Tuesday, June 30, 2015

Wednesday: ISM Mfg, ADP Employment, Auto Sales, Construction Spending

by Bill McBride on 6/30/2015 06:48:00 PM

Statement by the IMF on Greece

Press Release No.15/310
June 30, 2015
Mr. Gerry Rice, Director of Communications at the International Monetary Fund (IMF), made the following statement today regarding Greece’s financial obligations to the IMF due today:

“I confirm that the SDR 1.2 billion repayment (about EUR 1.5 billion) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared.

“I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course.”
Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 220,000 payroll jobs added in June, up from 200,000 in May.

• At 10:00 AM, the ISM Manufacturing Index for June. The consensus is for an increase to 53.2 from 52.8 in May. The ISM manufacturing index indicated expansion at 52.8% in May. The employment index was at 51.7%, and the new orders index was at 55.8%.

• Also at 10:00 AM, Construction Spending for May. The consensus is for a 0.5% increase in construction spending.

• All day, Light vehicle sales for June. The consensus is for light vehicle sales to decrease to 17.2 million SAAR in June from 17.7 million in May (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency rate declined in May, Lowest since August 2008

by Bill McBride on 6/30/2015 04:07:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in May to 1.70% from 1.73% in April. The serious delinquency rate is down from 2.08% in May 2014, and this is the lowest level since August 2008.

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

Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in May to 1.58%. Freddie's rate is down from 2.10% in May 2014, and is at the lowest level since November 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 only fallen 0.38 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will be below 1% in 2017.

The "normal" serious delinquency rate is under 1%, so maybe serious delinquencies will be close to normal in 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

Restaurant Performance Index indicates expansion in May

by Bill McBride on 6/30/2015 02:31:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remained in Positive Territory in May

Although same-stores sales and customer traffic levels softened somewhat in May, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.3 in May, down 0.4 percent from a level of 102.7 in April. Despite the decline, May represented the 27th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The outlook for the restaurant industry remains positive, as the RPI stood above the 102 level for the 8th consecutive month,” said Hudson Riehle, Senior Vice President of the Research and Knowledge Group for the Association. “A majority of restaurant operators reported higher same-store sales in May, and operators are generally optimistic about an improving business environment in the months ahead.”
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index decreased to 102.3 in May, down from 102.7 in April. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading.

Real Prices and Price-to-Rent Ratio in April

by Bill McBride on 6/30/2015 11:06:00 AM

The expected slowdown in year-over-year price increases has occurred. In October 2013, the National index was up 10.9% year-over-year (YoY). In April 2015, the index was up 4.2% YoY.  However the YoY change has only declined slightly recently.

Here is the YoY change for the last 12 months for the National Index:

MonthYoY Change
May-147.1%
Jun-146.3%
Jul-145.6%
Aug-145.1%
Sep-144.8%
Oct-144.7%
Nov-144.7%
Dec-144.6%
Jan-154.4%
Feb-154.3%
Mar-154.2%
Apr-154.2%

As I've noted before, I think most of the slowdown on a YoY basis is now behind us (I don't expect price to go negative this year). This slowdown in price increases was expected by several key analysts, and I think it was 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 $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 7.6% below the bubble peak.   However, in real terms, the National index is still about 21% 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 March) in nominal terms as reported.

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

Real House Prices

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

In real terms, the National index is back to June 2003 levels, the Composite 20 index is back to May 2003, and the CoreLogic index back to October 2003.

In real terms, house prices are back to 2003 levels.

Note: CPI less Shelter is down 1.6% year-over-year, so this is pushing up real prices.

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 March 2003 levels, and the CoreLogic index is back to August 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to 2003 levels - and the price-to-rent ratio maybe moving a little sideways now.

Case-Shiller: National House Price Index increased 4.2% year-over-year in April

by Bill McBride on 6/30/2015 09:16:00 AM

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

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

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

From S&P: Home Price Gains Ease in April According to the S&P/Case-Shiller Home Price Indices

Both Composites and the National index showed slightly lower year-over-year gains compared to last month. The 10-City Composite gained 4.6% year-over-year, while the 20-City Composite gained 4.9% year-over-year. The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.2% annual gain in April 2015 versus a 4.3% increase in March 2015.
...
Before seasonal adjustment, the National index increased 1.1% in April and the 10-City and 20-City Composites posted gains of 1.0% and 1.1% month-over-month. After seasonal adjustment, the National index was unchanged; the 10- and 20-city composites were up 0.3% and 0.4%. All 20 cities reported increases in April before seasonal adjustment; after seasonal adjustment, 12 were up and eight were down.
emphasis added
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 14.1% from the peak, and up 0.4% in April (SA).

The Composite 20 index is off 12.9% from the peak, and up 0.3% (SA) in April.

The National index is off 7.6% from the peak, and unchanged (SA) in April.  The National index is up 24.8% from the post-bubble low set in December 2011 (SA).

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

The Composite 10 SA is up 4.6% compared to April 2014.

The Composite 20 SA is up 4.9% year-over-year..

The National index SA is up 4.2% year-over-year.

Prices increased (SA) in 12 of the 20 Case-Shiller cities in April seasonally adjusted.  (Prices increased in 20 of the 20 cities NSA)  Prices in Las Vegas are off 40.1% from the peak, and prices in Denver are at a new high (SA).

