Friday, February 28, 2014

Bank Failure #5 in 2014: Vantage Point Bank, Horsham, Pennsylvania

by Bill McBride on 2/28/2014 06:14:00 PM

From the FDIC: First Choice Bank, Mercerville, New Jersey, Assumes All of the Deposits of Vantage Point Bank, Horsham, Pennsylvania

As of December 31, 2013, Vantage Point Bank had approximately $63.5 million in total assets and $62.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.5 million. Compared to other alternatives, First Choice Bank's acquisition was the least costly resolution for the FDIC's DIF. Vantage Point Bank is the 5th FDIC-insured institution to fail in the nation this year, and the first in Pennsylvania.
A twofer Friday!

Bank Failure #4 in 2014: Millennium Bank, National Association, Sterling, Virginia

by Bill McBride on 2/28/2014 05:45:00 PM

From the FDIC: WashingtonFirst Bank, Reston, Virginia, Assumes All of the Deposits of Millennium Bank, National Association, Sterling, Virginia

As of December 31, 2013, Millennium Bank, N.A. had approximately $130.3 million in total assets and $121.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.7 million. Compared to other alternatives, WashingtonFirst Bank's acquisition was the least costly resolution for the FDIC's DIF. Millennium Bank, N.A. is the 4th FDIC-insured institution to fail in the nation this year, and the first in Virginia.
It is Friday!  On pace for about the same number of bank failures as last year (24).

Lawler: If New Home Sales report Accurate, Suggests Large Builder Share Down

by Bill McBride on 2/28/2014 04:06:00 PM

From housing economist Tom Lawler: Government New Home Sales Report, If Accurate, Suggests Large Builder Share Down; Aggressive Home Price Hikes May Be to Blame

The Commerce Department earlier this week estimated that new SF home sales ran at a seasonally adjusted annual rate of 468,000, up 9.6% from December’s upwardly-revised (to 427,000 from 414,000) pace. Estimated sales for October and November were revised downward slightly, and the estimated sales for the fourth quarter of 2013 were not revised.

While January’s new SF home sales estimate was somewhat higher than I expected, I was even more surprised that last quarter’s sales estimates were not revised downward. Most large publicly-traded home builders reporting on a calendar quarter showed relatively weak net orders last quarter compared to a year earlier, and the nine large builders I regularly track1 had combined net orders that were down 3.8% from a year earlier (not seasonally adjusted, of course.) That contrasts sharply with Census estimates showing an unadjusted YOY increase in sales last quarter of about 15%.

Of course, comparisons of builder results and Census sales estimates are tricky, given (1) the different treatment of cancellations; and (2) differences in the timing of the recognition of contract signings. Nevertheless, the difference results were “unusual,” and over the last two years builder results that varied materially from Census preliminary estimates have been a decent predictor of revisions to Census estimates of SF sales.

If in fact the Census sales estimates are reasonable (further revisions will occur, given its methodology), an implication would be that large builders’ share of the new SF home market declined significantly in the second half of last year. One possible reason is that many of the large publicly-traded builders, facing demand that exceeded their ability to supply new homes (in several instances because of “supply-chain” issues) in the early part of the year, jacked up prices by not just unusually large amounts, but by more than other builders. The combination of higher mortgage rates and these unusually aggressive price hikes not only slowed their sales, but also slowed their sales relative to other builders. Given that the huge price hikes at many large builders pushed margins on closed sales in the second half of last year to the highest levels in seven to eight years, it’s perhaps not “shocking” that other builders weren’t as aggressive.

Given the optimistic sales plans most of these large builders have for 2014 – backed by rapid expansions in their land/lot acquisitions over the last one-to-two years – it seems unlikely that these large publicly-traded builders will be able to hike prices much if at all this year unless they are will to see their share erode further, which seems unlikely.

1 D.R. Horton, Pulte, NVR, Ryland, Beazer, Meritage, Standard Pacific, MDC, and M/I.

Zillow: Negative Equity declines further in Q4 2013

by Bill McBride on 2/28/2014 01:14:00 PM

From Zillow: Negative Equity Crosses 20 Percent Threshhold to End 2013

According to the fourth quarter Zillow Negative Equity Report, the national negative equity rate dipped below 20 percent to 19.4 percent for the first time in years, thereby reducing negative equity by roughly a third from its 31.4 percent peak in the first quarter of 2012. Negative equity has fallen for seven consecutive quarters as home values have risen, freeing almost 3.9 million homeowners nationwide in 2013. The national negative equity rate fell from 27.5 percent of all homeowners with a mortgage as of the end of the fourth quarter of 2012, and 21 percent in the third quarter. However, more than 9.8 million homeowners with a mortgage still remain underwater.
emphasis added
The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q4 2013 compared to Q4 2012.

Zillow Negative EquityClick on graph for larger image.

From Zillow:
Figure 6 shows the loan-to-value (LTV) distribution for homeowners with a mortgage in 2013 Q4 versus 2012 Q4. Even though many homeowners are still underwater and haven’t crossed the 100 percent LTV threshold to enter into positive equity, they are moving in the right direction.
Almost half of the borrowers with negative equity have a LTV of 100% to 120% (the light red columns). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140% (about 6.5% of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Note: CoreLogic will release their Q4 negative equity report in the next couple of weeks. For Q3, CoreLogic reported there were 6.4 million properties with negative equity, and that will be down further in Q4.

NAR: Pending Home Sales Index down 9% year-over-year

by Bill McBride on 2/28/2014 10:59:00 AM

From the NAR: Pending Home Sales Hold Steady in January

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged up 0.1 percent to 95.0 in January from an upwardly revised 94.9 in December, but is 9.0 percent below January 2013 when it was 104.4.
...
The December index reading was the lowest since November 2011, when it stood at 94.6.

The PHSI in the Northeast rose 2.3 percent to 79.0 in January, but is 5.3 percent below a year ago. In the Midwest the index declined 2.5 percent to 92.9 in January, and is 9.3 percent lower than January 2013. Pending home sales in the South increased 3.5 percent to an index of 111.2 in January, and is 5.5 percent below a year ago. The index in the West fell 4.8 percent in January to 84.2, and is 17.5 percent below January 2013.

Existing-home sales are expected to be weak in the first quarter
A few comments:
• Mr. Yun blamed some of the decline on the weather (the weather was unusually bad again in January), but the index remained weak in the South too (down 5.5% year-over-year and probably not weather), and in the West (partially related to low inventories).

