by Calculated Risk on 6/13/2006 12:29:00 AM

From MarketWatch: During the Q&A tonight ...

[Bernanke] also said the Federal Reserve would offer guidance "in the not-too-far-distant future" about nontraditional mortgages.

Not-too-far-distant future?

This year? This century?

by Calculated Risk on 6/12/2006 02:36:00 PM

Barry Ritholtz has an interesting post on housing's impact on the economy: Housing Leads the Economy Up AND Down



This graph is from Barry's post. It shows that consumer spending and the housing market move together. Barry's post includes several other graphs, including one that shows housing leads GDP growth (both up and down). This has been a familiar theme on this blog!

by Calculated Risk on 6/11/2006 10:26:00 PM

Stephen King paints the picture: Warning signals that have made the Fed ultra-cautious

We have reached one of those occasional critical junctures in the world economy, one of those multiple forks in the road where, for both policymakers and markets, choices really do matter.

One road threatens inflation. Another risks a possibly serious economic slowdown.

And a third, the worst of all worlds, leads in Escher-style madness to both destinations.

And Dr. Duy argues the Fed will choose to raise rates: Ascendancy of the Hawks

Bottom line: The Fed is poised to tighten at the end of this month.

Perhaps most interesting to me is that Dr. Duy suggests the Fed isn't very concerned about the slowdown in the housing market:

Fed officials will discount the impact of the housing slowdown. The focus on housing we saw last year appears to have reflected Greenspan’s views. I should have picked up on this earlier. From MarketWatch: "Poole said the financial press puts to much focus on "highly visible" sectors like the housing sector, even though it only amounts to a small fraction of overall GDP growth." The Fed discounted the impact of the NASDAQ meltdown as well – technology was thought to be too small a part of the economy. The housing slowdown will be even easier to discount, as it will happen in slow motion.

I think the housing slowdown will have a far greater impact than Poole is suggesting. Duy is concerned too:

I would rest easier if the economy didn’t look to be slowing, or if experience had not taught me to be wary of asset market (in this case housing) reversals.

by Calculated Risk on 6/09/2006 10:55:00 AM

UPDATE: On Econbrowser, See Dr. Menzie Chinn's April 2006 Trade Balance Figures

The Census Bureau reported today that the US trade deficit increased to $63.4 billion in April, compared to expectations of $65.0 Billion.


Click on graph for larger image.

Looking at a multi-year graph, its hard to say if there has been a trend change (is the deficit stabilizing at these levels?) or if the trend is still for increasing trade gaps.

My prediction for 2006 was for the deficit to stabilize at the levels seen in the 4th quarter - mostly because I thought the US economy would slow in 2006. Its still too early to tell.

See Dr. Setser's: Not quite as bad as I expected

by Calculated Risk on 6/08/2006 10:53:00 PM

Last year I compared the change in the FED's estimate of the total value of household real estate with the OFHEO House Price Index (HPI).

The FED's estimate of the value of household real estate is in the Flow of Funds report: B.100 Balance Sheet of Households and Nonprofit Organizations. The FED includes any new stock put into place and improvements to existing stock, so we need to subtract the value of new private single family construction and improvements for the same time period.

OFHEO's House Price Index showed an increase of 2.03% for Q1 2006.

The FED's method showed an increase of 1.85%. Once again, about the same.

by Calculated Risk on 6/08/2006 01:46:00 PM

The FED Flow of Funds report was released today. It shows that household mortgage debt increased significantly in Q1 2006.

On a dollar basis, household mortgage debt increased by $260.7 Billion in the 1st quarter. The last 9 quarters (billions increase in household mortgages, Includes loans made under home equity lines of credit):

q1 2004: $190.4
q2 2004: $211.1
q3 2004: $277.1
q4 2004: $232.9
q1 2005: $189.9
q2 2005: $280.2
q3 2005: $314.8
q4 2005: $293.5
q1 2006: $260.7

From Reuters on debt increase: US household wealth rose in first quarter

'... the Fed said borrowing outside the financial sector soared at an annual rate of 11 percent in the first quarter, faster than the fourth quarter's 9.4 percent pace.

It was the fastest rate of growth in nonfinancial debt since an 11.9 percent rate in the fourth quarter of 1986, the Fed said.

Growth in nonfinancial debt was propelled by an annualized 12.9 percent rise in federal debt, up from a 7.8 percent increase in borrowing in the previous quarter. It was the highest rate of growth in federal debt since the first quarter of 2005.

Household borrowing gained at an 11.6 percent annual pace, up from 11.1 percent in the fourth quarter.