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 51% above January 2000 (51% nominal gain in 15 years).

These are nominal prices, and real prices (adjusted for inflation) are up about 40% since January 2000 - so the increase in Phoenix from January 2000 until now is about 11% above the change in overall prices due to inflation.

Two cities - Denver (up 65% since Jan 2000) and Dallas (up 48% since Jan 2000) - are above the bubble highs (a few other Case-Shiller Comp 20 city are close - Boston, Charlotte, San Francisco, Portland).    Detroit prices are barely above the January 2000 level.

This was close to the consensus forecast. I'll have more on house prices later.

Monday, June 29, 2015

Duy: "Events Continue to Conspire Against the Fed"

by Bill McBride on 6/29/2015 07:07:00 PM

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April prices. The consensus is for a 5.4% year-over-year increase in the Comp 20 index for April. The Zillow forecast is for the National Index to increase 4.0% year-over-year in April, and for prices to be unchanged month-to-month seasonally adjusted.

• At 9:45 AM, Chicago Purchasing Managers Index for June. The consensus is for a reading of 50.6, up from 46.2 in May.

From Tim Duy: Events Continue to Conspire Against the Fed. Excerpts:

Federal Reserve policymakers just can't catch a break lately. Riding on the back of strong data in the second half of last year, they were positioning themselves to declare victory and begin the process of policy normalization, AKA "raising interest rates." Then the bottom fell out. Data in the first half of the year turned sloppy. Although policymakers on average - and Federal Reserve Chair Janet Yellen in particular - could reasonably believe the underlying momentum of the economy had not changed, that the data reflected largely temporary factors, the case for a rate hike by mid-year evaporated all the same. The risk of being wrong was simply more than they were willing to bear in the absence of clear inflation pressures.

The story was clearly shifting by the end of June. Key data on jobs and the consumer firmed as expected, raising the possibility that September was in play. ...

But then came Greece. Greece - will it never end? Financial markets were roiled as Greek Prime Minister Alexis Tsipras abandoned the latest round of bailout negotiations with the EU, IMF, and ECB and instead pursued a national referendum on the last version of the bailout proposal. Most of you know the story from that point on - run on Greek banks, the ECB ends further ELA extensions, a bank holiday is declared, likely missing a payment to the IMF etc., etc.

At this juncture, everything in Greece is now in flux. ...

Bottom Line: The Fed was already approaching the first rate hike cautiously, wary of even dipping their toes in the water. The crisis in Greece will make them even more cautious. Like their response to the first quarter data, until they see a clear path, they will be on the sidelines. That said, given the plethora of warnings not to underestimate the global impact of the crisis in Greece, one should be watching the opposite side of the story. Solid data and limited Greece impact would leave December at a minimum, and even September, in play.

Forecast: Auto Sales above 17 Million SAAR in June

by Bill McBride on 6/29/2015 05:24:00 PM

Nothing to add on Greece right now, so here is another forecast for June auto sales.

From WardsAuto: Forecast: SAAR Expected to Remain Above 17 Million in June

A WardsAuto forecast calls for U.S. automakers to deliver 1.48 million light vehicles this month.
...
The report puts the seasonally adjusted annual rate of sales for the month at 17.2 million units, shy of last month’s 17.7 million SAAR, but ahead of the current 3-month SAAR (17.1 million) and the year-to-date SAAR through May (16.8 million).

The forecast reflects reports of very strong retail activity for most automakers continuing from May offset somewhat by a downturn in sales to fleets.
...
Projected June LV sales would bring year-to-date deliveries to 8.5 million units, a 4.6% improvement from same-period 2014. WardsAuto currently is forecasting 16.94 million LV deliveries for calendar 2015.
Another strong month, and on pace for close to 17 million for the year.

Black Knight: House Price Index up 1.0% in April, 4.9% year-over-year

by Bill McBride on 6/29/2015 02:21:00 PM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). Note: 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: April Transactions U.S. Home Prices Up 1.0 Percent for the Month; Up 4.9 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Home Price Index (HPI​) report, based on April 2015 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.

For a more in-depth review of this month’s home price trends, including detailed looks at the 20 largest states and 40 largest metros, please download the full Black Knight HPI Report.
The Black Knight HPI increased 1.0% percent in April, and is off 7.6% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increase in the index has been about the same for the last seven months.

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

Black Knight shows prices off 39.5% from the peak in Las Vegas, off 33.4% in Orlando, and 29.1% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado, New York, Tennessee and Texas, and several other cities around the country.

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

Dallas Fed: Texas Manufacturing Activity Still Contracting

by Bill McBride on 6/29/2015 10:44:00 AM

From the Dallas Fed: Texas Manufacturing Activity Still Contracting

Texas factory activity declined again in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose to -6.5 but remained in negative territory, suggesting a fourth consecutive month of contracting output.
...
Perceptions of broader business conditions worsened further, although not as sharply in June as in prior months. The general business activity index jumped nearly 14 points to -7, its highest reading since January.
...
Labor market indicators reflected slight employment declines and shorter workweeks. The June employment index was negative for a second month in a row but pushed up 7 points to -1.2. Fourteen percent of firms reported net hiring, compared with 15 percent reporting net layoffs. The hours worked index inched up from -11.6 to -10.7.
emphasis added
This was the last of the regional Fed surveys for June. Three of the five surveys indicated contraction in June, mostly due to weakness in oil producing areas. However there was less contraction in those areas in June.