• My view is there were several reasons for the decline in this index: weather in some areas, fewer distressed sales, less investor buying, fewer "pending" short sales, and low inventories.  I think fewer distressed sales, fewer "pending" short sales, and less investor buying are all signs of a healthier market - even if overall sales decline.

• Mr Yun lowered has forecast for 2014 to 5.0 million existing home sales, down from his previous forecast of 5.1 million existing home sales this year. I'll take the under on his new forecast, and I think it would be a positive sign if sales were under 5 million in 2014 as long as distressed sales continue to decline and conventional sales increase.

 • Of course, for housing, what really matters for the economy and employment is new home sales (not existing), and housing starts. 

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March.

Final February Consumer Sentiment at 81.6, Chicago PMI at 59.8

by Bill McBride on 2/28/2014 09:55:00 AM

Consumer Sentiment
Click on graph for larger image.

• The final Reuters / University of Michigan consumer sentiment index for February increased to 81.6 from the January reading of 81.2, and from the preliminary February reading of 81.2.

This was above the consensus forecast of 81.2. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.

I expect to see sentiment at post-recession highs very soon.

• From the Chicago ISM:

February 2014:

The Chicago Business Barometer remained broadly unchanged at 59.8 in February compared with 59.6 in January, as a double-digit gain in Employment offset declines in New Orders, Production and Order Backlogs. ... Some panellists cited the negative effect of the poor weather on their business, although overall this appeared to have a minor impact that was only visible in longer supplier lead times.

After expanding at a faster rate in January, Production and New Orders decelerated in February, while a more pronounced set back was seen in Order Backlogs. In contrast, the Employment Indicator bounced back sharply in February, jumping out of contraction, and nearly reversing the declines seen in the previous two months.

Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The latest Chicago Report confirms that the US economic recovery continued in February, with New Orders and Production remaining at high levels.”
This was above the consensus estimate of 57.8.

BEA: Q4 GDP Revised down to 2.4%

by Bill McBride on 2/28/2014 08:38:00 AM

From the BEA: Gross Domestic Product, Fourth Quarter and Annual 2013 (second estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.4 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ...

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. ...

The second estimate of the fourth-quarter percent change in real GDP is 0.8 percentage point, or $32.7 billion, less than the advance estimate issued last month, primarily reflecting downward revisions to personal consumption expenditures (PCE), to private inventory investment, to exports, and to state and local government spending that were partly offset by an upward revision to nonresidential fixed investment.
Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 3.3% to 2.6%. Government spending was a larger drag than originally estimated (-5.6% vs -4.9%).

Thursday, February 27, 2014

Friday: 2nd Estimate Q4 GDP, Chicago PMI, Consumer Sentiment, Pending Home Sales

by Bill McBride on 2/27/2014 08:16:00 PM

File under the new LA skyline ... another high rise is planned, from Roger Vincent at the LA Times: New high-rise on Broadway would be one of tallest in Southland

[A] 34-story apartment skyscraper more than twice as tall as most other buildings in the historic core of downtown L.A.

To be built at a cost of nearly $150 million, the apartment and retail complex called Broadway @ 4th would house 450 units and fill in a key block in gentrifying downtown L.A.
Friday:
• At 8:30 AM ET, the second estimate of Q4 GDP from the BEA. The consensus is that real GDP increased 2.5% annualized in Q4, revised down from the advance estimate of 3.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for February. The consensus is for a decrease to 57.8, down from 59.6 in January.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 81.2, unchanged from the preliminary reading of 81.2, and unchanged from the January reading.

• At 10:00 AM, Pending Home Sales Index for January. The consensus is for a 2.7% increase in the index.

Freddie Mac Results, REO Inventory increases in Q4

by Bill McBride on 2/27/2014 02:10:00 PM

From Freddie Mac: FREDDIE MAC REPORTS NET INCOME OF $48.7 BILLION FOR FULL-YEAR 2013; COMPREHENSIVE INCOME OF $51.6 BILLION

Full-year net income and comprehensive income totaled $48.7 billion and $51.6 billion, respectively
• Fourth quarter net income and comprehensive income totaled $8.6 billion and $9.8 billion, respectively – the company’s ninth consecutive quarter of positive net income and comprehensive income
• Financial results were positively impacted by the following significant items:
• Full-year tax benefit of $23.3 billion driven by release of deferred tax asset valuation allowance
• Pre-tax benefit of legal settlements of $6.0 billion for fourth quarter and $7.7 billion for full year
• Continued improvement in home prices which contributed to reduced loan loss provisioning
• Fair value gains on derivative portfolio and non-agency mortgage-related securities
Recent level of earnings is not sustainable over the long term
emphasis added
There were significant one time gains (tax assets, legal settlements).

Fannie and Freddie REO Click on graph for larger image.

Here is a graph of Fannie and Freddie REO. This was the second consecutive quarterly increase in REO.

Freddie’s SF REO inventory declined over the year, and the recent increase might be seasonal. From Freddie:
In 2013, REO inventory declined primarily due to lower single-family foreclosure activity as a result of Freddie Mac’s loss mitigation efforts and a declining amount of delinquent loans.

Freddie Mac experienced an increase in REO acquisitions during 2013 compared to 2012 in the Northeast region and REO acquisitions remained high in the Southeast region. High REO acquisition volumes in these regions were primarily due to higher foreclosure volume in Maryland, Pennsylvania and Florida.

Kansas City Fed: Regional Manufacturing increased "slightly" in February

by Bill McBride on 2/27/2014 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing was Slightly Positive

Growth in Tenth District manufacturing activity was slightly positive in February, and although producers’ expectations moderated somewhat they remained at solid levels overall. Several contacts continued to cite delays and slowdowns caused by severe winter weather issues. Price indexes were mostly stable or slightly lower.

The month-over-month composite index was 4 in February, similar to the reading of 5 in January and up from -3 in December ... The new orders, employment, and capital expenditures indexes were mostly unchanged.

“The story in February was similar to January. Regional factory activity was held back somewhat by unusually harsh weather, but still managed to grow modestly.” [said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City]
emphasis added
This is the last of the regional surveys.  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 (dashed green, through February), and five Fed surveys are averaged (blue, through February) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through January (right axis).

This suggests another weak reading for the February ISM survey to be released Monday, March 3rd.

Black Knight: Mortgage Serious Delinquency Rate lowest in over five years, Foreclosures Lowest since November 2008

by Bill McBride on 2/27/2014 09:31:00 AM

According to Black Knight (formerly LPS) First Look report for January, the percent of loans delinquent decreased in January compared to November, and declined by more than 10% year-over-year.

