Wednesday, December 31, 2014

Question #1 for 2015: How much will the economy grow in 2015?

by Bill McBride on 12/31/2014 07:22:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'm adding some thoughts, and a few predictions for each question. Here is a review of the Ten Economic Questions for 2014.

1) Economic growth: Heading into 2015, most analysts are pretty sanguine. Even with contraction in the first quarter, 2014 was a decent year (GDP will grow around 2.4% in 2014). Will 2015 be the best year of the recovery so far? Could 2015 be the best year since the '90s? Or will 2015 disappoint again?

First, here is a table of the annual change in real GDP since 1999.  Since 2000, the fastest real GDP growth was 3.8% in 2004, and the fastest growth for the recovery was 2.5% in 2010.

Economic activity clearly picked up in 2014 after the first quarter, however - due to severe weather - the economy contracted in Q1 and the economy only grew around 2.4% for the year (estimated).

Perhaps 2015 will be the year with 3%+ growth!

Annual Real GDP Growth
YearGDP
19994.7%
20004.1%
20011.0%
20021.8%
20032.8%
20043.8%
20053.3%
20062.7%
20071.8%
2008-0.3%
2009-2.8%
20102.5%
20111.6%
20122.3%
20132.2%
201412.4%
1 2014 estimate.

All of the positives that led to the pickup in activity in 2014 are still present - the housing recovery is ongoing, state and local government austerity is over, household balance sheets are in much better shape and household deleveraging is over, and commercial real estate (CRE) investment (ex-energy) and public construction will both probably make positive contributions in 2015.

In addition, the sharp decline in oil prices should be a net positive for the US economy in 2015.  Plus the Federal government austerity is now ending (although there is the risk of more cuts).

A possible negative would be less exports due to the strong dollar.

Lower gasoline prices suggest an increase in personal consumption expenditures (PCE) excluding gasoline. And it seems likely PCE growth will be above 3% in 2015.  Add in some more business investment, the ongoing housing recovery, some further increase in state and local government spending, and 2015 should be the best year of the recovery with GDP growth at or above 3%.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Fannie Mae: Mortgage Serious Delinquency rate declined slightly in November, Lowest since October 2008

by Bill McBride on 12/31/2014 05:22:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in November to 1.91% from 1.92% in October. The serious delinquency rate is down from 2.44% in November 2013, and this is the lowest level since October 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate was unchanged in November at 1.91%. Freddie's rate is down from 2.43% in November 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.53 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be close to normal in late 2016.

Question #2 for 2015: How many payroll jobs will be added in 2015?

by Bill McBride on 12/31/2014 11:28:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'm adding some thoughts, and a few predictions for each question. Here is a review of the Ten Economic Questions for 2014.

2) Employment:  With one month to go, 2014 is already the best year for employment growth since the '90s.   Will 2015 be as strong?  Or will job creation slow in 2015?

There are some positives for employment heading into 2015. Economic activity has clearly picked up in the US, and there is solid momentum heading into the new year. The decline in oil prices will give a boost to many sectors, construction activity (non-energy related) should increase, and the pace of public hiring will probably increase in 2015.

There are also some negatives. The decline in oil prices will lead to layoffs in the energy sector and have a ripple effect in some communities. The strong dollar will probably impact exporters, and the lower unemployment rate will mean some companies will have difficulty finding qualified candidates.

I've seen estimates of around 50,000 layoffs in the energy sector related to lower oil prices.  There will be a ripple effect too that will probably double that number of job losses (businesses in oil producing areas will also lose employees).

Note: Those expecting 300+ thousand jobs per month in 2015 will probably be disappointed.  Too many people compare to the '80s and '90s, without thinking about changing demographics. The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s.  The prime working age population has actually declined slightly this decade.  Note: The prime working age population is now growing slowly again, and growth will pick up the '20s.

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  For private employment, 2014 was probably the best year since 1997.

Change in Payroll Jobs per Year (000s)
Total, NonfarmPrivatePublic
19973,4083,213195
19983,0032,734313
19993,1772,716461
20001,9461,682264
2001-1,735-2,286551
2002-508-741233
2003105147-42
20042,0331,886147
20052,5062,320186
20062,0851,876209
20071,140852288
2008-3,576-3,756180
2009-5,087-5,013-74
20101,0581,277-219
20112,0832,400-317
20122,2362,294-58
20132,3312,365-34
201412,9002,81090
1 2014 is estimated.

In 2014, public employment added to total employment, but at a fairly low level. Public hiring will probably pick up to 150,000+ in 2015.

The second table shows the change in construction payrolls starting in 2006.

Construction Jobs (000s)
2006152
2007-195
2008-789
2009-1,047
2010-192
2011144
2012114
2013156
20141215

Energy related construction hiring will decline in 2015, but I expect other areas of construction to be solid.

As I mentioned above, in addition to layoffs in the energy sector, exporters will have a difficult year - and more companies will have difficulty finding qualified candidates.  Even with the overall boost from lower oil prices - and some additional public hiring, I expect total jobs added to be lower in 2015 than in 2014.