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

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

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

It seems likely the ISM index will be weak again in June, but will probably increase from the May level. The consensus is for an increase to 53.2 for the ISM index, from 52.8 in May.

NAR: Pending Home Sales Index increased 0.9% in May, up 10% year-over-year

by Bill McBride on 6/29/2015 10:08:00 AM

From CNBC: Pending home sales rise 0.9% in May, highest level since 2006

Signed contracts to buy existing homes, so-called pending home sales, rose just 0.9 percent in May from April, according to the National Association of Realtors, after a downward revision to April's reading. That is slightly lower than analysts predicted, but is still the highest level on the association's index since April of 2006. Pending sales are now 10.4 percent higher than one year ago.
This was close to expectations of a 0.6% increase.

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

Sunday, June 28, 2015

Sunday Night Futures: Greece and Puerto Rico

by Bill McBride on 6/28/2015 09:15:00 PM

From the NY Times: Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’

Puerto Rico’s governor, saying he needs to pull the island out of a “death spiral,” has concluded that the commonwealth cannot pay its roughly $72 billion in debts, an admission that will probably have wide-reaching financial repercussions.
And from the WSJ: Greece Orders Banks Closed, Imposes Capital Controls to Stem Deposit Flight
Greece shut down its banking system, ordering lenders to stay closed for six days starting Monday, and its central bank moved to impose controls to prevent money from flooding out of the country.
I hope Greece is ready with the Drachma (It seemed there was no way out four months ago).

Monday:
• At 10:00 AM ET, Pending Home Sales Index for May. The consensus is for a 0.6% increase in the index.

• At 10:30 AM, Dallas Fed Manufacturing Survey for June.

Weekend:
Schedule for Week of June 28, 2015

June 2015: Unofficial Problem Bank list declines to 309 Institutions, Q2 2015 Transition Matrix

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 29 and DOW futures are down 217 (fair value).

Oil prices were down over the last week with WTI futures at $58.80 per barrel and Brent at $62.55 per barrel.  A year ago, WTI was at $106, and Brent was at $112 - so prices are down 40%+ year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.78 per gallon (down about $0.90 per gallon from a year ago).

Greece: ECB Freezes Level of Emergency Loans

by Bill McBride on 6/28/2015 11:00:00 AM

Some comments from analysts at the Financial Times Alphaville: Greece: bank analysts and eurowatchers on what to expect on Monday

The analysts make good point on Greek banks, and also on the odds of the Greeks voting for more austerity, an excerpt:

"according to recent polls there may be a majority in the Greek population supporting the creditor-proposed package. Hence if the vote was a ‘yes’ then the creditor side will likely work hard at keeping Greece within the Eurozone. We may thus not see full-blown risk off sentiment tomorrow as there is still a fair chance of Grexit being avoided in the end."
However no analyst mentions that the austerity program failed miserably (see: Did Germany Fulfill their Promises? Did Austerity in Greece Deliver?). The definition of insanity is repeating the same thing (austerity) and expecting different results.  More austerity means more depression.  Europe has been Schauble'd!

And from the WSJ: ECB to Keep Level of Emergency Loans for Greek Banks Unchanged
The European Central Bank said Sunday it will freeze for now the level of emergency loans for Greek banks at Friday’s level, a step that could push the country closer to having to impose capital controls to halt a deposit flight that appeared to have accelerated over the weekend.
And from the NY Times: European Central Bank Limits Aid to Greek Banks Amid Debt Crisis

Saturday, June 27, 2015

June 2015: Unofficial Problem Bank list declines to 309 Institutions, Q2 2015 Transition Matrix

by Bill McBride on 6/27/2015 09:54:00 PM

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

Here is the unofficial problem bank list for June 2015.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for June 2015. During the month, the list fell from 324 institutions to 309 after 16 removals and one addition. Assets dropped by $1.4 billion to an aggregate $89.8 billion. A year ago, the list held 468 institutions with assets of $149.2 billion.

Actions have been terminated against North American Savings Bank, F.S.B., Grandview, MO ($1.3 billion); American Bank, Rockville, MD ($416 million); First Utah Bank, Salt Lake City, UT ($354 million); Regent Bank, Davie, FL ($349 million Ticker: PZBW); Grayson National Bank, Independence, VA ($332 million); Oregon Pacific Banking Company dba Oregon Pacific Bank, Florence, OR ($187 million); Cornerstone National Bank, Easley, SC ($144 million Ticker: CTOT); Independent Banker's Bank of Florida, Lake Mary, FL ($143 million); First National Bank of Crossett, Crossett, AR ($143 million Ticker: GSON); Boundary Waters Bank, Ely, MN ($112 million Ticker: NASB); The First National Bank of Le Center, Le Center, MN ($81 million); Plaza Bank, Seattle, WA ($75 million Ticker: ABKH); Heritage Bank, Topeka, KS ($49 million); First State Bank of Swanville, Swanville, MN ($28 million Ticker: ORBP); and Commonwealth Bank, FSB, Mount Sterling, KY ($19 million).