Also the percent of loans in the foreclosure process declined further in January and were down 31% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.27% from 6.47% in December. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 2.35% in January from 2.48% in December.   The is the lowest level since late 2008.

The number of delinquent properties, but not in foreclosure, is down 365,000 properties year-over-year, and the number of properties in the foreclosure process is down 528,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for January in early March.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
 January 2014December 2013January 2013
Delinquent6.27%6.47%7.03%
In Foreclosure2.35%2.48%3.41%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:1,851,0001,964,0001,974,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:1,289,0001,280,0001,531,000
Number of properties in foreclosure pre-sale inventory:1,175,0001,244,0001,703,000
Total Properties4,315,0004,488,0005,208,000

Weekly Initial Unemployment Claims increase to 348,000

by Bill McBride on 2/27/2014 08:35:00 AM

The DOL reports:

In the week ending February 22, the advance figure for seasonally adjusted initial claims was 348,000, an increase of 14,000 from the previous week's revised figure of 334,000. The 4-week moving average was 338,250, unchanged from the previous week's revised average.
The previous week was revised down from 336,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged at 338,250.

This was above the consensus forecast of 335,000.  Mostly moving sideways ...

Wednesday, February 26, 2014

Thursday: Yellen Testimony, Weekly Unemployment Claims, Durable Goods Orders

by Bill McBride on 2/26/2014 08:13:00 PM

From Kris Hudson at the WSJ: Builder Borrowing Picks Up

Bank lending for land development and construction is turning up after hitting a 14-year low early last year, a sign that the supply crunch for new homes could ease in coming months.

Data released Wednesday by the Federal Deposit Insurance Corp. show that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. While that's a relatively small gain, economists note that if the overall balance is growing it means that originations of new loans are likely rising even faster. It was the third consecutive quarter of growth.

An increase in lending would spur additional home construction and possibly put downward pressure on prices, which have been rising rapidly over the past two years and weighing on the housing recovery.
In 2013, homebuilders pushed prices. I think prices for new homes will increase less this year (possibly flat or down in some areas), and the builders will deliver more homes.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 336 thousand.

• Also at 8:30 AM, Durable Goods Orders for January from the Census Bureau. The consensus is for a 1.0% decrease in durable goods orders.

• At 10:00 AM, Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

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

Vehicle Sales Forecasts: Decent sales in February; Some weather impact

by Bill McBride on 2/26/2014 04:55:00 PM

Note: The automakers will report January vehicle sales on Monday, March 3rd.

Here are a couple of forecasts:

From Kelley Blue Book: New-Car Sales To Report Sixteenth Consecutive Month Above 15 Million SAAR According To Kelley Blue Book

New-vehicle sales are expected to hit a total of 1.19 million units, and an estimated 15.3 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ... While a 15.3 million SAAR is flat compared to February 2013, it marks the sixteenth month in a row above 15 million.

"For the second consecutive month, winter storms and unusually cold weather in many parts of the country are expected to negatively impact sales," said Alec Gutierrez, senior analyst for Kelley Blue Book. "However, it is likely these purchases have only been delayed and many lost sales will be recorded in March or April."
From J.D. Power: Healthy New-Vehicle Demand Exists Despite Severe Winter Weather
"Although severe weather impacted sales in early February, the negative effect should be somewhat mitigated since the majority of vehicle sales occur in the second half of the month," said John Humphrey, senior vice president of the global automotive practice at J.D. Power. "The industry is on track to reach its highest-ever average transaction price for the month of February, with prices exceeding $29,000. This beats the previous record from February 2013 by more than $400."

In addition to forecasting a record transaction price for the month of February, the firms expect new-vehicle sales to increase 5% over the same month in 2013. LMC Automotive is also holding steady its prediction that annual sales will reach 16.2 million units, despite the bitterly cold winter weather and slow start to the year. However, LMC Automotive does note that all automakers except for Subaru are experiencing bloated inventories. If they are unsuccessful at resolving the situation by summer, production cuts may loom during the second half of the year.
It appears sales in February were OK.

New Home Sales: Don't read too much into January Sales Rate

by Bill McBride on 2/26/2014 01:27:00 PM

Earlier: New Home Sales at 468,000 Annual Rate in January, Highest since 2008

Even though the Census Bureau reported that new home sales rebounded in January from the low December rate (and the December sales rate was revised up), January and December are seasonally weak months - and there is a large margin of error to the initial release - so I wouldn't read too much into one month of data.  Also reported sales were only up 2% year-over-year (not much).

In 2013, January was reported as the strongest sales rate of the year - so maybe the seasonal factor is off a little.  So even though this was a decent start to 2014 (highest sales rate since 2008), the key months are ahead of us.

Note: Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the 468 thousand sales rate in January.   So I expect the housing recovery to continue.

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

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through January 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some (distressed sales will slowly decline and be partially offset by more conventional sales).  And I expect this gap to close - mostly from an increase in new home sales.

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 - and is currently at the lowest level since November 2008.  I expect this ratio to continue to trend down over the next several years as the number of distressed sales declines and new home sales increase. 

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.

FDIC: Earnings increased for insured institutions, Fewer Problem banks, Residential REO Declines in Q4

by Bill McBride on 2/26/2014 11:30:00 AM

The FDIC released the Quarterly Banking Profile for Q4 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.3 billion in the fourth quarter of 2013, a $5.8 billion (16.9 percent) increase from the $34.4 billion in earnings that the industry reported a year earlier. This is the 17th time in the last 18 quarters — since the third quarter of 2009 — that earnings have registered a year-over-year increase. The improvement in earnings was mainly attributable to an $8.1 billion decline in loan-loss provisions. Lower income stemming from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in net operating revenue (the sum of net interest income and total noninterest income). More than half of the 6,812 insured institutions reporting (53 percent) had year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable fell to 12.2 percent, from 15 percent in the fourth quarter of 2012.
emphasis added
The FDIC reported the number of problem banks declined:
The number of "problem banks" fell for the 11th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 515 to 467 during the quarter. The number of "problem" banks is down by almost half from the recent high of 888 at the end of the first quarter of 2011. Two FDIC-insured institutions failed in the fourth quarter of 2013, down from eight in the fourth quarter of 2012. For all of 2013, there were 24 failures, compared to 51 in 2012.
FDIC Insured Institution REO Click on graph for larger image.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $6.79 billion in Q3 2013 to $6.64 billion in Q4. This is the lowest level of REOs since Q3 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

New Home Sales at 468,000 Annual Rate in January, Highest since 2008

by Bill McBride on 2/26/2014 10:00:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 468 thousand.

