Monday, September 18, 2017

Tuesday: Housing Starts

by Bill McBride on 9/18/2017 06:30:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Continue Pushing Recent Highs

Mortgage rates resumed their recent uptrend today, after taking a quick break to end the week last Friday.  The result is another push up to the highest levels in just over 3 weeks.  The average scenario is being quoted rates that are about an eighth of a point higher compared to the lows seen in early September.  The most prevalent top-tier conventional 30yr fixed rates still range from 3.875% to 4.0%, but the latter is increasingly in the spotlight.  
Tuesday:
• At 8:30 AM ET, Housing Starts for August. The consensus is for 1.173 million SAAR, up from the July rate of 1.155 million.

Lawler: Early Read on Existing Home Sales in August

by Bill McBride on 9/18/2017 02:32:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in August

Based on publicly-available state and local realtor reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.39 million in August, down 0.9% from July’s estimated pace and up 0.9% from last August’s seasonally adjusted pace. Local realtor data suggest that the inventory of existing homes for sale was down from July to August but that the YOY decline was slightly less than that seen in July, and I project that the NAR’s estimate of the inventory of existing homes for sale at the end of August will be 1.86 million, down 3.1% from July’s preliminary estimate and down 7.5% from last August. Finally, local realtor data suggest that the NAR’s estimate of the median existing SF home sales price last month will by up by about 6.0% from a year earlier.

Hurricane Harvey hit Houston in the latter part of August, and home sales in Houston were down by about 25% from last August’s pace. The impact on September sales will be greater. Hurricane Irma was a September event, and did not appear to impact August closings in Florida at all. The impact on September closings, however, could be considerable.

CR Note: The NAR is scheduled to release August existing home sales on Wednesday. The consensus is for 5.48 million SAAR, so take the under.

Hotel Occupancy Rate increases following Hurricanes Harvey and Irma

by Bill McBride on 9/18/2017 01:06:00 PM

From HotelNewsNow.com: STR: Hurricane Irma’s initial impact on hotel markets

STR data shows Florida hotel markets that were evacuated before the arrival of Hurricane Irma experienced significant performance decreases, but the destinations evacuees flocked to saw significant growth.
From HotelNewsNow.com: STR: US hotel results for week ending 9 September
The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 3-9 September 2017, according to data from STR.

In comparison with the week of 4-10 September 2016, the industry recorded the following:

Occupancy: +2.1% to 64.0%
• Average daily rate (ADR): +1.6% to US$120.78
• Revenue per available room (RevPAR): +3.7% to US$77.31

Among the Top 25 Markets, Houston, Texas, reported the largest year-over-year increases in each of the three key performance metrics. Amid the aftermath of Hurricane Harvey, occupancy rose 66.1% to 86.6%, ADR was up 23.9% to US$114.27 and RevPAR surged 105.9% to US$98.91. STR analysts note that hotels in the market filled up with displaced residents, FEMA workers and other demand related to recovery efforts.
...
Ahead of Hurricane Irma landfall, Miami/Hialeah, Florida, saw the week’s largest drop in occupancy (-20.2% to 50.9%) and the largest decrease in RevPAR (-25.5% to US$65.55).
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateThe red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate to date is ahead of last year, and just behind the record year in 2015.  The hurricanes might push the annual occupancy rate to a new record.

Seasonally, the occupancy rate will increase into the Fall business travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

NAHB: Builder Confidence idecreased to 64 in September

by Bill McBride on 9/18/2017 10:07:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 64 in September, down from 67 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Drops Three Points As Hurricanes Add Uncertainty

Builder confidence in the market for newly-built single-family homes fell three points to a level of 64 in September from a downwardly revised August reading of 67 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“The recent hurricanes have intensified our members’ concerns about the availability of labor and the cost of building materials,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring.”

“Despite this month’s drop, builder confidence is still on very firm ground,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”
...
All three HMI components posted losses in September but remain at healthy levels. The component gauging current sales conditions fell four points to 70 and the index charting sales expectations in the next six months dropped four points to 74. Meanwhile, the component measuring buyer traffic slipped a single point to 47.

Looking at the three-month moving averages for regional HMI scores, the West increased three points to 77 and the Northeast rose one point to 49. The South dropped a single point to 66 and the Midwest fell three points to 63.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast, but still a solid reading.

Black Knight: Preliminary Assessment Shows Over 3.1 Million Mortgaged Properties in Hurricane Irma Disaster Areas  

by Bill McBride on 9/18/2017 09:19:00 AM

From Black Knight: Black Knight: Hurricane Preliminary Assessment Shows Over 3.1 Million Mortgaged Properties in Hurricane Irma Disaster Areas

• Florida FEMA-designated disaster areas related to Hurricane Irma include over 3.1 million mortgaged properties

• Irma-related disaster areas contain nearly three times as many mortgaged properties as those connected to Hurricane Harvey, and nearly seven times as many as those connected to Hurricane Katrina in 2005

• The $517 billion in unpaid principal balances in Irma-related disaster areas is nearly three times the amount as in those related to Harvey and more than 11 times of those connected to Katrina

• Irma-related disaster areas now include more than 90 percent of all mortgaged properties in Florida

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released a preliminary assessment of the potential mortgage-related impact from Hurricane Irma. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, both the number of mortgages and the unpaid principal balances of those mortgages in FEMA-designated Irma disaster areas are significantly larger than in the areas impacted recently by Hurricane Harvey.

