Monday, August 31, 2015

Tuesday: ISM Mfg Index, Construction Spending, Auto Sales

by Bill McBride on 8/31/2015 07:59:00 PM

From Tim Duy: Does 25bp Make A Difference?

Bottom Line: I am coming around to the belief that the timing of the first rate hike is more important than Fed officials would like us to believe. The lack of consensus regarding the timing of the first hike tells me that we don't fully understand the Fed's reaction function and, importantly, their confidence in their estimates of the natural rate of unemployment. The timing of the first hike will thus define that reaction function and thus send an important signal about the Fed's overall policy intentions.
Tuesday:
• At 10:00 AM ET, the ISM Manufacturing Index for August. The consensus is for the ISM to be at 52.8. The ISM manufacturing index indicated expansion at 52.7% in July. The employment index was at 52.7%, and the new orders index was at 56.5%.

• Also t 10:00 AM, Construction Spending for July. The consensus is for a 0.8% increase in construction spending.

• All day, Light vehicle sales for August. The consensus is for light vehicle sales to decrease to 17.3 million SAAR in August from 17.5 million in July (Seasonally Adjusted Annual Rate).

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

by Bill McBride on 8/31/2015 05:01:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in July to 1.63% from 1.66% in June. The serious delinquency rate is down from 2.00% in July 2014, and this is the lowest level since August 2008.

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

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 0.37 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017.

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

Restaurant Performance Index increased in July

by Bill McBride on 8/31/2015 01:45:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Stronger sales, traffic in July boost RPI

Driven by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in July.

The RPI stood at 102.7 in July, up 0.7 percent from June and the first gain in three months. In addition, July represented the 29th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“July’s RPI gain was fueled primarily by an improvement in the current situation indicators,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Although a solid majority of operators reported higher same-store sales and customer traffic levels in July, their outlook for both sales growth and the economy is more cautious compared to recent months.”
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index increased to 102.7 in July, up from 102.0 in June. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. Even with the decline in the index, this is a solid reading.

It appears restaurants are benefiting from lower gasoline prices.

Dallas Fed: "Texas Manufacturing Activity Holds Steady, but Outlooks Deteriorate"

by Bill McBride on 8/31/2015 10:46:00 AM

From the Dallas Fed: Texas Manufacturing Activity Holds Steady, but Outlooks Deteriorate

Texas factory activity was essentially flat in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, climbed to near zero (-0.8), suggesting output held steady after five months of declines.
...
Perceptions of broader business deteriorated markedly in August. The general business activity index dropped 11 points from -4.6 to -15.8, and the company outlook index also posted a double-digit decline, coming in at -10.3.
...
Labor market indicators reflected slight employment declines and stable workweek length. The August employment index was negative for a fourth month in a row but edged up to -1.4.
emphasis added
This was the last of the regional Fed surveys for August. Three of the five surveys indicated contraction in August, mostly due to weakness in oil producing areas.

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

It seems likely the ISM index will be weak in August, and will possibly decrease from the July level (although these regional surveys overemphasize oil producing areas).  The consensus is for an increase to 52.8 for the ISM index, from 52.7 in July.

Chicago PMI decreases slightly in August

by Bill McBride on 8/31/2015 09:57:00 AM

Chicago PMI: August Chicago Business Barometer Down 0.3 Point to 54.4

The Chicago Business Barometer held on to most of July’s gain, falling just a fraction to 54.4 in August from 54.7 in July. While below the highs seen towards the end of last year, it’s still consistent with a bounceback in activity in the third quarter following recent weaker growth.
...
Chief Economist of MNI Indicators Philip Uglow said, “It was pretty much steady as she goes in August with orders and output just about holding on to July‘s gains. While the slowdown earlier in the year looks temporary, we‘re still some way below the strong growth rates seen towards the end of 2014“
emphasis added
This was below the consensus forecast of 54.7.