So my forecast is for gains of about 200,000 to 225,000 payroll jobs per month in 2015.  Lower than 2014, but another solid year for employment gains given current demographics.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

NAR: Pending Home Sales Index increased 0.8% in November, up 4.1% year-over-year

by Bill McBride on 12/31/2014 10:02:00 AM

From the NAR: Pending Home Sales Show Modest Gain in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.8 percent to 104.8 in November from a slightly downwardly revised 104.0 in October and is now 4.1 percent above November 2013 (100.7) – the highest year-over-year gain since August 2013 (5.6 percent).
...
The PHSI in the Northeast rose 1.4 percent to 89.1 in November, and is now 7.0 percent above a year ago. In the Midwest the index decreased 0.4 percent to 100.0 in November, and is now 0.5 percent below November 2013.

Pending home sales in the South rose 1.3 percent to an index of 119.7 in November, and are 5.1 percent above last November. The index in the West increased 0.4 percent in November to 98.5, and is now 4.9 percent above a year ago.
Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

Weekly Initial Unemployment Claims increased to 298,000

by Bill McBride on 12/31/2014 08:34:00 AM

The DOL reported:

In the week ending December 27, the advance figure for seasonally adjusted initial claims was 298,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 280,000 to 281,000. The 4-week moving average was 290,750, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 250 from 290,250 to 290,500.

There were no special factors impacting this week's initial claims
The previous week was revised up slightly.

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 increased slightly to 290,750.

This was higher than the consensus forecast of 286,000, and the level suggests few layoffs.

Tuesday, December 30, 2014

Zillow: Case-Shiller House Price Index year-over-year change expected to slow further in November

by Bill McBride on 12/30/2014 09:02:00 PM

Wednesday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 286 thousand from 280 thousand.

• At 9:45 AM ET, Chicago Purchasing Managers Index for December. The consensus is for a reading of 59.0, down from 60.8 in November.

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

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

From Zillow: Nov. 2014 Case-Shiller Forecast: Home Price Changes Slowing, But Still Growing

The October S&P/Case-Shiller (SPCS) data released this morning showed more slowing in the housing market, with annual growth in national home prices falling to 4.6 percent. Annual appreciation in home values has been below 5 percent for the past two months, and we anticipate this trend to continue into the future. The 10- and 20-City Indices also saw annual growth rates decline in October; the 10-City index rose 4.4 percent, while the 20-City Index rose 4.5 percent – down from rates of 4.5 percent and 4.7 percent, respectively, in September.

Our forecast for November SPCS indicates that the slowing in home price gains will continue into November. Zillow predicts the national SPCS to rise 4.5 percent on an annual basis.

The non-seasonally adjusted (NSA) 20-City index fell 0.1 percent from September to October, and we expect it to decrease 0.2 percent in November. We also expect a monthly decline in the 10-City Composite Index next month, falling 0.2 percent from October to November (NSA).

All forecasts are shown in the table below. These forecasts are based on the October SPCS data release and the November 2014 Zillow Home Value Index (ZHVI), released Dec. 19. Officially, the SPCS Composite Home Price Indices for November will not be released until Tuesday, Jan. 27.
So the Case-Shiller index will probably show a lower year-over-year gain in November than in October.

Zillow November 2014 Case-Shiller Forecast
  Case-Shiller
Composite 10
Case-Shiller
Composite 20
Case-Shiller
National
NSASANSASANSASA
YoY4.2%4.2%4.4%4.4%4.5%4.5%
MoM-0.2%0.5%-0.2%0.5%-0.2%0.6%

Question #3 for 2015: What will the unemployment rate be in December 2015?

by Bill McBride on 12/30/2014 04:51:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

3) Unemployment Rate: The unemployment rate was at 5.8% in November, down 0.9 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 5.2% to 5.3% range next December.  What will the unemployment rate be in December 2015?

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate. Note: The participation rate is the percent of the working age population (16 and over) that is in the labor force.

On participation: We can be pretty certain that the participation rate will decline over the next couple of decades based on demographic trends.  In 2014, I expected the participation rate to stabilize or decline slightly as the labor market improved - the long term down trend was offset by some people returning to the labor force.  It is possible that the participation rate could even increase a little in 2015 before resuming the downtrend.  If the participation rate increases a little (say to 63%) then the unemployment rate will be a little higher next December.

Here is a table of the participation rate and unemployment rate since 2008.

Unemployment and Participation Rate for December each Year
December ofParticipation RateChange in Participation Rate (percentage points)Unemployment Rate
200865.8%7.3%
200964.6% -1.29.9%
201064.3% -0.39.4%
201164.0% -0.38.5%
201263.6% -0.47.9%
201362.8%-0.86.7%
2014162.8%0.05.8%
1This is the November 2014 participation and unemployment rate.

