by Calculated Risk on 5/19/2006 11:12:00 AM

A couple of quotes from the UCLA Anderson Forecast economists:

"The housing market was like a rocket that has gone up and now it's lost its fuel. Some people think it will stay suspended up there magically. We think it's going to come back to Earth -- sales will drop even more, and then next comes weakness in pricing."

Dr. Leamer, May 18, 2006

"Appreciation (in Bay Area) has been flat for six months. This is how a real estate bubble pops. It's not a price pop. It's a volume pop. ... It's not going to be pretty."

Dr. Thornberg, May 18, 2006

Both Leamer and Thornberg think prices will remain flat for a number of years unless the job market deteroriates (see Phoenix). In addition to jobs, I'd be concerned about any area with a heavy concentration of exotic mortgages. Either the loss of jobs, or rising foreclosures due to execessive leverage, could lead to significant price declines.

by Calculated Risk on 5/19/2006 10:39:00 AM

The Arizona Republic reports: Housing decline triggers layoffs

Home builders are laying off construction superintendents, subdivision sales agents, finance specialists and other employees, a telling sign that metropolitan Phoenix's new-home market has taken a radical turn from last year's selling frenzy.

Builders are struggling with reduced demand brought on by skeptical buyers hit with higher prices and rising interest rates. The pileup of unsold houses helped push Valley home building down nearly 24 percent in March and more than 16 percent in the first quarter, following a record 2005.

Many of these jobs are relatively high paying with skills that do not transfer easily to other high paying jobs. So these people might have to sell their homes too, putting even more pressure on the Phoenix housing market.

The Phoenix economy is especially vulnerable to a housing slowdown:

Housing is the Valley's biggest industry. At least one of every $3 in the area's economy is generated by housing, according to Republic research. A downturn in home building will be felt throughout the state's economy.

by Calculated Risk on 5/19/2006 02:21:00 AM

From AP: Former Fed Chair Alan Greenspan Says Housing Boom Over and Consumer Spending Could Taper

Former Federal Reserve Chairman Alan Greenspan said Thursday that Americans' consumption could taper off somewhat now that the U.S. housing market's "extraordinary boom" has ended.

Greenspan, in his first public U.S. speech since retiring in January from a storied tenure leading the Fed, predicted there is no danger of a total collapse of the housing market.

His comments come on speculation the Fed could pause its cycle of rate hikes as a housing slowdown feeds a cooling of the U.S. economy.

"This has been quite an extraordinary boom," Greenspan said in remarks at the Bond Market Association's 30th anniversary dinner in New York. "Home sales are off, applications are off, everything is going in the same direction. The boom is over, and you can say that with a fairly strong degree of confidence."

Greenspan said he doesn't see home prices falling on a national basis, but instead in certain areas of the country. He warned reduced access of Americans to equity loan extraction would have an economic impact, which has had an "important effect" in stimulating the economy.

by Calculated Risk on 5/18/2006 02:59:00 PM

DataQuick reports on the California Bay Area: Bay Area home sales and appreciation slow; new price peak

Bay Area home sales in April dropped to their lowest level in five years as prices slowly reached a new peak, a real estate information service reported.

A total of 8,358 new and resale houses and condos were sold in the nine-county region last month. That was down 14.2 percent from 9,745 for March, and down 25.1 percent from 11,158 for April last year, according to DataQuick Information Systems.

Last month was the slowest April since 2001 when 7,193 homes were sold. April's year-over-year decline in sales was the steepest since November 2001 when sales dropped 27.2 percent to 6,644 from 9,122 one year earlier.

"These are strange times for forecasters and analysts. Are we heading into a market lull? Or are we seeing the beginning of a significant downturn? Many of the fundamentals for housing are at a crossroads: Inflation, interest rates, demand, household incomes, prices, and whether homes are a good investment compared to other investments. Summer is going to be interesting to say the least," said Marshall Prentice, DataQuick president.
...
Indicators of market distress are still largely absent. ... Foreclosure rates are coming up from last year's low point, but are still below normal levels.

I agree, Summer will be "interesting to say the least"!

by Calculated Risk on 5/18/2006 02:38:00 PM

From the WSJ: Studies Find Higher Loan Delinquencies Stemming From 2005's Lending Boom

To be sure, mortgage delinquencies remain low by historical standards. But experts worry the trend could worsen. With the housing market cooling and interest rates rising, "by the end of the year you could see a substantial increase in delinquency rates" for mortgages, says Thomas Lawler, a former Fannie Mae economist and now a private housing consultant.

Mortgage delinquencies historically peak around three years after loans are made, which means some of the more aggressive loans made last year might experience their biggest problems in 2008. However, some borrowers with adjustable-rate mortgages could see problems sooner. Others, who took out exotic mortgages such as interest-only loans and option ARMs that hold down monthly payments in their early years, could run into trouble later, when payments reset. Still, there are early signs that even some of these non-traditional mortgage loans are starting to be squeezed by rising interest rates.

Borrowers who took out mortgages in the past two years are likely to be more vulnerable should home prices fall because they could wind up owing more than their home is worth. Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth, according to a study completed this year by Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions, a unit of First American Corp. That compares with 10.6 percent of those who took out loans in 2004.