December sales were revised up from 414 thousand to 427 thousand, and November sales were revised down from 445 thousand to 444 thousand.  

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

Sales of new single-family houses in January 2014 were at a seasonally adjusted annual rate of 468,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent above the revised December rate of 427,000 and is 2.2 percent above the January 2013 estimate of 458,000.
New Home SalesClick on graph for larger image in graph gallery.

This was the highest sales rate since 2008.

Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply decreased in January to 4.7 months from 5.2 months in December.

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

New Home Sales, Months of Supply 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 January was 184,000. This represents a supply of 4.7 months at the current sales rate."
On 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.

New Home Sales, InventoryThis graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is near the record low. The combined total of completed and under construction is still very low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In January 2014 (red column), 34 thousand new homes were sold (NSA). Last year 32 thousand homes were also sold in January. The high for January was 92 thousand in 2005, and the low for January was 213 thousand in 2011.

New Home Sales, NSA

This was well above expectations of 405,000 sales in January.

I'll have more later today - but this was a decent start for 2014. 

MBA: Mortgage Purchase Index lowest since 1995

by Bill McBride on 2/26/2014 07:01:00 AM

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

Mortgage applications decreased 8.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 21, 2014. ...

The Refinance Index decreased 11 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier to the lowest level since 1995. ...

"Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it,” said Mike Fratantoni, MBA’s Chief Economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.53 percent, the highest rate since week ending January 17, 2014, from 4.50 percent, with points increasing to 0.31 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.47 percent, the highest rate since week ending January 24, 2014, from 4.45 percent, with points increasing to 0.13 from 0.11 (including the origination fee) for 80 percent LTV loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 72% from the levels in May 2013.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


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

The 4-week average of the purchase index is now down about 16% from a year ago - and the weekly purchase index is at the lowest level since 1995.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Note: Jumbo rates are still below conforming rates.

Tuesday, February 25, 2014

Wednesday: New Home Sales

by Bill McBride on 2/25/2014 08:53:00 PM

An interesting article on land values from the WSJ: Land Investors Brace for Slowdown

A look at the sequential, quarter-to-quarter change in land prices underscores the cooling of the market. According to Zelman's monthly surveys of builders, brokers and developers in 55 major markets, prices of finished lots receded from their biggest recent gain—6.8% in the first quarter of 2013 from the previous quarter—to a more tepid 2.9% gain in last year's fourth quarter.

Some economists and market observers now predict smaller price gains—and, in some cases, flat prices—for land in 2014. "We expect the pace of acceleration to ease," Zelman analyst Ryan McKeveny said.
Land prices fell sharply during the bust (land prices declined more than house prices), and prices increased quickly over the last couple of years. Now price appreciation is slowing.

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

• At 10:00 AM, New Home Sales for January from the Census Bureau. The consensus is for a decrease in sales to 405 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 414 thousand in December.

Zillow: Case-Shiller House Price Index expected to show 13.0% year-over-year increase in January

by Bill McBride on 2/25/2014 06:45:00 PM

The Case-Shiller house price indexes for December were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

It looks like the year-over-year change for Case-Shiller is still strong, but slowing. In January 2013, the Composite 20 seasonally adjusted index was up 0.8% (a 10% annual rate), and is forecast to be up "only" 0.5% in January 2014 (a 6% annual rate).

From Zillow: Case-Shiller Indices Show Little Moderation

The Case-Shiller data for December 2013 came out this morning, and based on this information and the January 2014 Zillow Home Value Index (ZHVI, released February 19) we predict that next month’s Case-Shiller data (January 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.0 and 13.3 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from December to January will be 0.5 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for January will not be released until Tuesday, March 25.

Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show an inflated picture of home prices, especially when considering year-over-year growth. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed.

In contrast, the ZHVI does not include foreclosure resales and shows home values for January 2014 up 6.3 percent from year-ago levels. More on the differences between a repeat sales index, including the Case-Shiller indices, and an imputed hedonic index like the ZHVI can be found here. We expect home value appreciation to continue to moderate in 2014, rising 3.4 percent between January 2014 and January 2015 — a rate much more in line with historic appreciation rates. The main drivers of this moderation include rising mortgage rates and less investor participation – leading to decreased demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full January 2014 report can be found here.
The following table shows the Zillow forecast for the December Case-Shiller index.

Zillow December Forecast for Case-Shiller Index
 Case Shiller Composite 10Case Shiller Composite 20
NSASANSASA
Case Shiller
(year ago)
Jan 2013158.61160.50146.15148.05
Case-Shiller
(last month)
Dec 2013180.13180.17165.69166.70
Zillow ForecastYoY13.3%13.3%13.0%13.0%
MoM-0.2%0.5%-0.3%0.5%
Zillow Forecasts1 179.7182.0165.2167.4
Current Post Bubble Low 146.45149.69134.07136.92
Date of Post Bubble Low Mar-12Jan-12Mar-12Jan-12
Above Post Bubble Low 22.7%21.6%23.2%22.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

Lawler on Toll Brothers: Net Home Orders Down in Latest Quarter; Weather Only Partly to Blame

by Bill McBride on 2/25/2014 05:55:00 PM

From housing economist Tom Lawler:

Toll Brothers, the self-proclaimed “nation’s leading builder of luxury homes,” reported that net home orders in the quarter ended January 31, 2014 totaled 916, down 5.9% from the comparable quarter of 2013. Net home orders for “traditional” homes (that is, excluding its “city-living” segment) totaled 865 last quarter, down 8.1% from a year earlier. The company’s sales cancellation rate, expressed as a % of gross orders, was 7.0% last quarter, up from 6.2% a year ago. Home deliveries last quarter totaled 928, up 24.4% from the comparable quarter of 2013, at an average sales price $694,000, up 22.0% from a year ago. The company’s order backlog at the end of January was 3,667, up 31.2% from last January, at an average order price of $733,000, up 10.2% from a year ago.

Here are a few excerpts from the conference call.

“The freezing, snowy weather of the past two months has impacted our business in the Northeast, Mid-Atlantic and Midwest markets, where about 50% of our selling communities are located. While it is still too early to draw conclusions about the Spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics.” “Encouragingly, our average price per home has risen dramatically, representing a combination of price increases and mix shift. Both components have helped boost our gross and operating margin.”
For “traditional” homes, net orders last quarter were down YY in the “North,” up 0.4% in the “Mid-Atlantic” up 9.4% in the “South” (which includes Texas), and off 17.4% in the “West.” The decline in the West was not weather related, but rather reflected potential buyers’ response to Toll’s unusually aggressive price increases in the region, especially California. The average net order price in the West last quarter was $944,000, up 27.9% from a year earlier.