“While the total extent of the damage from Hurricane Irma is still being determined, it is clear that the size and scope of the disaster is immense,” said Graboske. “Indeed, in terms of the number of mortgaged properties and their associated unpaid principal balances, Irma significantly outpaces even the number of borrowers impacted by Hurricane Harvey. With FEMA expanding the number of Irma-related designated disaster areas late Wednesday, Sept. 13, to a total of 37 Florida counties, more than 90 percent of all mortgaged properties in the state now fall into such areas. More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances. In comparison, Harvey-related disaster areas held 1.18 million properties – more than twice as many as with Hurricane Katrina in 2005 – with a combined unpaid principal balance of $179 billion. Irma-related disaster areas now contain nearly seven times as many mortgaged properties as those connected to Katrina, with more than 11 times the principal balances.

“As Irma forged its path of destruction through the Caribbean, one relatively positive development was that Puerto Rico escaped the direct hit many had predicted. From a mortgage performance perspective, this was particularly good news, as delinquencies there were already quite high leading up to the storm. At more than 10 percent, Puerto Rico’s delinquency rate is nearly three times that of the U.S. average, as is its 5.8 percent serious delinquency rate. In contrast, the disaster areas declared in Florida have starting delinquency rates below the national average, providing more than a glimmer of optimism as we move forward.”
CR Note: Delinquencies will rise in both Texas and Florida in the next few months. Unfortunately it looks like Puerto Rico will take a direct hit from Hurricane Maria this week.

Sunday, September 17, 2017

Sunday Night Futures

by Bill McBride on 9/17/2017 07:52:00 PM

Weekend:
Schedule for Week of Sept 17, 2017

Monday:
• At 10:00 AM ET, The September NAHB homebuilder survey. The consensus is for a reading of 65, down from 68 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 and DOW futures are up slightly (fair value).

Oil prices were up over the last week with WTI futures at $49.79 per barrel and Brent at $55.53 per barrel.  A year ago, WTI was at $43, and Brent was at $46 - so oil prices are up 15% to 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.61 per gallon - up sharply due to Hurricane Harvey, but starting to decline - a year ago prices were at $2.20 per gallon - so gasoline prices are up 41 cents per gallon year-over-year.

FOMC Preview

by Bill McBride on 9/17/2017 08:11:00 AM

The consensus is that the Fed will not change the Fed Funds Rate at the meeting this coming week.  However the Fed is expected to start the process of balance sheet normalization.

Assuming the expected happens - no rate hike and the start of balance sheet normalization - the focus will be on the wording of the statement, the projections, and Fed Chair Janet Yellen's press conference to try to determine if there will be a 3rd rate hike in 2017 at the December meeting.

Here are the June FOMC projections.

The projection for GDP in 2017 will likely be either unchanged or revised down slightly.  GDP in Q1 was at 1.2% annualized, and Q2 at 3.0%.  Currently projections put Q3 GDP at around 1.3% to 2.2% (the hurricanes probably pushed down Q3 GDP, and some bounce back is likely in Q4).

My guess is, as far as the impact of any fiscal stimulus, the Fed will continue to wait and see what the actual proposals will be.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
201720182019
June 2017 2.1 to 2.21.8 to 2.21.8 to 2.0
Mar 20172.0 to 2.21.8 to 2.31.8 to 2.0
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.4% in August. So the unemployment rate for Q4 2017 will probably be unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
201720182019
June 2017 4.2 to 4.34.0 to 4.34.1 to 4.4
Mar 2017 4.5 to 4.64.3 to 4.64.3 to 4.7
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up 1.4% from July 2016.  It appears inflation might be revised down for 2017.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
201720182019
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1
Mar 2017 1.8 to 2.01.9 to 2.02.0 to 2.1


PCE core inflation was up 1.4% in July year-over-year.  Core PCE inflation will probably be revised down for 2017.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
201720182019
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1
Mar 2017 1.8 to 1.91.9 to 2.02.0 to 2.1

In general, it appears GDP and inflation might be revised down (GDP slightly), and the unemployment rate will be unchanged.  The inflation outlook will be key for a Fed rate hike in December.

Saturday, September 16, 2017

Goldman: FOMC Preview

by Bill McBride on 9/16/2017 05:32:00 PM

CR Note: The FOMC is scheduled to meet on Tuesday and Wednesday. No change to rates is expected at this meeting, but the FOMC is expected to announce the beginning of the process to reduce the Fed's balance sheet.

A brief excerpt from a research note by Goldman Sachs economists:

We expect the FOMC to officially announce next week that balance sheet runoff will begin in October. As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate. The key question is whether the committee’s expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year.