Sunday, August 30, 2015

Sunday Night Futures

by Bill McBride on 8/30/2015 08:27:00 PM

A September rate hike is still on the table, from Jon Hilsenrath and Ben Leubsdorf at the WSJ: Fed Appears to Hold Line on Rate Plan

Federal Reserve officials emerged from a week of head-spinning financial turbulence largely sticking to their plan to raise U.S. interest rates before the end of the year.

During the Federal Reserve Bank of Kansas City’s annual economic symposium here, many policy makers signaled that stock-market volatility and China’s woes haven’t seriously dented their view that the U.S. job market is improving, and that domestic economic output is expanding at a steady, modest pace.
...
“There is good reason to believe that inflation will move higher as the forces holding inflation down—oil prices and import prices, particularly—dissipate further,” said Fed Vice Chairman Stanley Fischer in comments delivered to the conference, which ended Saturday.
Weekend:
Schedule for Week of August 30, 2015

Monday:
• At 9:45 AM ET, the Chicago Purchasing Managers Index for August. The consensus is for a reading of 54.9, up from 54.7 in July.

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

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 18 and DOW futures are down 140 (fair value).

Oil prices were up over the last week with WTI futures at $44.85 per barrel and Brent at $49.41 per barrel.  A year ago, WTI was at $98, and Brent was at $101 - so prices are down over 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.47 per gallon (down almost $1.00 per gallon from a year ago).  Gasoline prices will probably continue to decline over the next month or more (follow oil prices down).

Vehicle Sales Forecast for August: Over 17 Million Annual Rate Again

by Bill McBride on 8/30/2015 12:30:00 PM

The automakers will report August vehicle sales on Tuesday, Sept 1. Sales in July were at 17.5 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in August will be over 17 million SAAR again.

Note:  There were 26 selling days in August, down from 27 in August 2014 (Also note: Labor Day is not included in August this year).  Here is another forecast:

From WardsAuto: Forecast: LV SAAR Should Hold Steady in August

A new WardsAuto forecast calls for strong U.S. light-vehicle sales in August, extending a streak of light-vehicle SAARs that round to at least 17 million units.

The report calls for automakers to sell 1.53 million LVs in the U.S. this month, for a daily sales rate of 58,866 units (over 26 days), a 0.7% improvement over same-month year-ago (27 days). The modest increase actually represents a more meaningful year-over-year gain since last August’s official sales reports included Labor Day weekend sales, which lifted the daily sales rate for the entire month. This year, the heavily-incentivized holiday-weekend sales will fall entirely in September.

The forecasted seasonally adjusted rate of 17.3 million-units would make August the fourth consecutive month with an LV SAAR of at least 17 million and mark the longest such streak since a 12-month run ending in June 2002.

Saturday, August 29, 2015

August 2015: Unofficial Problem Bank list declines to 282 Institutions

by Bill McBride on 8/29/2015 04:01:00 PM

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

Here is the unofficial problem bank list for August 2015.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for August 2015. During the month, the list fell from 290 institutions to 282 after nine removals and one addition. Assets dropped by $1.2 billion to an aggregate $82.7 billion. The asset total was updated to reflect second quarter figures, which resulted in a small decline of $95 million. A year ago, the list held 439 institutions with assets of $139.97 billion. This week, we were anticipating for the FDIC to release second quarter industry results and an update on the Official Problem Bank List, but that will have to wait until next month's update.

Actions have been terminated against Bank of the Carolinas, Mocksville, NC ($363 million); Oxford Bank, Oxford, MI ($304 million Ticker: OXBC); Bank of the Rockies, National Association, White Sulphur Springs, MT ($131 million); Madison Bank, Richmond, KY ($123 million); and Bank of Monticello, Monticello, GA ($96 million).