Depending on the estimate for the participation rate and job growth (next question), it appears the unemployment rate will decline to close to 5% by December 2015.   My guess is based on the participation rate staying relatively steady in 2015 - before declining again over the next decade. If the participation rate increases a little, then I'd expect unemployment in the low-to-mid 5% range.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Question #4 for 2015: Will too much inflation be a concern in 2015?

by Bill McBride on 12/30/2014 04:09:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

4) Inflation: The inflation rate is still running well below the Fed's 2% target. Will the core inflation rate rise in 2015? Will too much inflation be a concern in 2015?

Every year some analysts (and clueless politicians) forecast runaway inflation.  And every year they have been wrong.  Someday inflation will be a concern - but not yet!

Although there are different measure for inflation (including some private measures) they all show that inflation is at or below the Fed's 2% inflation target.  I follow several measures of inflation, median CPI and trimmed-mean CPI from the Cleveland Fed.  Core PCE prices (monthly from the BEA) and core CPI (from the BLS).

Inflation MeasuresClick on graph for larger image.

On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for October and increased 1.6% year-over-year

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.0% annualized, and core CPI increased 0.9% annualized.

Due to the slack in the labor market (elevated unemployment rate, part time workers for economic reasons),  and even with some real wage growth in 2015, I expect these measures of inflation will stay mostly at or below the Fed's target in 2015.  If the unemployment rate continues to decline - and wage growth picks up - maybe inflation will be an issue in 2016.

So currently I think core inflation (year-over-year) will increase in 2015, but too much inflation will not be a serious concern this year.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?

by Bill McBride on 12/30/2014 02:47:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

5) Monetary Policy: The Fed completed QE3 in 2014, and now the question is will the Fed raise rates in 2015? If so, when? And by how much? The Fed Funds rate has been at 0 to 0.25% since December 2008.

For years I've made fun of those predicting an imminent Fed Funds rate increase.  Based on high unemployment and low inflation, I argued it would be a "long time" before the first rate hike.   Well, time flies!

As far as the first rate increase and timing, Tim Duy wrote a week ago Looking Backward to See the Future

My baseline scenario is that the Fed drops "considerable" entirely in January, retains "patient" in March, drops "patient" in April, and raise rates in June.
Of course the Fed will be data dependent. If the unemployment rate declines to 5.5% or so in the May report, and core inflation continues to move upwards towards 2%, then a June rate hike seems likely.
 
Note: It seems very likely the FOMC will drop "patient" from the FOMC statement the meeting before hiking rates (if "patient" is in the April statement, a rate hike in June is much less likely).

If the data is less convincing, then the FOMC will probably wait until the July or September meetings (I've seen a few analysts arguing the FOMC will wait until 2016, but my feeling is the Fed will hike rates in 2015).

The FOMC will not want to immediately reverse course, so the might wait a little longer than expected.  Right now my guess is the first rate hike will happen at either the June, July or September meetings.  I expect subsequent rate hikes to be gradual, and depending on the timing of the first rate hike, I expect rates to be close to 1% at the end of 2015.

The old saying on Wall Street with regards to rate hikes is "3 steps and a stumble".  I don't think there is an validity to the saying, but I expect to hear it on CNBC in 2015!

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

House Prices: Better Seasonal Adjustment; Real Prices and Price-to-Rent Ratio in October

by Bill McBride on 12/30/2014 11:23:00 AM

This morning, S&P reported that the National index increased 0.7% in October seasonally adjusted. However, it appears the seasonal adjustment has been distorted by the high level of distressed sales in recent years. Trulia's Jed Kolko wrote in August: "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

The housing crisis substantially changed the seasonal pattern of housing activity: relative to conventional home sales, which peak in summer, distressed home sales are more evenly spread throughout the year and sell at a discount. As a result, in years when distressed sales constitute a larger share of overall sales, the seasonal swings in home prices get bigger while the seasonal swings in sales volumes get smaller.

Sharply changing seasonal patterns create problems for seasonal adjustment methods, which typically estimate seasonal adjustment factors by averaging several years’ worth of observed seasonal patterns. A sharp but ultimately temporary change in the seasonal pattern for housing activity affects seasonal adjustment factors more gradually and for more years than it should. Despite the recent normalizing of the housing market, seasonal adjustment factors are still based, in part, on patterns observed at the height of the foreclosure crisis, causing home price indices to be over-adjusted in some months and under-adjusted in others.
Better House Price Seasonal AdjustmentKolko proposed a better seasonal adjustment:

This graph from Kolko shows the weighted seasonal adjustment (see Kolko's article for a description of his method). Kolko calculates that prices increased 0.2% on a weighted seasonal adjustment basis in October - as opposed to the 0.7% SA increase and 0.2% NSA decrease reported by Case-Shiller.

The "better" SA (green) shows prices are still increasing, but more slowly.

The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.5% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.6% - also the slowest YoY increase since October 2012.

Looking forward, I expect the indexes to slow a little further on a YoY basis, however: 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it is good news for housing and the economy.

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

Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 9.8% below the bubble peak.   However, in real terms, the National index is still about 24% below the bubble peak.

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA) is back to March 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to October 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

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

In real terms, the National index is back to November 2002 levels, the Composite 20 index is back to July 2002, and the CoreLogic index back to March 2003.