Prime Pacific Bank, National Association, Lynnwood, WA ($123 million) found its way off the list by merging with Town Square Bank, Ashland, KY.

The addition this month was Harvard Savings Bank, Harvard, IL ($161 million).
Unofficial Problem Banks
With it being the end of the second quarter, we bring an update on the transition matrix. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,694 institutions have appeared on the list at some point. There have been 1,385 institutions have come and gone on the list. Departure methods include 760 action terminations, 392 failures, 219 mergers, and 14 voluntary liquidations. The second quarter of 2015 started with 349 institutions on the list, so the 36 action terminations during the quarter reduced the list by 10.3 percent. Although it is easier to achieve a high removal percentage given the smaller overall list count, the 10.3 percent quarterly removal rate is the third fastest since the list has been published. Of the 389 institutions on the first published list, 40 still remain nearly six years later. The 392 failures are 23.1 percent of the 1,694 institutions that have appeared on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.
Unofficial Problem Bank List
Change Summary
  Number of InstitutionsAssets ($Thousands)
Start (8/7/2009)  389276,313,429
 
Subtractions     
  Action Terminated153(58,436,369)
  Unassisted Merger38(9,059,178)
  Voluntary Liquidation4(10,584,114)
  Failures154(184,269,578)
  Asset Change(3,635,297)
 
Still on List at 6/30/2015  4010,328,893
 
Additions after
8/7/2009
  26977,127,497
 
End (6/30/2015)  30987,456,390
 
Intraperiod Deletions1     
  Action Terminated607256,624,516
  Unassisted Merger18176,391,195
  Voluntary Liquidation102,324,142
  Failures238119,574,853
  Total1,030452,733,558
1Institution not on 8/7/2009 or 6/30/2015 list but appeared on a weekly list.

Schedule for Week of June 28, 2015

by Bill McBride on 6/27/2015 08:51:00 AM

The key report this week is the June employment report on Thursday.

Other key indicators include the June ISM manufacturing index on Wednesday, June vehicle sales on June, and the April Case-Shiller house price index on Tuesday.

----- Monday, June 29th -----

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.6% increase in the index.

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

----- Tuesday, June 30th -----

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

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the March 2015 report (the Composite 20 was started in January 2000).

The consensus is for a 5.4% year-over-year increase in the Comp 20 index for April. The Zillow forecast is for the National Index to increase 4.0% year-over-year in April, and for prices to be unchanged month-to-month seasonally adjusted.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 50.6, up from 46.2 in May.

----- Wednesday, July 1st -----

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

8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 220,000 payroll jobs added in June, up from 200,000 in May.

ISM PMI10:00 AM: ISM Manufacturing Index for June. The consensus is for an increase to 53.2 from 52.8 in May.

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

The ISM manufacturing index indicated expansion at 52.8% in May. The employment index was at 51.7%, and the new orders index was at 55.8%.

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

Vehicle SalesAll day: Light vehicle sales for June. The consensus is for light vehicle sales to decrease to 17.2 million SAAR in June from 17.7 million in May (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the May sales rate.

----- Thursday, July 2nd -----

8:30 AM: Employment Report for June. The consensus is for an increase of 228,000 non-farm payroll jobs added in June, down from the 280,000 non-farm payroll jobs added in May.

The consensus is for the unemployment rate to decrease to 5.4%.

Year-over-year change employmentThis graph shows the year-over-year change in total non-farm employment since 1968.

In May, the year-over-year change was almost 3.1 million jobs.

As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should pickup.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 270 thousand from 271 thousand.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for May. The consensus is a 0.3% decrease in orders.

----- Friday, July 3rd -----

All US markets will be closed in observance of the Independence Day weekend.

Friday, June 26, 2015

June NFP: Merrill and Nomura Forecasts

by Bill McBride on 6/26/2015 05:56:00 PM

The June employment report will be released on Thursday, July 2nd. Here are a couple of forecasts:

From Nomura:

[W]e forecast a 230k increase in private payrolls, with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 235k. We forecast that manufacturing employment increased by 5k in June. We forecast that average hourly earnings for private employees rose by 0.17% m-o-m in June, a slower pace than trend due to a calendar quirk. Last, we expect the household survey to show that the unemployment rate ticked down to 5.4% from 5.5%, previously.
From Merrill:
We look for job growth of 220,000, a slowdown from the 280,000 pace in May but consistent with the recent trend. As a result, the unemployment rate will likely lower to 5.4% from 5.5%. With the continued tightening in the labor market, we think average hourly earnings (AHE) will increase a “strong” 0.2%, allowing the yoy rate to hold at 2.3%.

Vehicle Sales Forecasts for June: Over 17 Million Annual Rate Again, Best June in a Decade

by Bill McBride on 6/26/2015 03:41:00 PM

The automakers will report June vehicle sales on Wednesday, July 1st. Sales in May were at 17.7 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales will in June will be over 17 million SAAR again.

