Wednesday, June 28, 2017

Thursday: Unemployment Claims, GDP

by Bill McBride on 6/28/2017 08:49:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Highest in More Than 2 Weeks

Mortgage rates moved moderately higher again today, as investors continued digesting the possibility of a "taper tantrum" in Europe.
The average lender is once again quoting 4.0% on top tier conventional 30yr fixed scenarios.  Before today (and especially before yesterday), 3.875% was fairly prevalent.
emphasis added
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, down from 241 thousand the previous week.

• Also at 8:30 AM, Gross Domestic Product, 1st quarter 2017 (Third estimate). The consensus is that real GDP increased 1.2% annualized in Q1, unchanged from the second estimate of 1.2%.

• Early, Reis Q2 2017 Office Survey of rents and vacancy rates.

Zillow Forecast: "May Case-Shiller Forecast: Expect the Cooldown to Continue"

by Bill McBride on 6/28/2017 03:21:00 PM

The Case-Shiller house price indexes for April were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Svenja Gudell at Zillow: May Case-Shiller Forecast: Expect the Cooldown to Continue

On the heels of a larger-than-expected slowdown in April, Zillow anticipates Case-Shiller data to show a continued cooling in home price growth in May almost across the board, with prices even falling slightly from April in one key index.

Annual growth in all three main indices – the 10-city Composite, 20-city Composite and U.S. National Index – is expected to slow to 4.8 percent, 5.5 percent and 5.3 percent year-over-year growth in May, respectively, down from  4.9 percent, 5.7 percent and 5.5 percent in April. The U.S. National Index is expected to grow by a seasonally adjusted 0.2 percent in May from April, while prices will be unchanged from April on the 20-city Composite Index. Home prices are expected to fall by 0.1 percent from April to May on the smaller 10-city Composite Index (seasonally adjusted).

April’s slower-than-expected growth caught some analysts off-guard, especially the monthly figures. One potential reason cited for the surprise to the downside could be related to the difficulty in seasonally adjusting a repeat-sales index like Case-Shiller’s. Over the long term, Zillow’s monthly forecast of Case-Shiller data has proven remarkably accurate, thanks in large part to differences in methodology between Case-Shiller’s indices and Zillow’s, and the timeliness and granularity of data collected.

Zillow’s full forecast for May Case-Shiller data is shown below. These forecasts are based on today’s April Case-Shiller data release and the May 2017 Zillow Home Value Index. The May S&P CoreLogic Case-Shiller Indices will not be officially released until Tuesday, July 25.
The year-over-year change for the Case-Shiller National index will probably be smaller in May than in April.

Zillow forecast for Case-Shiller

Reis: Mall Vacancy Rate increased in Q2 2017

by Bill McBride on 6/28/2017 12:11:00 PM

Reis reported that the vacancy rate for regional malls was 8.1% in Q2 2017, up from 7.9% in Q1, and up from 7.9% in Q2 2016. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.0% in Q2, up from 9.9% in Q1, and up from 9.8% in Q2 2016. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Economist Barbara Byrne Denham:

The Retail Vacancy Rate increased 0.1% in the second quarter to 10.0%. Asking rents increased 0.4% in the quarter that saw new stores opening on par with the number that closed. The Mall Vacancy Rate increased 0.2% to 8.1%. Mall Rents also increased 0.4%.

Defying the doom and gloom aired in media reports, the retail real estate market posted positive net absorption in the second quarter. The vacancy rate increased a bit due to new construction that was only partially absorbed by new leasing. Still, the vacancy rate increase from 9.9% to 10.0% was smaller than most expected.

The increase in the Mall vacancy rate was due to confirmed closings of Macy’s stores.
emphasis added
Mall Vacancy Rate Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Recently both the strip mall and regional mall vacancy rates have increased slightly from an already elevated level.

Mall vacancy data courtesy of Reis.

NAR: Pending Home Sales Index decreased 0.8% in May, down 1.7% year-over-year

by Bill McBride on 6/28/2017 10:04:00 AM

From the NAR: Pending Home Sales Tumble in May for Third Straight Month

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.8 percent to 108.5 in May from a downwardly revised 109.4 in April. The index is now 1.7 percent below a year ago, which marks the second straight annual decline and the most recent since November and December of last year.
The PHSI in the Northeast decreased 0.8 percent to 96.4 in May, but remains 3.1 percent above a year ago. In the Midwest the index was 104.5 in May (unchanged from April), and is 2.8 percent lower than May 2016.

Pending home sales in the South declined 1.2 percent to an index of 123.4 in May and are now 1.4 percent below last May. The index in the West subsided 1.3 percent in May to 98.6, and is now 4.5 percent below a year ago.
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This was below expectations of a 0.5% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in June and July.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 6/28/2017 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 6.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 23, 2017.

... The Refinance Index decreased 9 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 8 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.13 percent, with points decreasing to 0.32 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
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Mortgage Refinance Index Click on graph for larger image.

The first graph shows the refinance index since 1990.

Refinance activity is mostly moving sideways at a low level this year, and will not increase significantly unless rates fall well below 4%.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 8% year-over-year.

Tuesday, June 27, 2017

Wednesday: Pending Home Sales

by Bill McBride on 6/27/2017 08:27:00 PM

• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• Early: Reis Q2 2017 Mall Survey of rents and vacancy rates.