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 March 2003 levels, the Composite 20 index is back to October 2002 levels, and the CoreLogic index is back to May 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels - and maybe moving a little sideways now.

Case-Shiller: National House Price Index increased 4.6% year-over-year in October

by Bill McBride on 12/30/2014 08:36:00 AM

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

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

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

From S&P: S&P/Case-Shiller National Home Price Index Pace Eases While Eight Cities Show Faster Gains

Data released today for October 2014, shows that the pace of home prices across the country continues to decelerate although eight cities did see prices rise faster... Both the 10-City and 20-City Composites saw year-over-year declines in October compared to September. The 10-City Composite gained 4.4% year-over-year, down from 4.7% in September. The 20-City Composite gained 4.5% year-over-year, compared to 4.8% in September. The S&P/CaseShiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.6% annual gain in October 2014 versus 4.8% in September.
...
The National and Composite Indices were both slightly negative in October. Both the 10 and 20-City Composites reported a slight downturn, -0.1%, while the National Index posted a -0.2% change for the month. San Francisco and Tampa led all cities in October with increases of 0.8%. Chicago and Cleveland offset those gains by reporting decreases of -1.0% and -0.7% respectively.
Case-Shiller House Prices Indices Click on graph for larger image.

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

The Composite 10 index is off 18.0% from the peak, and up 0.7% in October (SA). The Composite 10 is up 24.1% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 17.0% from the peak, and up 0.8% (SA) in October. The Composite 20 is up 25.0% from the post-bubble low set in Jan 2012 (SA).

The National index is off 9.8% from the peak, and up 0.7% (SA) in October.  The National index is up 21.8% from the post-bubble low set in Dec 2012 (SA).

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

The Composite 10 SA is up 4.4% compared to October 2013.

The Composite 20 SA is up 4.5% year-over-year..

The National index SA is up 4.6% year-over-year.

Prices increased (SA) in all 20 of the 20 Case-Shiller cities in October seasonally adjusted.  (Prices increased in 8 of the 20 cities NSA)  Prices in Las Vegas are off 42.3% from the peak, and prices in Denver and Dallas are at new highs (SA).

This was lower than the consensus forecast for a 4.8% YoY increase for the National index, and suggests a further slowdown in price increases. I'll have more on house prices later.

Black Knight: Mortgage Delinquencies increased in November

by Bill McBride on 12/30/2014 07:01:00 AM

According to Black Knight's First Look report for November, the percent of loans delinquent increased 12% in November compared to October, and declined 6% year-over-year.

The percent of loans in the foreclosure process declined further in November and were down 35% over the last year.  Foreclosure inventory was at the lowest level since January 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 6.08% in November, up from 5.44% in October. Some of the increase was seasonal (the delinquency rate usually increases in November).  The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.63% in November from 1.69% in October.

The number of delinquent properties, but not in foreclosure, is down 329,000 properties year-over-year, and the number of properties in the foreclosure process is down 427,000 properties year-over-year.

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

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Nov
2014
Oct
2014
Nov
2013
Nov
2012
Delinquent6.08%5.44%6.45%7.03%
In Foreclosure1.63%1.69%2.50%3.61%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:1,925,0001,658,0001,958,0001,999,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:1,163,0001,101,0001,283,0001,584,000
Number of properties in foreclosure pre-sale inventory:829,000858,0001,256,0001,767,000
Total Properties3,917,0003,617,0004,497,0005,350,000

Monday, December 29, 2014

Question #6 for 2015: Will real wages increase in 2015?

by Bill McBride on 12/29/2014 07:08:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

6) Real Wage Growth: Last month I listed a few economic "words of the year" for the last decade. I finished with: "2015: Wages (Just being hopeful - maybe 2015 will be the year that real wages start to increase)". Will real wages increase in 2015?

Jared Bernstein wrote an excellent article today on the labor market at the NY Times The Upshot: Signs of a Tightening Labor Market, but Still Room for Improvement. He mentioned wages:

For all the actual tightening in the 2014 job market, what is perhaps the most important indicator from the perspective of working families — wage growth — has hardly budged. Though commentators made a big deal out of the bump in pay from the last jobs report, the yearly trend in nominal hourly wage growth remains at about 2 percent, where it has been since 2010.
Bernstein is referring to “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report, .

Wages CES, Nominal and Real Click on graph for larger image.

The blue line shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  As Bernstein noted, nominal wage growth has been running close to 2% since 2010.

The red line is real wage growth (adjusted using headline CPI).  Real wages increased during the crisis because CPI declined sharply.   CPI has been running under 2%, so there has been some real wage growth - and some of the recent increase in real wages is due to falling oil prices (CPI declined in November).

There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).

Wages ECI, Nominal and Real
The second graph shows the year-over-year change using the quarterly wage data from the Employment Cost Index (data starts in 2001). Once again this shows nominal wages have increasing about 2% per year, and real wages have been mostly unchanged. In the future I'll post a graph including benefits (benefits generally have risen faster than wages).

