreat from the white-hot levels of the last years:

• Existing home sales statewide "plunged" in November, with an 11.2 percent decline; in December, with a 17.6 percent drop; and in January, with a 5.9 percent setback, Wells Fargo reported, citing data released by the California Association of Realtors.

• Unsold inventories of detached houses rose to 6months in January, far above the 3.2 months that houses remained unsold in January 2005.

• Statewide housing permits have drooped 11 percent below last year's pace.

• Median prices have been "nearly flat" in the last six months, although they remain 13.8 percent above the levels of a year ago.