Based on results so far, Toll lowered slightly its wide “guidance” on expected home deliveries for its full fiscal year (ending October 31, 2014) to “between 5,100 and 5,850 homes” from “between 5,100 and 6,100 homes” given in its December 10, 2013 earnings press release. Toll delivered 4,184 homes in the fiscal year ended October 31, 2013.

Toll said that at the end of January it owned or controlled 51,235 lots, up 17.3% from last January and up 29.2% from the end of January 2012.

Update: Seasonal Pattern for House Prices

by Bill McBride on 2/25/2014 03:55:00 PM

There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced in recent years.

Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a larger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter.


House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both through December).   The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst.

Case-Shiller NSA and CoreLogic both recently turned slightly negative month-to-month, but this is just seasonal.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.

Note: I was one of several people to question this change in the seasonal factor - and this led to S&P Case-Shiller reporting the NSA numbers.

It appears the seasonal factor has stopped increasing, and I expect that over the next several years - as the percent of distressed sales decline - the seasonal factors will slowly move back towards the previous levels. 

Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities

by Bill McBride on 2/25/2014 11:40:00 AM

I've been hearing reports of a slowdown in house price increases (more than the usual seasonal slowdown), and perhaps this slowdown in price increases is finally showing up in the Case-Shiller index.  This makes sense since inventory is starting to increase.

According to Trulia chief economist Jed Kolko, asking price increases have slowed down recently, and Kolko expects that price slowdown will "hit Feb sales prices and get reported in April index releases".

It might take a few months, but I also expect to see smaller year-over-year price increases going forward.

Note: There was a small Not Seasonally Adjusted decline in December, but that decline was smaller than usual - and prices are still increasing fairly quickly on a seasonally adjusted basis.


I also think it is 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 $276,000 today adjusted for inflation (about 38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).


Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 13.4% year-over-year in December

Nominal House Prices

Nominal House PricesThe first graph shows the quarterly Case-Shiller National Index SA (through Q4 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through December) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2004 levels (and also back up to Q3 2008), and the Case-Shiller Composite 20 Index (SA) is back to July 2004 levels, and the CoreLogic index (NSA) is back to September 2004.

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 Q2 2001 levels, the Composite 20 index is back to May 2002, and the CoreLogic index back to May 2002.

In real terms, house prices are back to early '00s 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 Q2 2001 levels, the Composite 20 index is back to Sept 2002 levels, and the CoreLogic index is back to September 2002.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


Case-Shiller CitiesThe last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 44% above January 2000 (44% nominal gain in 14 years).

These are nominal prices, and as I noted above real prices (adjusted for inflation) are up about 38% since January 2000 - so the increase in Phoenix from January 2000 until now is just a little above the change in overall prices due to inflation.

Two cities - Denver (up 46% since Jan 2000) and Dallas (up 33% since Jan 2000) - are above the bubble highs (no other Case-Shiller Comp 20 city is very close).    Denver is up slightly more than inflation over that period, and Dallas slightly less.  Detroit prices are still below the January 2000 level.

Richmond Fed: "Manufacturing Sector Softened" in February

by Bill McBride on 2/25/2014 10:04:00 AM

From the Richmond Fed: Manufacturing Sector Softened; Shipments and New Orders Declined

Manufacturing in the Fifth District slowed, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders declined. Hiring flattened, while the average workweek shortened and average wage growth rose. ...

The composite index of manufacturing dipped to a reading of −6 following last month's reading of 12. The index for shipments fell 20 points, ending at −6, and the index for new orders dropped 23 points, finishing at a reading of −9. The index for the number of employees shed six points, settling at 0. As a result of bad weather a few survey participants reported that manufacturing facilities experienced downtime in February, with some reductions in shipments.

Manufacturing employment eased off this month, settling at an index of 0 and the average workweek shortened. The index shed 13 points moving to a reading of −5. The index for average wages grew only slightly faster; that gauge edged up to 14 from the previous reading of 11.
Another weak manufacturing survey for February.

Case-Shiller: Comp 20 House Prices increased 13.4% year-over-year in December

by Bill McBride on 2/25/2014 09:15:00 AM

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

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

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

From S&P: ome Prices Lose Momentum According to the S&P/Case-Shiller Home Price Indices

Data through December 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that National home prices closed the year of 2013 up 11.3%. This represents a slight improvement over last quarter’s annual rate of 11.2%. In the fourth quarter of 2013, the National Index declined 0.3%.

In December, the 10-City Composite remained relatively unchanged while the 20-City Composite showed its second consecutive monthly decline of 0.1%. Year-over-year, the 10-City and 20-City Composites posted gains of 13.6% and 13.4%, approximately 30 basis points lower than their November rates. Chicago showed its highest year-over-year return since December 1988. Dallas set a new peak and posted its largest annual gain since its inception in 2000. Denver declined 0.1% and is now 0.7% below its all-time index level high set in September 2013.

“The S&P/Case-Shiller Home Price Index ended its best year since 2005,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over. Year-over-year values for the two monthly Composites weakened and the quarterly National Index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum.

After 26 months of consecutive gains, Phoenix posted -0.3% for the month of December, its largest decline since March 2011. Phoenix once led the recovery from the bottom in 2012, but Las Vegas, Los Angeles and San Francisco were the top three performing cities of 2013 with gains of over 20%. The Sun Belt, with the exception of Dallas, Miami and Tampa, saw lower annual rates in December when compared to their November numbers. The six cities with the highest year-over-year figures saw their rates decline (Las Vegas, San Francisco, Los Angeles, Atlanta, San Diego and Detroit) and most cities ranked at the bottom improved (Denver, Washington and New York) – Charlotte and Cleveland were the two exceptions."
Case-Shiller House Prices Indices Click on graph for larger image.

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

The Composite 10 index is off 20.1% from the peak, and up 0.8% in December (SA). The Composite 10 is up 21.0% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 19.3% from the peak, and up 0.8% (SA) in December. The Composite 20 is up 21.7% from the post-bubble low set in Jan 2012 (SA).

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

The Composite 10 SA is up 13.6% compared to December 2012.

The Composite 20 SA is up 13.4% compared to December 2012.

Prices increased (SA) in 19 of the 20 Case-Shiller cities in December seasonally adjusted.  (Prices increased in 6 of the 20 cities NSA) Prices in Las Vegas are off 45.5% from the peak, and prices in Dallas are at new highs (SA).