For this post the key point is that nominal wages have been only increasing about 2% per year. As the labor market tightens, we should start seeing some wage pressure as companies have to compete more for employees. Whether real wages start to pickup in 2015 - or not until 2016 or later - is a key question. I expect to see some increase in both real and nominal wage increases this year. I doubt we will see a significant pickup, but maybe another 0.5 percentage points for both, year-over-year.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Oil Prices Fall, Rig Count Drops, Oil Companies Employment to decline

by Bill McBride on 12/29/2014 01:49:00 PM

A few related articles on oil  ...

From Bloomberg: Oil Falls to 5-Year Low as Supply Glut Seen Lingering

Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.
...
WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile Exchange.
Currently WTI is at $53.21, and Brent futures are at $57.79.

From Bloomberg: Oil Rigs in U.S. Drop by 37 to Lowest Level Since April
Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, Baker Hughes Inc. (BHI) said on its website today. The number of oil rigs has slipped by 76 in three weeks. ... The number of rigs targeting U.S. oil is down from a record 1,609 following a $55-a-barrel drop in global prices since June, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest in three decades.
...
While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.
Although new exploration will slow sharply, I expect domestic producers to continue to produce at most existing wells at current prices.

And less exploration will lead to layoffs.  From the WSJ: Oil Jobs Squeezed as Prices Plummet
Tom Runiewicz, a U.S. industry economist at IHS Global Insight, forecasts companies providing support services to oil and gas companies could lose 40,000 jobs by the end of 2015, about 9% of the category’s total, if oil stays around $56 a barrel through the second quarter of next year. Equipment manufacturers could shed 5,000 to 6,000 jobs, or about 6% of total employment for such companies.
There will be winners and losers with the decline in oil prices, however, since the US is a large net importer of oil (despite the myth reported by some in the media), overall the decline in oil prices should be a positive for the economy.

Dallas Fed: Texas Manufacturing "Picks up Pace" in December

by Bill McBride on 12/29/2014 10:35:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up Pace

Texas factory activity increased again in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose strongly from 6 to 15.8, indicating output grew at a faster pace in December.

Other measures of current manufacturing activity reflected continued growth during the month. The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November. The shipments index climbed to 19.6, its highest reading in five months. The new orders index moved down from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels.

Perceptions of broader economic conditions remained positive this month. The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook.

Labor market indicators reflected unchanged workweeks but continued employment increases. The December employment index held steady at a solid reading of 9.2
emphasis added
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 December), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

It seems likely the ISM index will be solid, but show slower expansion in December. The ISM Manufacturing Index for December will be released on Friday, January 2nd, and the consensus is for a decrease to 57.5 from 58.7 in November.

Black Knight: House Price Index up slightly in October, Up 4.5% year-over-year

by Bill McBride on 12/29/2014 08:33:00 AM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). The timing of different house prices indexes; Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: U.S. Home Prices Up 0.1 for the Month; Up 4.5 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services​ released its latest Home Price Index (HPI) report, based on October 2014 residential real estate transactions. The Black Knight HPI combines the Company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
The Black Knight HPI increased 0.1% percent in October, and is off 10.2% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increases have been getting steadily smaller for the last year - as shown in the table below:
MonthYoY House
Price Increase
Jan-136.7%
Feb-137.3%
Mar-137.6%
Apr-138.1%
May-137.9%
Jun-138.4%
Jul-138.7%
Aug-139.0%
Sep-139.0%
Oct-138.8%
Nov-138.5%
Dec-138.4%
Jan-148.0%
Feb-147.6%
Mar-147.0%
Apr-146.4%
May-145.9%
June-145.5%
July-145.1%
Aug-144.9%
Sep-144.6%
Oct-144.5%

The press release has data for the 20 largest states, and 40 MSAs.

Black Knight shows prices off 41.0% from the peak in Las Vegas, off 34.0% in Orlando, and 31.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado and Texas (Denver, Austin, Dallas, Houston and San Antonio metros). Prices are also at new highs in Honolulu, HI, and Nashville, TN.

Note: Case-Shiller for October will be released tomorrow.

Sunday, December 28, 2014

Sunday Night Futures

by Bill McBride on 12/28/2014 08:25:00 PM

From the WSJ: Need a Raise in 2015? Try Changing Jobs

In an economic recovery weighed down by subdued income growth for most Americans, a Kansas City Fed paper suggests those who are moving on to new jobs are better able to negotiate pay increases.

By focusing on job “switchers,” Kansas City Fed economist José Mustre-del-Río says he is able to get a better sense of present wage conditions.

“Unlike wages of stayers, wages of switchers are much more cyclically sensitive, as contracts signed with new employers are more likely to reflect current economic conditions,” he writes in a research note. “We find that switchers’ wage growth has been quite strong the past several quarters as the labor market continues to tighten.”

For instance, job switchers’ average wage growth rose from around 4.3% per quarter in the first quarter of 2013 to 5.6% in the third quarter of 2014, the study found. Those changing jobs in leisure and hospitality experienced average wage growth of 7.7%, well above a the 2% experience by the average worker last year and that has kept consumers barely keeping pace with inflation.
Monday:
• At 10:30 AM ET, the Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

Weekend:
Schedule for Week of December 28th

Question #7 for 2015: What about oil prices in 2015?