Business debt grew by a 10.4 percent annual rate, up from 8.3 percent at the end of 2005. Borrowing at the state and local government level slowed to a rise of 5.8 percent from 8.6 percent the previous quarter.'

by Calculated Risk on 6/07/2006 09:59:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Refinance Applications Decline


Click on graph for larger image.

The Market Composite Index, a measure of mortgage loan application volume, was 534.4, a decrease of 1.4 percent on a seasonally adjusted basis from 541.9 one week earlier. On an unadjusted basis, the Index decreased 11.7 percent compared with the previous week and was down 28.0 percent compared with the same week one year earlier.

The seasonally-adjusted Purchase Index increased slightly to 395.6 from 395.5 the previous week whereas the Refinance Index decreased by 3.8 percent to 1356.0 from 1409.0 one week earlier...

Mortgage rates decreased slightly:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.60 percent from 6.66 percent ...

The average contract interest rate for one-year ARMs decreased to 6.05 percent from 6.09 percent ...

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

Total	-28.0%
Purchase	-16.9%
Refi	-42.6%
Fixed-Rate	-25.6%
ARM	-33.1%

More evidence of a weak housing market in comparison to 2005.

by Calculated Risk on 6/06/2006 10:50:00 AM

Form the National Association of Realtors: Home Sales Settling Down and Appreciation Slowing

The housing boom has ended but sales at historically healthy levels will continue, and price appreciation will return to normal patterns across much of the country, according to the National Association of Realtors®.

David Lereah, NAR’s chief economist, said home sales are settling into a slower pace. “In recent years we were occasionally challenged to find appropriate superlatives to describe surprisingly high home sales,” he said. “Now the housing market has cooled, but 2006 is still expected to be the third strongest on record. In this case, experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability. But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable.”

Existing-home sales are projected to drop 6.8 percent to 6.60 million this year from the record 7.08 million in 2005. New-home sales are forecast to fall 13.4 percent to 1.11 million from a record 1.28 million in 2005. Housing starts are likely to decline 6.2 percent to 1.94 million in 2006 compared with 2.07 million last year.

NAR President Thomas M. Stevens from Vienna, Va., said rising interest rates have slowed home sales in many high cost markets, while job growth has boosted sales in some moderately priced areas. “Broadly speaking, rising inventories have taken the pressure off of unsustainable home price growth,” said Stevens, senior vice president of NRT Inc. “For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing.”

The 30-year fixed-rate mortgage should average 6.9 percent during the second half of the year, and the unemployment rate is expected to average 4.8 percent in 2006.

The national median existing-home price for all housing types is forecast to rise 5.3 percent this year to $231,300. With more construction in 2006 taking place in lower cost housing markets, the median new-home price is projected to increase 0.8 percent to $242,900.

“Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation, so the rise we anticipate in existing home prices this year is actually a little above the high end of historic norms,” Lereah said. “The double-digit home price gains we saw in 2005 underscore what a superlative year it was.”

Inflation, as measured by the Consumer Price Index, is seen at 3.1 percent in 2006, compared with 3.4 percent last year. Growth in the U.S. gross domestic product is likely to be 3.4 percent this year. Inflation-adjusted disposable personal income should grow 3.1 percent this year.

by Calculated Risk on 6/05/2006 04:25:00 PM

From Bernanke's remarks today: Comments on the Outlook for the U.S. Economy and Monetary Policy

"Gains in payroll employment in recent months have been smaller than their average of the past couple of years, and initial claims for unemployment insurance have edged up. These developments are consistent with the softening in the pace of overall economic activity that seems to be under way."(emphasis added)

Click on graph for larger image.

The vertical white line is the start of the previous recession. Initial claims spiked after 9/11 and Hurricane Katrina, but in general the four week average of initial claims changes slowly.

As Bernanke noted, initial claims have been rising. A couple of weeks ago, I suggested this might be an indicator of slowing job market.

This is something to watch before the next Fed meeting.

by Calculated Risk on 6/05/2006 02:47:00 PM

From MarketWatch: Bernanke notes slowdown but stresses inflation fight

Although the anticipated slowdown in growth is underway, financial markets should not question the inflation-fighting credentials of the Federal Reserve, Fed chief Ben Bernanke said Monday. "There is a strong consensus" among FOMC members to keep inflation low, Bernanke told an international banking forum here. Recent core inflation readings "have been higher in recent months" and "has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth," Bernanke said. These core readings "are unwelcome developments," he said."Therefore, the FOMC will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained," Bernanke said. Bernanke said the slow down in the U.S. economy is no longer simply a forecast. "Real domestic product grew rapidly in the first quarter of this year, but the anticipated moderation of economic growth seems now to be under way," Greenspan said.

I enjoyed the Greenspan error in the last sentence! This should impact the Fed Funds expectations again.