This was at the consensus forecast for a 13.3% YoY increase. I'll have more on prices later.

Monday, February 24, 2014

Tuesday: Case-Shiller and FHFA House Prices, Richmond Fed

by Bill McBride on 2/24/2014 09:13:00 PM

An excellent article from Jared Bernstein: Lessons From the Recovery Act. A few excerpts:

A deeper understanding of the economic damage should have prevented the precipitous pivot away from stimulus toward deficit reduction.
One of my key complaints was that policy pivoted to austerity way too soon.  I never understood why infrastructure spending was only on "shovel ready" programs.  Since recoveries from financial crisis recessions are always sluggish, the investments in infrastructure could have been significantly higher and over a longer period.
[I]in those days I learned the power of the single worst analogy I know: “just as families have to tighten their belts in tough times, so does the government.” It’s not just that this is wrong; it’s that it’s backward. When families are tightening, government (including the Federal Reserve) must loosen, and vice versa. But the phrase, uttered by no less than the president himself at times, makes so much folksy sense that it too infected the policy and precipitated the pivot.
Absolutely correct. Every time I hear this - including from President Obama - I cringe. And more:
About one-third of the stimulus package went to tax cuts. There’s an excellent political rationale for that apportionment, but particularly given the diagnosis noted above, tax cuts’ bang-for-buck in terms of jobs is less than optimal. First, for the cuts to stimulate the economy, recipients have to spend the extra money, not save it. In a deleveraging cycle, that’s a heavier lift. Second, when they do spend the money, they need to spend it on domestic goods. So there’s a lot of potential leakage.

It’s also the case that one-quarter of the tax cuts went to relief from the alternative minimum tax that would have happened anyway, so that part wasn’t even stimulus (which by definition means new spending or tax cuts).
I've argued before that even though the stimulus package was an obvious success, some parts of the package (like certain tax cuts) were not very effective. The debate now should be on how well each part of the package performed.

Tuesday:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for December. Although this is the December report, it is really a 3 month average of October, November and December. The consensus is for a 13.3% year-over-year increase in the Composite 20 index (NSA) for December. The Zillow forecast is for the Composite 20 to increase 13.5% year-over-year, and for prices to increase 0.7% month-to-month seasonally adjusted.

• Also at 9:00 AM, the FHFA House Price Index for December 2013. This was original a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% increase.

• Also at 9:00 AM, the Chemical Activity Barometer (CAB) for January from the American Chemistry Council. This appears to be a leading economic indicator.

• At 10:00 AM, the Conference Board's consumer confidence index for February. The consensus is for the index to decrease to 80.0 from 80.7.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for February

Weekly Update: Housing Tracker Existing Home Inventory up 5.7% year-over-year on Feb 24th

by Bill McBride on 2/24/2014 07:13:00 PM

Here is another weekly update on housing inventory ...

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for January).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Existing Home Sales Weekly data Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

Inventory in 2014 is now 5.7% above the same week in 2013 (red is 2014, blue is 2013).

Inventory is still very low, but this increase in inventory should slow house price increases. 

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).

DOT: Vehicle Miles Driven increased 1.1% year-over-year in December

by Bill McBride on 2/24/2014 01:29:00 PM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by 1.1% (2.7 billion vehicle miles) for December 2013 as compared with December 2012.
...
Cumulative Travel for 2013 changed by 0.6% (18.1 billion vehicle miles).
The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.


Vehicle Miles Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 73 months - 6+ years - and still counting.  Currently miles driven (rolling 12 months) are about 2.2% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven YoY In December 2013, gasoline averaged of $3.36 per gallon according to the EIA.  that was down slightly from 2012 when prices in December averaged $3.38 per gallon.


As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven - but it appears miles driven might be gradually increasing again.

Dallas Fed Manufacturing: General Business Index Flat, Production Increases, Employment Increases

by Bill McBride on 2/24/2014 10:38:00 AM

From the Dallas Fed: Texas Manufacturing Picks Up Again but Less Optimism in Outlook

Texas factory activity increased for the tenth month in a row in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 7.1 to 10.8, indicating output grew at a slightly stronger pace than in January.

Other measures of current manufacturing activity also reflected a pick up. The capacity utilization index edged up to 9.1, with a quarter of manufacturers noting an increase. The shipments index rose again in February, coming in at 13.3. The new orders index continued to indicate demand growth and was 9.5, down from 14.4 in January but above the levels seen toward the end of last year.
...
The general business activity index fell to zero after eight positive readings in a row. The company outlook index also declined, from 15.9 to 3.4, hitting its lowest reading since last spring.

Labor market indicators reflected continued employment growth and longer workweeks. The February employment index edged up for a third consecutive month, rising to 9.9. Eighteen percent of firms reported net hiring compared with 8 percent reporting net layoffs. The hours worked index shot up from 3.4 to 12, reaching its highest level in more than two and a half years.
A mixed report, but the employment indexes were positive.

Chicago Fed: "Economic growth slowed in January"

by Bill McBride on 2/24/2014 08:51:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth slowed in January

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.39 in January from –0.03 in December.

The index’s three-month moving average, CFNAI-MA3, decreased to +0.10 in January from +0.26 in December, marking its fifth consecutive reading above zero. January’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed National Activity Index Click on graph for larger image.

This suggests economic activity was above the historical trend in January (using the three-month average).

According to the Chicago Fed:
What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Sunday, February 23, 2014

Sunday Night Futures

by Bill McBride on 2/23/2014 08:25:00 PM

Monday:
• At 8:30 AM ET, the Chicago Fed National Activity Index for January. This is a composite index of other data.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for February. The general business activity index was at 3.8 in January.

Weekend:
Schedule for Week of Feb 23rd

Housing Weakness: Temporary or Enduring?

From MarketWatch: Asia Markets live blog: Stocks rolling higher

Both Japan’s Nikkei Average and Australia’s S&P/ASX 200 spent a little time in negative territory during the opening minutes, but both are higher now, up 0.5% and 0.3%, respectively.
From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 4 and DOW futures are up 37(fair value).

Oil prices are up with WTI futures at $102.58 per barrel and Brent at $110.19 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.40 per gallon (up sharply over the last two weeks, but down significantly from the same week a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.