Question #8 for 2015: How much will Residential Investment increase?

Question #9 for 2015: What will happen with house prices in 2015?

Question #10 for 2015: How much will housing inventory increase in 2015?

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are up 3 and DOW futures are up 30 (fair value).

Oil prices were down over the last week with WTI futures at $55.48 per barrel and Brent at $60.01 per barrel.  A year ago, WTI was at $99, and Brent was at $112 - so prices are down 44% and 46% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.29 per gallon (down about $1.00 per gallon from 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

Question #7 for 2015: What about oil prices in 2015?

by Bill McBride on 12/28/2014 06:29:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

7) Oil Prices: Declining oil prices and falling bond yields were two of the biggest stories of 2014. Will oil prices continue to decline in 2015?

The reason prices have fallen sharply is supply and demand. It is important to remember that the short term supply and demand curves for oil are very steep. 

In the long run, supply and demand will adjust to price changes.  But if someone asks why prices have fallen so sharply recently, the answer is "supply and demand" and that the short term supply and demand curves are steep for oil.

The keys on the short term demand side have been the ongoing weakness in Europe and the slowdown in China.   Professor Hamilton estimates that about 45% of the recent decline in oil prices was due to weakness in the global economy. Will Europe recovery in 2015? Will China's growth increase? Right now it looks like more of the same, so I expect the demand side to stay weak in 2015.

For supply, some of the increase has been due to increased shipments from Libya, but most of the supply increase has been due to increased tight oil production.  The questions on the supply side are: 1) will be there be a 2015 supply disruption in Libya, Iraq, Nigeria, or some other oil exporting country, and 2) what price will lead to less fracking production?

Professor Hamilton posted some thoughts today: Supply, demand and the price of oil

At what price would supply and demand be back in balance? I won’t even make an attempt to predict short-run developments for the wild cards like Libya, Iraq, and China. But in principle, the U.S. supply situation should be simpler. At current prices, some of the higher-cost producers will be forced out. It should be a textbook problem of finding the point on the marginal cost curve at which there’s an incentive for the marginal producer to meet desired demand; given a quantity Q demanded on the horizontal axis, find the price P associated with that Q from the height of the vertical axis on the marginal cost curve. The problem is, nobody knows for sure exactly what that marginal cost curve looks like, and sunk costs for existing wells make it hard (and painful for the oil producers) to find out.
It is impossible to predict an international supply disruption - if a significant disruption happens, then prices will obviously move higher. Continued weakness in Europe and China does seem likely - and I expect the frackers to slow down with exploration and drilling, but to continue to produce at most existing wells at current prices (WTI at $55 per barrel). This suggests in the short run (2015) that prices will stay well below $100 per barrel (perhaps in the $50 to $75 range) - and that is a positive for the US economy (Note: the US is a large importer of oil - see: Katie Couric and the Net Petroleum Exporter Myth

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

CNBC and the "Job Surge of 2015" and Demographics

by Bill McBride on 12/28/2014 12:15:00 PM

A few comments on an article that was posted at CNBC on Saturday "2015: The year jobs surge in the US". It was really a video with a few predictions.

First, I think the title was wrong. 2014 was the year jobs surged in the US.

Second, those expecting 300+ thousand jobs per month in 2015 will probably be disappointed.  Too many people compare to the '80s and '90s, without thinking about changing demographics.

The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s.  The prime working age population has actually declined slightly this decade.  Note: The prime working age population is now growing slowly again, and growth will pick up the '10s.  The future is bright!

It was much easier in the '80s and '90s to see a job boom than with the current demographics.

Another reason not to expect a "Job Surge" in 2015, is that usually the best years of an expansion are early (as the Fed reduces interest rates).  "Early" doesn't apply to the current recovery from the Great Recession because the causes of the recession were different (Housing bust, financial crisis, over-leveraged households, Fed at zero bound).

Also, with the unemployment rate down to 5.8%, more companies will have difficulty finding qualified candidates in 2015.

I'll be posting my expectations on employment for 2015 this coming week, but my initial view is that there will be fewer jobs added in 2015 than in 2014 (hopefully close to the same number).

Hopefully the economic word of the year in 2015 will be wages!

Saturday, December 27, 2014

Question #8 for 2015: How much will Residential Investment increase?

by Bill McBride on 12/27/2014 08:07:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 - up 13.5% and 11.9% respectively - but RI was only up 1.6% through Q3 2014.   Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2015?  How about housing starts and new home sales in 2015?

A year ago, several builders told me they were optimistic for 2014 (yes, builders are almost always optimistic), and they said the 2013 problem of not enough finished lots was mostly resolved.   Still 2014 was a disappointing year with new home sales up slightly and housing starts only up about 8% (single family up 4%).  There were a number of reasons for the weak year: a severe winter, higher mortgage rates at the beginning of the year, ongoing competition from distressed sales (although that is declining), and - the main reason - higher price points (the builders really increased prices in 2013).