Schedule for Week of Sept 17, 2017

by Bill McBride on 9/16/2017 08:09:00 AM

The key economic reports this week are August housing starts and existing home sales.

For manufacturing, the Philly Fed manufacturing survey will be released this week.

The FOMC meets this week and is expected to announce the reduction of the Fed's balance sheet.

----- Monday, Sept 18th -----

10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of 65, down from 68 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

----- Tuesday, Sept 19th -----

Total Housing Starts and Single Family Housing Starts8:30 AM: Housing Starts for August. The consensus is for 1.173 million SAAR, up from the July rate of 1.155 million.

This graph shows total and single unit starts since 1968.

The graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering.

----- Wednesday, Sept 20th -----

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

During the day: The AIA's Architecture Billings Index for August (a leading indicator for commercial real estate).

Existing Home Sales10:00 AM: Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for 5.48 million SAAR, up from 5.44 million in July.

The graph shows existing home sales from 1994 through the report last month.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to announce the beginning of the process to reduce the Fed's balance sheet at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

----- Thursday, Sept 21st -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 303 thousand initial claims, up from 284 thousand the previous week.

8:30 AM: the Philly Fed manufacturing survey for September. The consensus is for a reading of 18.0, down from 18.9.

9:00 AM ET: FHFA House Price Index for June 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

12:00 PM: Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Friday, Sept 22nd -----

No major economic releases scheduled.

Friday, September 15, 2017

Lawler: ACS-Based Household Growth Slowed Last Year: Homeownership Rate Estimate Up, But Barely

by Bill McBride on 9/15/2017 02:28:00 PM

From housing economist Tom Lawler: ACS-Based Household Growth Slowed Last Year: Homeownership Rate Estimate Up, But Barely

The Census Bureau released the results of its 2016 American Community Survey, which provides a wide range of estimated statistics about people and housing. On the housing front, the ACS-based estimate of the number of occupied housing units (or households) for 2016 (yearly average) was 118,860,065, up just 651,815 from the estimate from the 2015 ACS. The ACS-based homeownership rate for 2016 was 63.1%, up just a tad from the 63.0% in 2015.

The growth rate of nonfamily households outpaced the growth in family households last year, with the fastest growth coming in nonfamily households with two or more people. This growth in part reflected a sharp jump in roomers and boarders.

ACS-Based Household Estimates
20162015Change% Change
Total118,860,065118,208,250651,8150.55%
Family77,785,96277,530,756255,2060.33%
Nonfamily41,074,10340,677,494396,6090.98%
  1-person33,254,19232,962,990291,2020.88%
  2+-person7,819,9117,714,504105,4071.37%

In terms of the composition of people in “family” households, last year there were relatively big gains in (1) the number of “adult” (18+ years old) children living with their parent(s); (2) the number of “other relatives;” and (3) the number of “nonrelatives” excluding the householder’s unmarried partner.

Number of People in Family Households
by Relationship to Householder, ACS
20162015Change% Change
Total261,765,779260,613,7601,152,0190.44%
Householder:77,785,96277,530,756255,2060.33%
Spouse56,952,25356,681,711270,5420.48%
Child:95,553,25195,198,175355,0760.37%
  Under 1864,448,63864,499,542-50,904-0.08%
  18+31,104,61330,698,633405,9801.32%
Other Relatives23,949,69023,665,436284,2541.20%
Nonrelatives:7,524,6237,537,682-13,059-0.17%
  Unmarried Partner3,092,3573,205,347-112,990-3.53%
  Other Nonrelatives4,432,2664,332,33599,9312.31%

Before going further, I do need to qualify the table above. The 2015 ACS results did not incorporate the late 2016 downward revisions in population estimates, but the 2016 ACS results do reflect these revisions. As a result, the 2015 ACS results overstate the total resident US population by about 522 thousand. The 2015 ACS estimates for the number of households, however, would not have been impacted by the downward population revisions (if they had been known at the time), because ACS household estimates are (effectively) controlled to independent housing unit estimates. If the 2015 ACS results were adjusted to reflect the updated lower population estimates for that year, the result would be that both the average household size and the average family size (as estimated by the ACS) would be lowered for 2015. As a result, both the average household size and the average family size adjusted to reflect population revisions for 2015 increased last year.

For “young” adults (18-34 years old), the % of young adults living with parents increased to 34.25% in 2016 from 34.11% in 2015, while the % of young adults living with other relatives rose to 13.30% in 2016 from 13.20% in 2015.The % of young adults who were either (1) a householder, (2) the spouse of a household, or (3) the unmarried partner of a householder declined to 32.95% in 2016 from 33.46% in 2015.

As readers know, there are numerous and conflicting estimates of the number of and the growth of US households based on various surveys, and this “household conundrum,” while identified and for a brief bit “prioritized” by Census earlier this decade, has not gone away. However, the “latest” data from the CPS/ASEC, the CPS/HVS, and now the ACS all suggest that household growth as decelerated, for reasons that are not crystal clear but which cannot be explained by “cyclical” forces.

I’ll have more on the ACS data later this month.