Several banks merged to find their way off the problem bank list including First National Bank of Wauchula, Wauchula, FL ($76 million); Pineland State Bank, Metter, GA ($55 million); The Elkhart State Bank, Elkhart, TX ($43 million); and SouthBank, a Federal Savings Bank, Palm Beach Gardens, FL ($20 million).

Added this month was OSB Community Bank, Brooklyn, MI ($72 million). In addition, the Federal Reserve issued a Prompt Corrective Action order against Cecil Bank, Elkton, MD ($302 million).

Schedule for Week of August 30, 2015

by Bill McBride on 8/29/2015 08:31:00 AM

The key report this week is the August employment report on Friday.

Other key indicators include the August ISM manufacturing index and August vehicle sales, both on Tuesday, and the July Trade Deficit on Thursday.

----- Monday, August 31st -----

9:45 AM: Chicago Purchasing Managers Index for August. The consensus is for a reading of 54.9, up from 54.7 in July.

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

----- Tuesday, September 1st -----

ISM PMI10:00 AM: ISM Manufacturing Index for August. The consensus is for the ISM to be at 52.8, up from 52.7 in July.

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

The ISM manufacturing index indicated expansion at 52.7% in July. The employment index was at 52.7%, and the new orders index was at 56.5%.

10:00 AM: Construction Spending for July. The consensus is for a 0.8% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for August. The consensus is for light vehicle sales to decrease to 173 million SAAR in August from 17.5 million in July (Seasonally Adjusted Annual Rate).

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

----- Wednesday, September 2nd -----

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 August. This report is for private payrolls only (no government). The consensus is for 210,000 payroll jobs added in August, up from 185,000 in July.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for July. The consensus is a 0.9% increase in orders.

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, September 3rd -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 273 thousand initial claims, up from 271 thousand the previous week.

U.S. Trade Deficit8:30 AM: Trade Balance report for July from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through June. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $42.9 billion in July from $42.8 billion in June.

10:00 AM: the ISM non-Manufacturing Index for August. The consensus is for index to decrease to 58.5 from 60.3 in July.

----- Friday, September 4th -----

8:30 AM: Employment Report for August. The consensus is for an increase of 223,000 non-farm payroll jobs added in August, up from the 215,000 non-farm payroll jobs added in July.

The consensus is for the unemployment rate to decrease to 5.2%.

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

In July, the year-over-year change was over 2.9 million jobs.

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


Friday, August 28, 2015

Fed's Vice Chair Fischer: “When the case is overwhelming, if you wait that long, then you’ve waited too long.”

by Bill McBride on 8/28/2015 08:43:00 PM

Note: Tomorrow, Saturday, at 12:25 PM ET, Fed Vice Chairman Stanley Fischer will speak at the Jackson Hole Symposium on "U.S. Inflation Developments"

A couple of quotes from earlier today ...

From Binyamin Appelbaum at the NY Times: Fed Official Fischer Leaves Door Open for September Rate Increase

Mr. Fischer said the Fed was preparing to raise interest rates soon because of the “impressive” growth of the domestic economy. He suggested that the recent volatility of global financial markets could cause the Fed to hesitate, but only if it persisted.

“We haven’t made a decision yet, and I don’t think we should,” Mr. Fischer said in an interview with the cable network CNBC. “We’ve got time to wait and see,” because the Fed’s policy-making committee does not meet until Sept. 16 and 17.
...
Mr. Fischer also emphasized Friday that the Fed would not wait until all of its questions were answered. Some amount of uncertainty is inevitable. “When the case is overwhelming, if you wait that long,” he said, “then you’ve waited too long.”
September is still possible, although many economists are now looking at December for the first rate hike.

Freddie Mac: Mortgage Serious Delinquency rate declined in July, Lowest since October 2008

by Bill McBride on 8/28/2015 03:04:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 1.48%, down from 1.53% in June. Freddie's rate is down from 2.02% in July 2014, and the rate in July was the lowest level since October 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 July next week.

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 0.54 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until  mid-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).