Once again the builders are telling me 2015 will be a good year and that the lot issue is mostly resolved ... I'm a little more skeptical this year! Also there might be some weakness in oil producing states in 2015.  Still I expect growth for both starts and new home sales in 2015.

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2014.

Residential Investment as Percent of GDPClick on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.  However RI only increased slightly in 2014.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2015.

Total Housing Starts and Single Family Housing StartsThe second graph shows total and single family housing starts through November 2014.

Housing starts are on pace to increase close to 8% in 2014. And even after the significant increase over the last three years, the approximately 997 thousand housing starts in 2014 will still be the 7th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the six lowest years were 2008 through 2013).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 50% over the next few years from the 2014 level.

Housing Starts (000s)
TotalChangeSingle FamilyChange
20052,068.3--- 1,715.8---
20061,800.9-12.9%1,465.4-14.6%
20071,355.0-24.8%1,046.0-28.6%
2008905.5-33.2%622.0-40.5%
2009554.0-38.8%445.1-28.4%
2010586.95.9%471.25.9%
2011608.83.7%430.6-8.6%
2012780.628.2%535.324.3%
2013924.918.5%617.615.4%
20141997.07.8%645.04.4%
12014 estimated

New Home SalesThe third graph shows New Home Sales since 1963 through November 2014. The dashed line is the current sales rate.

New home sales were up less than 1% in 2014 at around 433 thousand, following increases of 20.3% in 2012, and 16.6% in 2013.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2015.    And there will be some weakness in oil producing states.

Here are some recent forecasts for housing in 2014.  My guess is growth of around 8% to 12% for new home sales, and about the same percentage growth for housing starts.  Also I think the mix between multi-family and single family starts might shift a little more towards single family in 2015.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Schedule for Week of December 28th

by Bill McBride on 12/27/2014 11:01:00 AM

The key reports this week are the December ISM manufacturing survey on Friday, and the Case-Shiller house price index on Tuesday.

Happy New Year to All!

----- Monday, December 29th -----

10:30 AM: Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

----- Tuesday, December 30th -----

Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the September 2014 report (the Composite 20 was started in January 2000).

The consensus is for a 4.9% year-over-year increase in the Composite 20 index for October.  The Zillow forecast is for the National Index to increase 4.8% year-over-year in October.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 93.0 from 88.7.

----- Wednesday, December 31st -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 286 thousand from 280 thousand.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a reading of 59.0, down from 60.8 in November.

10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

----- Thursday, January 1st -----

All US markets will be closed in observance of New Year's Day Holiday.

----- Friday, January 2nd -----

ISM PMI10:00 AM: ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

10:00 AM: Construction Spending for November. The consensus is for a 0.5% increase in construction spending.

Friday, December 26, 2014

Unofficial Problem Bank list unchanged at 401 Institutions, Q4 2014 Transition Matrix

by Bill McBride on 12/26/2014 09:24:00 PM

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

Here is the unofficial problem bank list for Dec 26, 2014.

Changes and comments from surferdude808:

The FDIC did not release an update on its enforcement action activities through November this week. We had anticipated the release as the FDIC's issuance pattern is on the last Friday of the month. However, President Obama provided federal workers an additional day off given that Christmas fell on a Thursday. So it looks like the FDUC will issue the release one day next week. Otherwise, there are no changes to report to the Unofficial Problem Bank List. Thus, the list ends the month and year holding 401 institutions with assets of $125.1 billion. A year ago, the list held 619 institutions with assets of $205.8 billion. During December 2014, the list declined by a net seven institutions after nine action terminations, one failure, one merger, and four additions. However, assets during the month rose by $405 million, which is the first monthly increase since September 2012. The asset increase ends a streak of 26 consecutive months of lower assets.

Given no changes this week, we decided to bring the transition matrix a week earlier than planned. For full details, see the accompanying table and a graphic depicting trends in how institutions have arrived and departed the list. Since publication of the Unofficial Problem Bank List started in August 2009, a total of 1,684 institutions have appeared on the list. Since year-end 2012, new entrants have slowed as 83 institutions have been added since then while 520 institutions have been removed. The pace of action terminations moved slightly higher in the latest quarter from the pace latest quarter. There has been a notable slowdown over the past six months (9.5 terminations per month average) compared with pace in the preceding 12 months (20 terminations per month average). Granted the list count is lower, but the per capita action termination rate of has slowed from 9.7 percent per quarter to 6.4 percent per quarter. At the start of the fourth quarter, there were 432 institution on the list with 30 institutions being removed because of action termination.
Unofficial Problem Banks
At the end of the fourth quarter, only 401 or 23.8 percent of the banks that have been on the list at some point remain. Action terminations of 676 account for about 53 percent of the 1,283 institutions removed. Although failures have slowed over the past two years, they do account for a significant number of institutions that have been removed from the list. Since publication, 387 of the institutions that have appeared on the list have failed accounting for more than 30 percent of all removals. Should another institution on the current list not fail, then nearly 23 percent of the 1,684 institutions that made an appearance on the list would have failed. A 23 percent default rate is more than double the rate often cited by media reports on the failure rate of banks on the FDIC's official list. Of the $673 billion in assets removed from the list, the largest amount of $297.4 billion is from failure while terminations still trail at $279.7 billion.
Unofficial Problem Bank List
Change Summary
  Number of InstitutionsAssets ($Thousands)
Start (8/7/2009)  389276,313,429
 