• At 10:00 AM, Pending Home Sales Index for May. The consensus is for a 0.5% increase in the index.

Richmond Fed: "Manufacturers in the Fifth District Improved in June"

by Bill McBride on 6/27/2017 05:04:00 PM

From the Richmond Fed: Reports from Manufacturers in the Fifth District Improved in June

Reports from Fifth District manufacturers improved in June, according to the latest survey by the Federal Reserve Bank of Richmond. The composite manufacturing index rose from 1 in May to 7 in June, as the indexes for shipments and new orders increased. The employment index was relatively flat. Most firms continued to report steady or higher wages; although the index for wages did fall in June, it remained above 0. Meanwhile, more firms reported a decline in the average workweek than reported an increase.

Looking six months ahead, manufacturing executives were more optimistic in June than in May, although even the May readings were very positive.
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This was the last of the regional Fed surveys for June.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through June), and five Fed surveys are averaged (blue, through June) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through April (right axis).

Based on these regional surveys, it seems likely the ISM manufacturing index will increase slightly in June compared to May (to be released this coming Monday, July 3rd).  The early consensus is for the ISM index to be unchanged in June.

Real House Prices and Price-to-Rent Ratio in April

by Bill McBride on 6/27/2017 02:03:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.5% year-over-year in April

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 2.4% above the previous bubble peak. However, in real terms, the National index (SA) is still about 13.9% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In April, the index was up 5.5% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $278,000 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through April) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to October 2005 levels, and the CoreLogic index (NSA) is back to December 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to June 2004 levels, the Composite 20 index is back to March 2004, and the CoreLogic index back to April 2004.

In real terms, house prices are back to early 2004 levels.


In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to November 2003 levels, the Composite 20 index is back to August 2003 levels, and the CoreLogic index is back to September 2003.

In real terms, prices are back to early 2004 levels, and the price-to-rent ratio is back to 2003 - and the price-to-rent ratio maybe moving a little more sideways now.

Reis: Apartment Vacancy Rate increased in Q2 to 4.4%

by Bill McBride on 6/27/2017 11:13:00 AM

Reis reported that the apartment vacancy rate was at 4.4% in Q2 2017, up from 4.3% in Q1, and up from 4.2% in Q2 2016.  This is the highest vacancy rate since Q3 2013 (although the increase has been small).  The vacancy rate peaked at 8.0% at the end of 2009.

From Reis:

Shaking off a sluggish first quarter, the apartment market showed marked improvement in the second quarter as all but two of 79 metros saw effective rents increase or stay flat in the quarter. The average effective rent grew 1.1% in the quarter and 3.0% over the year. The vacancy rate increased from 4.3% to 4.4%

Vacancy increased in 27 Metros, but the increase exceeded 0.2% in only eight metros. The number of new completions was lower than had been expected as was net absorption.

The growth in effective rents suggests that landlords’ offers of free rent were less aggressive as the apartment market continued to benefit from stronger housing prices keeping more potential home buyers in rentals.

Total inventory is expected to increase significantly in 2017; however, construction in the second quarter was lower than expected in a quarter that tends to see the highest activity. New construction of 36,477 units was the lowest quarterly addition in more than two years. With less new supply coming online, landlords were able to curb their concessions.

At 4.4%, the national vacancy rate increased 10 basis points from 4.3% in the first quarter. One year ago, the vacancy rate was 4.2%. Occupancy growth, or net absorption, while low at 27,818 units, fell just shy of new supply pushing the vacancy rate up in the quarter.
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Apartment Vacancy Rate Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  However it appears the vacancy rate has bottomed and is starting to increase.  With more supply coming on line later this year - and less favorable demographics - the vacancy rate will probably continue to increase slowly.

Apartment vacancy data courtesy of Reis.

Case-Shiller: National House Price Index increased 5.5% year-over-year in April

by Bill McBride on 6/27/2017 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for April ("April" is a 3 month average of February, March and April prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: The S&P Corelogic Case-Shiller National Home Price NSA Index Sets Record for Five Consecutive Months

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.5% annual gain in April, down from 5.6% last month. The 10-City Composite annual increase came in at 4.9%, down from 5.2% the previous month. The 20-City Composite posted a 5.7% year-over-year gain, down from 5.9% in March.

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In April, Seattle led the way with a 12.9% year-over-year price increase, followed by Portland with 9.3%, and Dallas with an 8.4% increase. Seven cities reported greater price increases in the year ending April 2017 versus the year ending March 2017.
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.9% in April. The 10-City Composite posted a 0.8% increase and the 20-City Composite reported a 0.9% increase in April. After seasonal adjustment, the National Index recorded a 0.2% month-over-month increase. The 10-City Composite posted a 0.2% month-over-month increase. The 20-City Composite posted a 0.3% month-over-month increase. Eighteen of 20 cities reported increases in April before seasonal adjustment; after seasonal adjustment, 13 cities saw prices rise.

“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”
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Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 6.6% from the peak, and up 0.2% in April (SA).

The Composite 20 index is off 4.0% from the peak, and up 0.3% (SA) in April.

The National index is 2.4% above the bubble peak (SA), and up 0.2% (SA) in April.  The National index is up 38.4% from the post-bubble low set in December 2011 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.9% compared to April 2016.  The Composite 20 SA is up 5.6% year-over-year.

The National index SA is up 5.5% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.