With so many homeowners with so little equity, Bernanke's "orderly" housing slowdown could get a lot worse!

by Calculated Risk on 5/18/2006 12:02:00 PM

From Reuters: Bernanke sees cooling housing market

The current cooling in the U.S. residential housing market looks to be orderly and moderate at this time, Federal Reserve Chairman Ben Bernanke said Thursday.

"In combination with rising interest rates affordability is becoming much more difficult and therefore as you would expect you are seeing some cooling in those markets," Bernanke said in a question and answer session after speaking to the Chicago Fed conference on banking regulation.

The central bank is watching carefully for signs that the slowdown might be faster than expected, Bernanke said.

Still, with the U.S. labor market strong and incomes rising, 2006 could still turn out to be a pretty strong year for real estate, he said.

So far the slowdown has been orderly, but there are definite warning signs of both rising inflation and a slowing economy.

by Calculated Risk on 5/18/2006 10:48:00 AM

The National Retail Federation released the results of a new survey today: Survey Finds Consumers Adjusting to Higher Prices at the Pump

While consumers have seemed resilient in the face of higher energy costs, a tipping point may soon be in sight. According to the National Retail Federation’s (NRF) 2006 Gas Prices Consumer Intentions and Actions Survey, 76.0 percent of consumers believe fluctuating gas prices have impacted their spending habits, up from 67.2 percent in 2005 and 56.8 percent in 2004. The survey will be featured as the cover story in the June 2006 issue of STORES Magazine.

Consumers say they will find a variety of ways to cope with higher prices. Most (44.8%) say they will simply drive less. Additionally, 37.2 percent of those surveyed say they plan to decrease vacation and/or travel, 36.2 percent will cut back on dining out, while only 22.2 percent will delay a major purchase such as a car or television. Also, eight percent of respondents say they will carpool, almost double the amount from the previous year (4.5%).

While the luxury market has been particularly immune to the rise in gas prices, new evidence suggests that even the recession-proof shopper may start pulling in the reins. According to the study, 69.3 percent of affluent shoppers (with household incomes of $50,000 or higher) concede that gas prices are negatively affecting spending, compared to 59.1 percent in 2005.

And from the Stores cover story: Are Shoppers Running Out of Gas?

With per-gallon prices now at or above $3 in many parts of the country, there are signals that often-impulsive shoppers are dangerously close to running out of gas.

Right now they’re in cost-cutting mode — driving and dining out less and scaling back on discretionary spending.

by Calculated Risk on 5/17/2006 10:07:00 PM

MarketWatch has the story: Housing slowdown behind rise in inflation

Beneath the surface of rising core consumer prices over the past two months lies a disturbing trend: The slowing housing market is actually making inflation look worse, economists said.

The housing sector makes up 40% of the consumer price index, which increased 0.6% in April.
...
In the heady days of the booming housing market, more people were buying homes, and fewer were renting, economists said. Supply and demand kept rents comparatively low, and inflation appeared to be contained -- despite the run-up in home prices. But this virtuous circle is now reversing.

With home prices remaining high and mortgage rates rising, more people are being priced out of the real-estate market and are instead looking to rent. This increased demand is pushing up rents.
...
At the same time, the supply of rental properties has been constrained, as many former rental properties have been converted into condominiums, said Mark Vitner, senior economist at Wachovia Corp.

"This dynamic, once it begins, is fairly sticky," said John Ryding, chief U.S. economist at Bear Stearns. "This raises the risk of higher inflation going forward."

Perversely, this slowdown in the market is also pushing up the costs of owning a home, at least, the cost as reported by the government.

The way the government computes the CPI has created a distortion that made inflation look tame when home prices were soaring, but is now making inflation look worse as price gains moderate. It's all because the government measures everyone's housing costs -- renters and homeowners by looking at rents, not at the cost of owning.

by Calculated Risk on 5/17/2006 05:24:00 PM

pgl at Angry Bear notes this comment from Treasury Secretary Snow:

"One thing is pretty clear. With these strong revenues and the continuing attention to spending, the deficit is getting on the right path," Snow said. "The president's target of cutting the deficit in half is going to be met - is going to be exceeded - and that will be done ahead of schedule."

Meanwhile, back in the REAL World ... the deficit will probably set another nominal record this year and will most likely increase significantly next year. The Bush Administration makes this false claim every year (sometimes several times per year).

by Calculated Risk on 5/17/2006 10:25:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Application Volume Up

The Market Composite Index, a measure of mortgage loan application volume, was 588.0, an increase of 4.6 percent on a seasonally adjusted basis from 562.1 one week earlier. On an unadjusted basis, the Index increased 4.8 percent compared with the previous week and was down 14.7 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index increased by 2.4 percent to 426.7 from 416.5 the previous week whereas the Refinance Index increased by 8.4 percent to 1546.8 from 1427.4 one week earlier..

Mortgage rates increased:

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.66 percent from 6.61 percent ...

The average contract interest rate for one-year ARMs increased to 6.07 percent from 6.04 percent ...

Change in mortgage applications from one year ago (from Dow Jones):

Total	-14.7%
Purchase	-8.6%
Refi	-24.1%
Fixed-Rate	-9.5%
ARM	-24.6%