Vehicle Sales Forecasts for August: Over 17 Million Annual Rate Again

by Bill McBride on 8/28/2015 11:49:00 AM

The automakers will report August vehicle sales on Tuesday, Sept 1. Sales in July were at 17.5 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in August will be over 17 million SAAR again.

Note:  There were 26 selling days in August, down from 27 in August 2014 (Also note: Labor Day is not included in August this year).  Here are two forecasts:

From J.D. Power: Industry Strength Continues in August, Full-Month Volume Impacted by Calendar

For the first time since 2012, new-vehicle sales over the Labor Day weekend will be tallied as part of September’s sales rather than counted in August’s number. Even when the Labor Day holiday falls in early September, its sales are often part of the August total, but not this year when the holiday lands on Sept. 7.
...
New-vehicle retail sales are projected to hit 1.3 million units in August, a 1.2 percent decrease on a selling-day adjusted basis, compared with August 2014. ... [Total forecast 17.2 million SAAR]

On a year-over-year basis, August sales are going to appear weak, when in fact it’s really a variance in the numbers created by the calendar,” said John Humphrey, senior vice president of the global automotive practice at J.D. Power.“There certainly is no cause for alarm. In fact, the daily selling rate month-to-date in August is trending 8 percent higher than the same period a year ago, although we do anticipate the absence of the holiday in August sales will diminish that rate by the end of the month.

“Our expectation is that with Labor Day falling in September, sales that would have occurred this month are being pushed into next month. If that happens, September will move sales back to the strong trend line we’ve been seeing throughout the year.”
emphasis added
From Kelley Blue Book: New-Car Sales To Drop 4 Percent In August 2015, According To Kelley Blue Book
New-vehicle sales are expected to decline 4 percent year-over-year to a total of 1.52 million units in August 2015, resulting in an estimated 17.2 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book
Another solid month for auto sales - although some reporting will ignore the calendar issues (Labor Day not included in August this year).

Final August Consumer Sentiment at 91.9

by Bill McBride on 8/28/2015 10:03:00 AM

The final University of Michigan consumer sentiment index for August was at 91.9, down from the preliminary reading of 92.9, and down from 93.1 in July.

This was below the consensus forecast of 93.3.

Consumer Sentiment

Personal Income increased 0.4% in July, Spending increased 0.3%

by Bill McBride on 8/28/2015 08:39:00 AM

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

Personal income increased $67.1 billion, or 0.4 percent ... in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $37.4 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in July, compared with an increase of less than 0.1 percent in June. ... 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 July price index for PCE increased 0.3 percent from July a year ago. The July PCE price index, excluding food and energy, increased 1.2 percent from July a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through July 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 at consensus expectations.  And the increase in PCE was slightly below the consensus.

On inflation: The PCE price index increased 0.3 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 July.

Thursday, August 27, 2015

Friday: July Personal Income and Outlays, Consumer Sentiment

by Bill McBride on 8/27/2015 09:01:00 PM

A couple of excerpts from a Merrill Lynch research note, first on the possibility of a September rate hike, and second their forecast for August NFP:

Markets are now pricing a fairly slim chance that the Fed will hike in September, taking to heart the remarks by New York Fed President Bill Dudley midweek that liftoff in September looks “less compelling.” We think a more careful reading of Dudley’s comments suggests that September has not been ruled out. Meanwhile, Vice Chair Stanley Fischer speaks at Jackson Hole this weekend. His comments on inflation and the markets will be most noteworthy, and we expect him to suggest that September remains viable provided the data continue to cooperate and market volatility fades.
CR Note: a September rate hike is still on the table, and Fischer's talk on Saturday will be important.