Note:  There were 26 selling days in June, one less than in June 2014.  Here are a few forecasts:

From Edmunds.com: Auto Industry Poised for Best June Sales in a Decade, Forecasts Edmunds.com

Edmunds.com ... forecasts that 1,484,487 new cars and trucks will be sold in the U.S. in June for an estimated Seasonally Adjusted Annual Rate (SAAR) of 17.3 million. The projected sales will be a 9.0 percent decrease from May 2015, but a 4.7 percent increase from June 2014. If the sales volume holds, it will mark the best-selling month of June since 2006, and the biggest June SAAR since 2005.
emphasis added
From J.D. Power: June New-Vehicle Retail Sales Strongest For the Month in a Decade
The forecast for new-vehicle retail sales in June 2015 is 1,169,600 units, a 1 percent increase on a selling-day adjusted basis compared with June 2014 and the highest retail sales volume for the month since June 2005, when sales hit 1,350,004. Retail transactions are the most accurate measure of consumer demand for new vehicles. [Total forecast 17.2 million SAAR]
From Kelley Blue Book: New-Car Sales To Rise Nearly 6 Percent In June 2015, According To Kelley Blue Book
New-vehicle sales are expected to increase 5.8 percent year-over-year to a total of 1.5 million units in June 2015, resulting in an estimated 17.4 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ...
...
"With another month of new-car sales growth in June 2015, the sixteenth in a row, the auto industry continues its incredibly strong momentum. With a 17.4 million projected SAAR for June, it would mark the third month above 17 million out of the past four months," said Alec Gutierrez, senior analyst for Kelley Blue Book. "However, heading into the summer months, sales should flatten out at a more sustainable pace."
Another strong month for auto sales.  Let the good times roll!

Are Multi-Family Housing Starts near a peak?

by Bill McBride on 6/26/2015 12:37:00 PM

I'm wondering if multi-family housing starts are near a peak. The architecture billings index for multi-family residential market was negative for the fourth consecutive month, and that suggests a slowdown for new apartment construction later this year.

That doesn't mean apartment construction will slow sharply, especially since demographics are still favorable for apartments (as discussed below).   But multi-family construction might move sideways.

However the NMHC Market Tightness Index was still favorable for apartments in Q1, but not as favorable as a few years ago.

Note: Parts of this post are from previous posts.


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

The first graph shows single (blue) and multi-family (red) housing starts for the last several years.

Multi-family is volatile month-to-month, but it does appear that growth is slowing.  Of course multi-family permits were very high last month, so we might see another pickup in starts.

This has been quite a boom for apartments.  It was five years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive.

The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).

Demographics are still favorable, but my sense is the move "from owning to renting" has slowed. And more supply has been coming online.

On demographics, a large cohort has been moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts are 20 to 24 years old, and 25 to 29 years old (the largest cohorts are no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.

Population 20 to 34 years old Click on graph for larger image.

This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.

The circled area shows the recent and projected increase for this group.

From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.

This favorable demographic is a key reason I've been positive on the apartment sector for the last five years - and I expect new apartment construction to stay relatively strong for a few more years.

And on supply, here is the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).

Note that the blue line (multi-family starts) might be starting to move more sideways.

Whereas multi-family starts were only up slightly in May (NSA), mutli-family completions were up 60%!

Completions will continue to rise - with more supply coming on the market - even if starts do move sideways.

And looking forward on demographics ...


Population 20 to 34 years oldThe fourth graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: current to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.

Final June Consumer Sentiment increases to 96.1

by Bill McBride on 6/26/2015 10:03:00 AM

Consumer Sentiment
Click on graph for larger image.

The final University of Michigan consumer sentiment index for June was at 96.1, up from the preliminary estimate of 94.6, and up from 90.7 in May.

This was above the consensus forecast of 94.6.

Thursday, June 25, 2015

DOT: Vehicle Miles Driven increased 3.9% year-over-year in April, Rolling 12 Months at All Time High

by Bill McBride on 6/25/2015 08:35:00 PM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by 3.9% (10.2 billion vehicle miles) for April 2015 as compared with April 2014.

Travel for the month is estimated to be 267.9 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for April 2015 is 262.4 billion miles, a 3.7% (9.5 billion vehicle miles) increase over April 2014.
The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors.

The rolling 12 month total is moving up, after moving sideways for several years.


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.

Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January.

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

Vehicle Miles Driven YoY In April 2015, gasoline averaged of $2.56 per gallon according to the EIA.  That was down significantly from April 2014 when prices averaged $3.74 per gallon.

Gasoline prices aren't the only factor - demographics is also key. However, with lower gasoline prices, miles driven - on a rolling 12 month basis - is at a new high.

Update: "Scariest jobs chart ever"

by Bill McBride on 6/25/2015 04:18:00 PM

During the recent recession, every month I posted a graph showing the percent jobs lost during the recession compared to previous post-WWII recessions.

Some people started calling this the "scariest jobs chart ever".

I retired the graph in May 2014 when employment finally exceeded the pre-recession peak (now April 2014 with revisions).

I was asked if I could post an update to the graph, and here it is.

Percent Job Losses During Recessions
This graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions.  Since exceeding the pre-recession peak in April 2014, employment is now 2.4% above the previous peak.

Note: most previous recessions end on the graph when employment reached a new peak, although I continued the 2001 recession too.  The downturn at the end of the 2001 recession is the beginning of the 2007 recession.  I don't expect a downturn for employment any time soon (unlike in 2007 when I was forecasting a recession).