Subtractions     
  Action Terminated142(56,729,564)
  Unassisted Merger35(8,440,695)
  Voluntary Liquidation4(10,584,114)
  Failures154(184,269,578)
  Asset Change(4,697,497)
 
Still on List at 12/31/2014  5411,591,999
 
Additions after
8/7/2009
  347113,481,158
 
End (12/31/2014)  401125,073,157
 
Intraperiod Deletions1     
  Action Terminated534222,995,923
  Unassisted Merger17174,507,776
  Voluntary Liquidation102,324,142
  Failures233113,167,202
  Total948412,995,043
1Institution not on 8/7/2009 or 12/31/2014 list but appeared on a weekly list.

Question #9 for 2015: What will happen with house prices in 2015?

by Bill McBride on 12/26/2014 12:12:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

7) House Prices: House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 5% or so in 2014 (after increasing about 12% nationally in 2013). What will happen with house prices in 2015?

The following graph shows the year-over-year change in the seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Case-Shiller House Prices IndicesClick on graph for larger image.

The Composite 10 SA was up 4.9% compared to September 2013, the Composite 20 SA was up 4.9% and the National index SA was up 4.8% year-over-year.  Other house price indexes have indicated similar gains (see table below).

Although I use Case-Shiller, I also use several other price indexes. The following table shows the year-over-year change for several house prices indexes.  The year-over-year price increases slowed in 2014, but the slowdown is probably mostly over (I don't expect prices to go negative year-over-year).

Year-over-year Change for Various House Price Indexes
IndexThrough Increase
Case-Shiller Comp 20Sept-144.9%
Case-Shiller NationalSept-144.8%
CoreLogicOct-146.1%
ZillowOct-146.4%
Black KnightSept-144.6%
FNCOct-145.7%
FHFA Purchase OnlySept-144.5%

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.  In some areas, like Phoenix, there appeared to be a bounce off the bottom - but that bounce appears to have ended in 2014.  The investor buying has slowed - as have distressed sales.

The consensus of housing analysts appears to be for price increases of around 3.5% in 2015.

In 2015, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis.  Low inventories, and a better economy (with more consumer confidence) suggests further price increases in 2015.  I expect we will see prices up mid single digits (percentage) in 2015 as measured by these house price indexes.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?

Question #10 for 2015: How much will housing inventory increase in 2015?

by Bill McBride on 12/26/2014 09:36:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

10) Housing Inventory: It appears housing inventory bottomed in early 2013. Will inventory increase further in 2015, and, if so, by how much?

Tracking housing inventory is very helpful.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2014.

Existing Home Inventory Click on graph for larger image.

According to the NAR, inventory at 2.09 million is up slightly year-over-year from 2.05 million in November 2013, and up from 1.99 million in November 2012.  A small increase over the last two years.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory and this shows that inventory bottomed in January 2013, and is now up about 9.1% from the bottom on a seasonally adjusted basis.

Year-over-year Inventory The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 2.0% year-over-year in November from November 2013 (blue line).

Months of supply was at 5.1 months in November, unchanged from 5.1 months in November 2013.   Even with the increase in inventory over the last two years, the current supply is still very low.

The NAR numbers are the usual measure of inventory.  However Zillow also has some inventory data (by state, city, zip code and more here).   We have to be careful using the Zillow data because the coverage is probably increasing, but looking at the zip code data, it appears inventory is up about 9% year-over-year.  This ranges from a sharp year-over-year decrease in some cities (like Denver) to a sharp increase in other areas (like Bakersfield, CA).   The housing market is slowly moving back to normal, and real estate is local!

Whenever I talk with real estate agents, I ask why they think inventory is so low. A common reason for low inventory is that potential sellers can't find homes to buy (because inventory is so low). Another reason for low inventory is that many homeowners are still "underwater" on their mortgages and can't sell.  This is becoming less of a problem.

As the market moves back to normal, it seems homeowners will sell for the usual reasons (changing jobs, kids, etc).

Right now my guess is active inventory will increase further in 2015 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in 2015).  I expect active inventory to move closer to 6 months supply this summer.   If correct, this will keep house price increases down in  2015.

Here are the ten questions for 2015 and a few predictions:
Question #2 for 2015: How many payroll jobs will be added in 2015?
Question #3 for 2015: What will the unemployment rate be in December 2015?
Question #4 for 2015: Will too much inflation be a concern in 2015?
Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
Question #6 for 2015: Will real wages increase in 2015?
Question #7 for 2015: What about oil prices in 2015?
Question #8 for 2015: How much will Residential Investment increase?
Question #9 for 2015: What will happen with house prices in 2015?
Question #10 for 2015: How much will housing inventory increase in 2015?