Wednesday, April 26, 2017

Thursday: Unemployment Claims, Durable Goods, Pending Home Sales

by Bill McBride on 4/26/2017 08:59:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 243 thousand initial claims, down from 244 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for February from the Census Bureau. The consensus is for a 1.1% increase in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for March. The consensus is for a 0.4% decrease in the index.

• Also at 10:00 AM, the Q1 2017 Housing Vacancies and Homeownership from the Census Bureau.

• At 11:00 AM, the Kansas City Fed manufacturing survey for April. This is the last of the regional Fed surveys for April.

Freddie Mac: Mortgage Serious Delinquency rate declined in March, Lowest since May 2008

by Bill McBride on 4/26/2017 05:14:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in March was at 0.92%, down from 0.98% in February.  Freddie's rate is down from 1.20% in March 2016.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This is the lowest serious delinquency rate since May 2008.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is still declining, the rate of decline has slowed.

Maybe the rate will decline another 0.2 to 0.4 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.

Philly Fed: State Coincident Indexes increased in 45 states in March

by Bill McBride on 4/26/2017 01:40:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2017. Over the past three months, the indexes increased in 45 states, decreased in three, and remained stable in two, for a three-month diffusion index of 84. In the past month, the indexes increased in 45 states and decreased in five, for a one-month diffusion index of 80.
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In March 45states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.

Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.

New Home Prices

by Bill McBride on 4/26/2017 11:02:00 AM

As part of the new home sales report, the Census Bureau reported the number of homes sold by price and the average and median prices.

From the Census Bureau: "The median sales price of new houses sold in March 2017 was $315,100. The average sales price was $388,200."

The following graph shows the median and average new home prices.

New Home PricesClick on graph for larger image.

During the housing bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales.  When housing started to recovery - with limited finished lots in recovering areas - builders moved to higher price points to maximize profits.

The average price in March 2017 was $388,200, and the median price was $315,100.  Both are above the bubble high (this is due to both a change in mix and rising prices).

The second graph shows the percent of new homes sold by price.

New Home Sales by PriceAlmost 7% of new homes sold were under $150K in March 2017.  This is up from late last year, but down from 30% in 2002.  In general, the under $150K bracket is going away.   

The $400K+ bracket has increased significantly.  I'll break that bracket up in the future.

A majority of new home in the U.S. are in the $200K to $400K range.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 4/26/2017 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Surve

Mortgage applications increased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 21, 2017.

... The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.1 percent compared with the previous week and was 0.4 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) decreased to its lowest level since November 2016, 4.20 percent, from 4.22 percent, with points increasing to 0.37 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity increased last week as rates declined, but remains low - and will not increase significantly unless rates fall sharply.


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

Even with the increase in mortgage rates late last year, purchase activity is still up slightly year-over-year.

Tuesday, April 25, 2017

Zillow Forecast: "The national Case-Shiller index is projected to climb 5.9 percent year-over-year in March"

by Bill McBride on 4/25/2017 08:39:00 PM

The Case-Shiller house price indexes for February were released this morning. 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: March Case-Shiller Forecast: The Home Price Party Rages On

Home prices are expected to continue to climb in March, but the pace of month-over-month growth is expected to slow, according to Zillow’s March Case-Shiller forecast.

The national Case-Shiller index is projected to climb 5.9 percent year-over-year in March, following a 5.8 percent gain in February. Month-to-month, the national index is expected to be up a seasonally adjusted 0.3 percent in March, following a 0.4 percent monthly gain in February.

Annual growth in the smaller 10- and 20-city indices is also expected to slow slightly: The 10-city forecast is for a 5.1 percent gain in annual growth for March, following 5.2 percent annual growth in February. And the 20-city index is projected to gain 5.7 percent in March, below its 5.9 percent annual gain in February.

The 10-city index is forecast to climb a seasonally adjusted 0.7 percent in March from February, following 0.6 percent monthly growth between January and February. Growth in the 20-city index is expected to hold steady on a seasonally adjusted, month-over-month basis, rising 0.7 percent in March as it did in February.

Zillow’s March Case-Shiller forecast is shown below. These forecasts are based on today’s February Case-Shiller data release and the March 2017 Zillow Home Value Index. The March S&P CoreLogic Case-Shiller Indices will not be officially released until Tuesday, May 30.
The year-over-year change for the Case-Shiller national index will probably increase in March.

Zillow forecast for Case-Shiller

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

by Bill McBride on 4/25/2017 05:09:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.8% year-over-year in February

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 2.1% above the previous bubble peak. However, in real terms, the National index (SA) is still about 14.4% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In February, the index was up 5.8% 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 $280,000 today adjusted for inflation (40%).  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 January) 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 September 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 April 2004 levels, the Composite 20 index is back to December 2003, and the CoreLogic index back to February 2004.

In real terms, house prices are back to late 2003 / early 2004 levels.

Price-to-Rent

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 July 2003.

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

Chemical Activity Barometer increases in April

by Bill McBride on 4/25/2017 02:41:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Economic Indicator Marks Strong Opening to Second Quarter; Up More Than Five Percent Over Last Year

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), marked the second quarter by posting a robust 5.6 percent year-over-year gain, suggesting continued growth through year-end 2017.

The barometer posted a 0.4 percent gain in April, following three successive months of upward revisions to the monthly data. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.2 percent in April.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production in 2017.

A few Comments on March New Home Sales

by Bill McBride on 4/25/2017 11:59:00 AM

New home sales for March were reported at 621,000 on a seasonally adjusted annual rate basis (SAAR).  This was well above the consensus forecast, and the three previous months combined were revised up significantly. This was a strong report.

Sales were up 15.6% year-over-year in March.  However, January, February and March were the weakest months last year on a seasonally adjusted annual rate basis - so this was an easy comparison.

So far the increase in mortgage rates has not negatively impacted new home sales.

Earlier: New Home Sales increase to 621,000 Annual Rate in March.

New Home Sales 2015 2016Click on graph for larger image.

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were up 15.6% year-over-year in March.

For the first three months of 2017, new home sales are up 12.0% compared to the same period in 2016.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through March 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

New Home Sales increase to 621,000 Annual Rate in March

by Bill McBride on 4/25/2017 10:16:00 AM

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 621 thousand.

The previous three months combined were revised up significantly.

"Sales of new single-family houses in March 2017 were at a seasonally adjusted annual rate of 621,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.8 percent above the revised February rate of 587,000 and is 15.6 percent above the March 2016 estimate of 537,000."
emphasis added
New Home SalesClick on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the last several years, new home sales are still fairly low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply declined in March to 5.2 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of March was 268,000. This represents a supply of 5.2 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In March 2017 (red column), 58 thousand new homes were sold (NSA). Last year, 50 thousand homes were sold in March.

The all time high for March was 127 thousand in 2005, and the all time low for March was 28 thousand in 2011.

This was above expectations of 584,000 sales SAAR.   I'll have more later today.