Freddie Mac: Mortgage Serious Delinquency rate declined in May

by Bill McBride on 6/25/2015 01:17:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in May to 1.58%, down from 1.66% in April. Freddie's rate is down from 2.10% in May 2014, and the rate in May was the lowest level since November 2008.

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

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for May in a few days.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.52 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Kansas City Fed: Regional Manufacturing Activity Declined in June

by Bill McBride on 6/25/2015 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Declined at a Slower Pace

The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined at a slightly slower pace, and producers’ expectations improved modestly.

Regional factory conditions continued to decline in June, especially in energy-producing areas,” said Wilkerson. “However, firms continue to expect some stabilization in the months ahead and for orders to rise by the end of the year.”
...
Tenth District manufacturing activity declined at a slightly slower pace than the previous month, and producers’ expectations improved modestly. Most price indexes continued to rise, particularly for raw materials.

The month-over-month composite index was -9 in June, up from -13 in May but down from -7 in April ... On the other hand, although still negative, the new orders, order backlog, employment, and new orders for export indexes edged higher.
emphasis added
Some of this recent decline in the Kansas City region has been due to lower oil prices.

Personal Income increased 0.5% in May, Spending increased 0.9%

by Bill McBride on 6/25/2015 08:46:00 AM

The BEA released the Personal Income and Outlays report for May:

Personal income increased $79.0 billion, or 0.5 percent ... in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $105.9 billion, or 0.9 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.6 percent in May, compared with an increase of less than 0.1 percent in April. ... The price index for PCE increased 0.3 percent in May, compared with an increase of less than 0.1 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent in May, the same increase as in April.

The May price index for PCE increased 0.2 percent from May a year ago. The May PCE price index, excluding food and energy, increased 1.2 percent from May a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through May 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was higher than expected.  And the increase in PCE was above the 0.7% increase consensus.  A strong report.

On inflation: The PCE price index increased 0.2 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.2 percent year-over-year in May.

Using the two-month method to estimate Q2 PCE growth, PCE was increasing at a 3.1% annual rate in Q2 2015 (using the mid-month method, PCE was increasing 4.2%). This suggests a rebound in PCE in Q2, and decent Q2 GDP growth.

Weekly Initial Unemployment Claims increased to 271,000

by Bill McBride on 6/25/2015 08:33:00 AM

The DOL reported:

In the week ending June 20, the advance figure for seasonally adjusted initial claims was 271,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 267,000 to 268,000. The 4-week moving average was 273,750, a decrease of 3,250 from the previous week's revised average. The previous week's average was revised up by 250 from 276,750 to 277,000.

There were no special factors impacting this week's initial claims.
The previous week was revised up by 1,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 decreased to 273,750.

This was below the consensus forecast of 273,000, and the low level of the 4-week average suggests few layoffs.

Wednesday, June 24, 2015

Lawler: Updated Table of Distressed Sales and Cash buyers for Selected Cities in May

by Bill McBride on 6/24/2015 07:24:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 273 thousand from 267 thousand.

• At 8:30 AM, Personal Income and Outlays for May. The consensus is for a 0.4% increase in personal income, and for a 0.7% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 11:00 AM, the Kansas City Fed manufacturing survey for June.

Economist Tom Lawler sent me an undated table below of short sales, foreclosures and cash buyers for a few selected cities in May.

On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic is up year-over-year because of an increase in foreclosures in Baltimore).

Short sales are down in all of these areas.

The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

As Lawler noted last month: The Baltimore Metro area is included in the overall Mid-Atlantic region (covered by MRIS). Baltimore is shown separately because a large portion of the YOY increase in the foreclosure share of home sales in the Mid-Atlantic region was attributable to the significant increase in foreclosure sales in the Baltimore Metro area.

  Short Sales ShareForeclosure Sales Share Total "Distressed" ShareAll Cash Share
May-15May-14May-15May-14May-15May-14May-15May-14
Las Vegas7.3%7.9%8.0%9.1%15.3%17.0%21.9%40.2%
Reno**5.0%11.0%4.0%6.0%9.0%17.0% 
Phoenix2.8%3.9%3.2%6.7%6.0%10.7%24.0%29.5%
Sacramento4.7%7.0%5.4%8.3%10.1%15.3%17.4%20.5%
Minneapolis2.4%3.9%6.6%10.0%9.0%13.9% 
Mid-Atlantic3.4%5.2%10.4%8.1%13.8%13.3%16.2%17.2%
Baltimore MSA****3.6%5.8%16.3%11.9%19.8%17.6% 
Orlando3.9%9.2%22.8%24.7%26.7%34.0%33.9%43.8%
Florida SF5.3%9.6%25.7%24.6%31.0%34.2%43.4%48.9%
Florida C/TH3.2%7.6%20.6%19.7%23.9%27.3%69.5%72.1%
Miami MSA SF6.2%9.6%16.1%16.4%22.3%26.0%34.9%42.6%
Miami MSA C/TH3.2%5.9%17.6%17.9%20.8%23.7%65.8%70.1%
Tampa MSA SF4.3%7.1%20.0%22.1%24.3%29.2%35.3%40.6%
Tampa MSA C/TH3.0%4.9%13.6%18.6%16.6%23.5%57.5%62.7%
Northeast Florida      26.7%36.8% 
Chicago (city)      16.2%21.6% 
Hampton Roads      17.4%21.3% 
Spokane      12.8%17.0% 
Hampton Roads      17.4%21.3% 
Spokane      12.8%17.0% 
Richmond VA MSA    8.5%13.9%    14.9%19.4%
Memphis    14.3%15.6%    28.3%31.6%
Springfield IL**    5.4%8.7%     
Tucson          25.6%31.3%
Toledo          26.1%36.6%
Des Moines          14.0%17.5%
Peoria          17.9%19.6%
Georgia***          20.3%26.0%
Omaha          15.9%19.4%
Pensacola          31.3%32.6%
Knoxville            20.5%22.9%
*share of existing home sales, based on property records
**Single Family Only
***GAMLS
****Baltimore is included in the Mid-Atlantic region, but is shown separately here