Orange County Historical Gas Price Charts Provided by GasBuddy.com

Housing Weakness: Temporary or Enduring?

by Bill McBride on 2/23/2014 12:29:00 PM

The recent data for housing has been weak, with new home sales and housing starts mostly moving sideways over the last year (with plenty of ups and downs, and I expect downward revisions to Q4 new home sales). Existing home sales have declined 14% from a peak of 5.38 million in July 2013 on a seasonally adjusted annual rate basis (SAAR), to just 4.62 million SAAR in January.

There are several reasons for the recent weakness:
1) Higher prices. Case-Shiller reported prices were up 13.7% year-over-year in November. Other indexes had smaller increases, but all showed significant price increases in 2013.

2) Higher mortgage rates. 30 year fixed mortgage rates increased last summer from around 3.5% in May 2013 to 4.4% in July 2013. Since then, mortgage rates have mostly moved sideways, but some of the weakness since last summer is probably related to higher mortgage rates.

3) Fewer distressed sales.   Although the decline in foreclosures, short sales, and mortgage delinquencies is good news, this has meant fewer overall existing home sales (this isn't a surprise - I've been predicting a decline in overall existing home sales for exactly this reason).  Even though overall sales have been declining, equity sales (aka conventional transactions), are actually up year-over-year.  Note: Of course fewer distressed sales should be a positive for new home sales, so this doesn't explain some of the recent weakness for new home sales.

4) Less investor buying.  This is related to fewer distressed sales.  If we use cash buyers as an indicator of the level of investor buying, then the decline in cash buyers in areas like Las Vegas, Phoenix, and Sacramento suggests investors are pulling back.

5) Limited inventory.  The sharp decline in inventory over the last few years was a key story for housing (I beat that horse into the ground).   There are several reasons inventory has been low: a) Most of the recent investor buying has been "buy-to-rent" and these investors aren't selling, Note: Economist Tom Lawler discussed this two year ago, and he concluded that a significant "share of the decline in the share of homes for sale reflects the acquisition of SF (and condo) properties by investors as multi-year rental properties", b) Is it difficult for people who are underwater (negative equity)  to sell,  c) Seller psychology: When the expectation is that prices will fall further, marginal sellers will try to sell their homes immediately. And marginal buyers will decide to wait for a lower price. This leads to more inventory on the market. But when the expectation is that prices are stabilizing (the current situation), sellers will wait until it is convenient to sell. d) Low inventory can keep some potential sellers from listing their homes because they can't find a move-up home to buy.

6) Supply chain constraints for New Homes.   I noted at the beginning of 2013 "I've heard some builders might be land constrained in 2013 (not enough finished lots in the pipeline)." That was correct - some builders had limited entitled land and there were other constraints too (material shortages, skilled labor in certain areas) - and this limited the number of new home sales last year (sales were only up 16.3% in 2013).

7) And some of the recent weakness in December and January (and February) might have been weather related.

Here are a few graphs to show the recent weakness:

Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

Total housing starts in January were at a seasonally adjusted annual rate of 880,000 - only 2% above January 2013, and single-family housing starts in January were at a rate of 573,000 - down 6% from January 2013.

Although starts have been up and down over the last year, starts have mostly moved sideways. Of course starts were up 18.7% in 2013 compared to 2012, so there was little "weakness" on an annual basis.

New Home SalesNew home sales followed the same pattern has housing starts: up solidly in 2013 compared to 2012, but with sales mostly moving sideways all year (with ups and downs).

New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 414 thousand up only 4.5% from December 2012.

New home sales for January 2014 will be released this coming Wednesday, and I expect sales to be down year-over-year, and to see some downward revisions for Q4 sales.

Existing Home SalesExisting home sales in January were at a 4.62 million SAAR, and were 5.1% below the January 2013 rate.

So what should we make of this "weakness"?

First, the decline in existing home sales is not bad news. See: Home Sales Reports: What Matters. Fewer distressed sales - and more equity sales (conventional sales) - is a positive.

Second, we need to put the recent "weakness" for starts and new home sales in perspective.   New home sales were up 16.3% in 2013 - a solid year of growth - and 2013 was still the sixth weakest year since 1963 when the Census Bureau started tracking new home sales.  For housing starts, even after increasing 28.2% in 2012 and 18.7% in 2013, the 927 thousand housing starts in 2013 were the sixth lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2008 through 2012). Also, this was the fifth lowest year for single family starts since 1959 (only 2009 through 2012 were lower).

These low levels of housing starts and new home sales, combined with a growing population and new household formation, suggests new home sales and housing starts should increase over the next few years.

Also higher prices should lead to more inventory (the NAR reported inventory was up 7.6% year-over-year in January). More inventory should mean slower price increases (maybe even flat of declining prices in certain markets), and also more non-distressed sales.  For new homes, the builders are reporting more selling communities in 2014, and it appears some of the land constraints have diminished. As Lawler recently wrote:

First, fueled by low mortgage rates, low new and existing home inventories, and some “pent-up” demand, builders as a group experienced a significant increase in net home orders starting in the latter part of 2012 and continuing into the spring of 2013. While many builders responded by increasing significantly land acquisitions and development spending in 2012 and 2013, many builders were unable to meet demand, partly reflecting longer-than-normal development timelines related to “supply-chain” issues. Many responded by increasing prices substantially, in some areas at a pace seldom seen. When mortgage rates subsequently rose sharply, the combination of higher mortgage rates and substantially higher new home prices resulted in a significant slowdown in net home orders. While mortgage rates eased somewhat in the latter part of last year, orders did not rebound much (or for some builders at all), mainly reflecting potential buyers balking at the higher home prices.

That slowdown did not dampen most builders’ optimism for the 2014 spring selling season, and most builders have the land/lots to increase substantially their community counts this year, and plan to do so. One reason for their optimism is that the previous hikes in prices have at many builders pushed margins up well above “normal” levels, meaning they can drive higher revenues with higher volumes without price increases, and in fact can be “quite profitable” by holding prices even if construction costs rise. As such, a reasonable assumption for new home prices from the end of 2013 to the end of 2014 would be “flattish.”
The bottom line is the housing weakness should be temporary. There should be more inventory this year, price increases should slow, and sales volumes increase.

Saturday, February 22, 2014

Schedule for Week of Feb 23rd

by Bill McBride on 2/22/2014 12:51:00 PM

The key reports this week are the second estimate of  Q4 GDP on Friday, January New Home sales on Wednesday, and December Case-Shiller house prices on Tuesday.

For manufacturing, the February Dallas, Richmond and Kansas City Fed surveys will be released.

Note: The FDIC is expected to release the Q4 FDIC Quarterly Banking Profile during the week.