ATA Trucking Index increased 1.1% in May

by Bill McBride on 6/24/2015 04:08:00 PM

Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Rose 1.1% in May

American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.1% in May, following a revised loss of 1.4% during April. In May, the index equaled 132.1 (2000=100). The all-time high is 135.8, reached in January 2015.

Compared with May 2014, the SA index increased just 1.8%, which was well below the 2.7% gain in April and the smallest year-over-year gain since February 2013 (-4.3%). ...

“The good news is that truck tonnage increased in May,” said ATA Chief Economist Bob Costello. “But tonnage is certainly not strong at the moment as factory output is soft and there is an inventory reduction occurring throughout the supply chain.”

Costello noted that truck tonnage is off 2.7% from the high in January.

“I believe the inventory correction should end this summer and truck freight, helped by better personal consumption, will accelerate,” he said, “which is good because I think it is unlikely factory output will boost truck tonnage much until later this year or next year.”
emphasis added
ATA Trucking Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is now up only 1.8% year-over-year.

Black Knight: Mortgage Delinquencies increased in May

by Bill McBride on 6/24/2015 01:11:00 PM

According to Black Knight's First Look report for May, the percent of loans delinquent increased 4% in May compared to April, and declined 12% year-over-year.

The percent of loans in the foreclosure process declined 2% in May and were down 22% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.96% in May, up from 4.77% in April.

The percent of loans in the foreclosure process declined in May to 1.49%.  This was the lowest level of foreclosure inventory since January 2008.

The number of delinquent properties, but not in foreclosure, is down 326,000 properties year-over-year, and the number of properties in the foreclosure process is down 212,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for May in early July.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  May
2015
Apr
2015
May
2014
May
2013
Delinquent4.96%4.70%5.62%6.08%
In Foreclosure1.49%1.55%1.91%3.05%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:1,591,0001,463,0001,670,0001,708,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:922,000952,0001,169,0001,335,000
Number of properties in foreclosure pre-sale inventory:754,000764,000966,0001,525,000
Total Properties3,268,0003,179,0003,805,0004,569,000

AIA: Architecture Billings Index increased in May

by Bill McBride on 6/24/2015 10:12:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture Billings Index Returns to Positive Territory

Led by growing demand for new schools, hospitals, cultural facilities and municipal buildings, the Architecture Billings Index (ABI) increased in May following its second monthly drop this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 51.9, up from a mark of 48.8 in April. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.5, up from a reading of 60.1 the previous month.

“As has been the case for the past several years, while the design and construction industry has been in a recovery phase, we continue to receive mixed signals on business conditions in the marketplace,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Generally, the business climate is favorable, but there are still construction sectors and regions of the country that are struggling, producing the occasional backslide in the midst of what seems to be growing momentum for the entire industry.”
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 51.9 in May, up from 48.8 in April. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.  The multi-family residential market was negative for the fourth consecutive month - and this might be indicating a slowdown for apartments - or at least less growth.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 10 of the last 12 months, suggesting an increase in CRE investment in 2015.

Q1 GDP Revised Up to -0.2% Annual Rate

by Bill McBride on 6/24/2015 08:35:00 AM

From the BEA: Gross Domestic Product: First Quarter 2015 (Third Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- decreased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the decrease in real GDP was 0.7 percent. With the third estimate for the first quarter, exports decreased less than previously estimated, and personal consumption expenditures (PCE) and imports increased more ...
emphasis added
Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 1.8% to 2.1%. Residential investment was revised up from 5.0% to 6.5%.

Q1 will probably be revised up again when the annual revision is released on July 30th.

MBA: Mortgage Applications Increase in Latest Weekly Survey, Purchase Index up 18% YoY

by Bill McBride on 6/24/2015 07:00:00 AM

From the MBA: Refi, Purchase Applications Both Up in Latest MBA Weekly Survey

Mortgage applications increased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 19, 2015....

The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index was unchanged compared with the previous week and was 18 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.19 percent from 4.22 percent, with points decreasing to 0.38 from 0.46 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index.

With higher rates, refinance activity has mostly declined recently.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015.


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

According to the MBA, the unadjusted purchase index is 18% higher than a year ago.

Tuesday, June 23, 2015

Wednesday: GDP

by Bill McBride on 6/23/2015 08:54:00 PM

From Merrill Lynch:

We look for GDP growth to be revised higher to 0.4% qoq saar in 1Q, a notable improvement from the second release of -0.7%. This reflects stronger consumer spending given the upward revision to March core control retail sales and the QSS survey. We also look for somewhat stronger nonresidential structures investment, although it will continue to be a drag as a result of a drop in mining investment. Residential investment also looks likely to be revised higher as does government spending. Looking ahead, we expect growth to rebound to 3.4% in 2Q. ...

This will not be the final revision to 1Q GDP — it will likely be revised yet again with the annual GDP revision in July. A recent hot topic has been that 1Q real GDP has residual seasonality issues. The BEA plans to resolve some of these seasonality issues in the annual revision, thus we could see a sizeable upward revision to 1Q after this upcoming third release.
CR Note: The annual revision will be released on July 30th, along with the "advance" estimate for Q2 GDP.

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

• At 8:30 AM, Gross Domestic Product, 1st quarter 2015 (third estimate). The consensus is that real GDP decreased 0.2% annualized in Q1, revised up from the 0.7% decrease second estimate.

• During the day, the AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).

Sacramento Housing in May: Less than 10% Distressed Sales, Inventory down YoY

by Bill McBride on 6/23/2015 05:40:00 PM

Note: This was delayed this month.

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For some time, not much changed. But over the last 3 years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In May, 9.8% of all resales were distressed sales. This was down from 11.9% last month, and down from 14.7% in May 2014. Since distressed sales happen year round, but conventional sales decline in December and January, the percent of distressed sales bumps up in the winter (seasonal).

The percentage of REOs was at 5.3% in May, and the percentage of short sales was 4.4%.

This is the lowest level of distressed sales since this data series started.

Here are the statistics.

Sacramento Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 0.1% year-over-year (YoY) in May.  This was the first YoY decrease in inventory in Sacramento since April 2013.

Cash buyers accounted for 15.2% of all sales (frequently investors).

Total sales were up 4.1% from May 2014, and conventional equity sales were up 10.2% compared to the same month last year.

Summary: This data suggests a healing market with fewer distressed sales, more equity sales, and less investor buying.

Chemical Activity Barometer "Leading Economic Indicator Heats Up"

by Bill McBride on 6/23/2015 02:20:00 PM

Here is a relatively new indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Leading Economic Indicator Heats Up

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), increased by 0.7 percent in June, followed by a similar gain in May, and an upwardly revised 0.5 percent gain in April. The pattern represents an acceleration of productivity not seen since the first quarter of 2011. Data is measured on a measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 3.7 percent over this time last year, also an acceleration of annual growth as compared to the first half of 2015. ...

Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

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

And this suggests some pickup in growth for industrial production.

Comments on New Home Sales and Prices

by Bill McBride on 6/23/2015 11:59:00 AM

The new home sales report for May was solid, with sales above expectations at 546 thousand on a seasonally adjusted annual rate basis (SAAR), and upward revisions to prior months.

Earlier: New Home Sales increased to 546,000 Annual Rate in May

The Census Bureau reported that new home sales this year, through May, were 233,000, not seasonally adjusted (NSA). That is up 24.0% from 188,000 during the same period of 2014 (NSA). That is a strong year-over-year gain for the first five months!

Sales were up 19.5% year-over-year in May.

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate).

The year-over-year gain will probably be strong through July (the first seven months were especially weak in 2014), however I expect the year-over-year increases to slow later this year - but the overall year-over-year gain should be solid in 2015.

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

From the Census Bureau: "The median sales price of new houses sold in May 2015 was $282,800; the average sales price was $337,000."

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

New Home PricesClick on graph for larger image.

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

The average price in May 2015 was $337,000 and the median price was $282,800.  Both are above the bubble high (this is due to both a change in mix and rising prices), but are below the recent peak. The recent decline in the median and average is probably because some builders have introduced new homes at lower price points.

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

New Home Sales by PriceAbout 8% of homes sold were under $150K in May 2015.  This is down from 30% in 2002 - but up a little from earlier this year.  The under $150K new home is probably going away.

There has also been some pickup in homes sold in the $150K to $300K range.

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through May 2015. 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.

I expect existing home sales to move sideways (distressed sales will continue to decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly 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 this ratio will probably continue to trend down over the next several years.

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

New Home Sales increased to 546,000 Annual Rate in May

by Bill McBride on 6/23/2015 10:16:00 AM

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 546 thousand.

The previous three months were revised up by a total of 34 thousand (SA).

"Sales of new single-family houses in May 2015 were at a seasonally adjusted annual rate of 546,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.2 percent above the revised April rate of 534,000 and is 19.5 percent above the May 2014 estimate of 457,000."
New Home SalesClick on graph for larger image.

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

Even with the increase in sales since the bottom, new home sales are still close to the bottoms for previous recessions.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply decreased in May to 4.5 months.

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

This is now in the normal range (less than 6 months supply is normal).
"The seasonally adjusted estimate of new houses for sale at the end of May was 206,000. This represents a supply of 4.5 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

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

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

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

In May 2015 (red column), 51 thousand new homes were sold (NSA). Last year 43 thousand homes were sold in May.  This is the highest for May since 2007.

The all time high for May was 120 thousand in 2005, and the all time low for May was 26 thousand in 2011.

This was above expectations of 525,000 sales in May, and new home sales are on pace for solid growth in 2015.  I'll have more later today.