Also Fed Chair Janet Yellen will provide the Semiannual Monetary Policy Report to the Congress on Thursday.

----- Monday, February 24th -----

8:30 AM ET: Chicago Fed National Activity Index for January. This is a composite index of other data.

10:30 AM: Dallas Fed Manufacturing Survey for February.

----- Tuesday, February 25th -----

Case-Shiller House Prices Indices 9:00 AM: S&P/Case-Shiller House Price Index for December. Although this is the December report, it is really a 3 month average of October, November and December.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through November 2012 (the Composite 20 was started in January 2000).

The consensus is for a 13.3% year-over-year increase in the Composite 20 index (NSA) for December. The Zillow forecast is for the Composite 20 to increase 13.5% year-over-year, and for prices to increase 0.7% month-to-month seasonally adjusted.

9:00 AM: FHFA House Price Index for December 2013. This was original a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% increase.

9:00 AM: Chemical Activity Barometer (CAB) for January from the American Chemistry Council. This appears to be a leading economic indicator.

10:00 AM: Conference Board's consumer confidence index for February. The consensus is for the index to decrease to 80.0 from 80.7.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for February

----- Wednesday, February 26th -----

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

New Home Sales10:00 AM: New Home Sales for January from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the December sales rate.

The consensus is for a decrease in sales to 405 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 414 thousand in December. 

----- Thursday, February 27th -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 336 thousand.

8:30 AM: Durable Goods Orders for January from the Census Bureau. The consensus is for a 1.0% decrease in durable goods orders.

10:00 AM: Testimony, Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

11:00 AM: the Kansas City Fed manufacturing survey for February. This is the last of the regional Fed surveys for February.

----- Friday, February 28th -----

8:30 AM: Q4 GDP (second estimate). This is the second estimate of Q4 GDP from the BEA. The consensus is that real GDP increased 2.5% annualized in Q4, revised down from the advance estimate of 3.2%.

9:45 AM: Chicago Purchasing Managers Index for February. The consensus is for a decrease to 57.8, down from 59.6 in January.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 81.2, unchanged from the preliminary reading of 81.2, and unchanged from the January reading.

10:00 AM ET: Pending Home Sales Index for January. The consensus is for a 2.7% increase in the index.

Unofficial Problem Bank list declines to 578 Institutions

by Bill McBride on 2/22/2014 08:05:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for February 21, 2014.

Changes and comments from surferdude808:

Late Friday, the OCC released an update on its recent enforcement action activity that contributed to many removals from the Unofficial Problem Bank List. During the week, there were eight removals that lowered the list institution count to 578 with assets of $193.0 billion. A year ago, the list held 809 institutions with $302.8 billion of assets.

The OCC terminated actions against Home Federal Savings Bank, Rochester, MN ($562 million Ticker: HMNF); The Farmers National Bank of Buhl, Buhl, ID ($391 million); 1st National Bank of South Florida, Homestead, FL ($307 million); American National Bank, Oakland Park, FL ($235 million); Liberty Bank, National Association, Twinsburg, OH ($203 million); Cherokee Bank, National Association, Canton, GA ($168 million Ticker: CHKJ); First Capital Bank, Bennettsville, SC ($58 million Ticker: FCPB); and The First National Bank of Fleming, Fleming, CO ($23 million).

Next week, the FDIC should release an update on its latest enforcement action activities and a report on industry results for the fourth quarter and full year of 2013. Included should be updated figures on the Official Problem Bank List. At the last quarterly release in November 2013, the count on the unofficial list exceeded the official by 130. Since then, the unofficial list has declined by 67 institutions. We are anticipating for the difference to narrow with this release.

Friday, February 21, 2014

Weekend Reading: 2008 FOMC Transcripts

by Bill McBride on 2/21/2014 08:43:00 PM

From some weekend reading, here are the 2008 FOMC transcripts.

Here is a gem from August 2008 from St Louis Fed President James Bullard:

My sense is that the level of systemic risk associated with financial turmoil has fallen dramatically. For this reason, I think the FOMC should begin to de-emphasize systemic risk worries. My reasoning is as follows. Systemic risk means that the sudden failure of a particular financial firm would so shock other ostensibly healthy firms in the industry that it would put them out of business at the same time. The simultaneous departure of many firms would badly damage the financial services industry, causing a substantial decline in economic activity for the entire economy. This story depends critically on the idea that the initial failure is sudden and unexpected by the healthy firms in the industry. But why should this be, once the crisis has been ongoing for some time? Are the firms asleep? Did they not realize that they may be doing business with a firm that may be about to default on its obligations? Are they not demanding risk premiums to compensate them for exactly this possibility? My sense is that, because the turmoil has been ongoing for some time, all of the major players have made adjustments as best they can to contain the fallout from the failure of another firm in the industry. They have done this not out of benevolence but out of their own instincts for self-preservation. As one of my contacts at a large bank described it, the discovery process is clearly over. I say that the level of systemic risk has dropped dramatically and possibly to zero.
emphasis added
And then the economy collapsed. I guess the "discovery process" wasn't over!

From Annie Lowrey at the NY Times Economix: How the Fed Saw a Recession, Then Didn’t, Then Did. From January 2008:
JANET L. YELLEN: The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession.

RICHARD FISHER: While there are tales of woe, none of the 30 C.E.O.’s to whom I talked, outside of housing, see the economy trending into negative territory. They see slower growth. Some of them see much slower growth. None of them at this juncture – the cover of Newsweek notwithstanding, a great contra-indicator, which by the way shows “the road to recession” on the issue that is about to come out – see us going into recession.

CHARLES EVANS: Our cumulative actions following this meeting should provide noticeable stimulus to the economy by midyear.… In the absence of further negative developments, growth should improve in the second half of this year.

ERIC ROSENGREN: We could soon be or may already be in a recession.
As I've noted over the years, Dr. Yellen is usually correct and Mr. Fisher is frequently funny - and usually wrong. 

From Cardiff Garcia at the FT Alphaville: FOMC transcripts: Bernanke on Japanese vs American monetary policy (or QE vs credit easing)

More excerpts from the NY Times: Inside the Fed’s 2008 Proceedings

And more from Annie Lowrey at the NY Times Economix: In a Dark Year, a Lighter Side at the Fed
MR. MISHKIN: I am very skeptical of [household surveys] because they tend to react very much to current conditions. Also, if you ask people what TV shows they are watching, they will tell you that they are watching PBS and something classy, but you know they are watching “Desperate Housewives.”

MR. BERNANKE. What is wrong with “Desperate Housewives”?