Note: Saturday at 12:25 PM ET, Speech by Fed Vice Chairman Stanley Fischer, U.S. Inflation Developments, At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

And from Merrill on August NFP:
Payrolls likely grew by a healthy 200,000 in August, not far from the 6-month moving average of 210,000. A pick-up in hiring in the household survey could also nudge the jobless rate down to 5.2% from 5.3% — a sign that labor market slack continues to diminish. Average hourly earnings should rise by a steady 0.2% mom, but softer base-year effects will take the yoy rate down a tenth of a percent to 2.0%.
Friday:
• At 8:30 AM ET, Personal Income and Outlays for July. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 93.3, up from the preliminary reading of 92.9.

MBA on Housing Demand from 2014 to 2024

by Bill McBride on 8/27/2015 05:29:00 PM

The Mortgage Bankers Association released a new report this week: Demographics and the Numbers Behind the Coming Multi-Million increase in Households by Lynn Fisher and Jamie Woodwell.

The report has some great section titles such as "Demographics is Destiny" and "35 is the new 25". These are two topics I've written about extensively.  See: Demographics and Behavior and Are Multi-Family Housing Starts near a peak?

The MBA estimates the number of households will increase by between 13.8 million and 15.8 million over the next decade. Add in some demolitions and some second home buying, and that would suggest housing starts of well over 1.5 million per year. Housing starts are running at about 1.1 million so far this year (1.2 million SAAR in July). This would suggest a further increase in starts.

The MBA presents two scenarios (both seem plausible although I haven't checked the numbers).

Under these conditions, the U.S. will see 15.9 million additional households — 12.7 million owner households (versus 10.3 million in scenario 1) and 3.1 million renter households (versus 5.6 million in scenario 1) — over the next ten years.
Both scenarios suggest a shift to more owner built units (and more new home sales).

Note: For a current look at household formation, economist Jed Kolko wrote last week: Who Is Actually Forming New Households?

Early Look at 2016 Cost-Of-Living Adjustments and Maximum Contribution Base

by Bill McBride on 8/27/2015 01:01:00 PM

The BLS reported this last week:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.3 percent over the last 12 months to an index level of 233.806 (1982-84=100). For the month, the index was essentially unchanged prior to seasonal adjustment.
CPI-W is the index that is used to calculate Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

Since the highest Q3 average was last year (Q3 2014), at 234.242, we only have to compare to last year. 

CPI-W and COLA Adjustment Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

By law, COLA can't be negative, so if the average for CPI-W is down year-over-year, COLA is set to zero (no adjustment).

CPI-W was down 0.3% year-over-year in July.  This is early - we need the data for August and September - but if gasoline prices continue to decline, COLA could be zero this year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Method for determining the base
The formula for determining the OASDI contribution and benefit base is set by law. The formula is applicable only if a cost-of-living increase becomes effective for December of the year in which a determination of the base would ordinarily be made. ...
This is based on a one year lag. The National Average Wage Index is not available for 2014 yet, but wages probably increased again in 2014. If wages increased the same as last year, then the contribution base next year will be increased to around $120,000 from the current $118,500.  However, if COLA is zero, the contribution base will remain at $118,500.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

NAR: Pending Home Sales Index increased 0.5% in July, up 7% year-over-year

by Bill McBride on 8/27/2015 10:22:00 AM

From the NAR: Pending Home Sales Inch Forward in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.5 percent to 110.9 in July from an upwardly revised 110.4 in June and is now 7.4 percent above July 2014 (103.3). The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015, behind April (111.6) and May (112.3).
This was below expectations of a 1.0% increase.

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

Q2 GDP Revised up to 3.7%, Weekly Initial Unemployment Claims decreased to 271,000

by Bill McBride on 8/27/2015 08:37:00 AM

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

Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. ...
emphasis added
Here is a Comparison of Advance and Second Estimates. PCE growth was revised up from 2.9% to 3.1%. Residential investment was revised up from 6.6% to 7.8%.

Solid growth. And above the consensus of 3.2%.

The DOL reported:
In the week ending August 22, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 6,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 272,500, an increase of 1,000 from the previous week's unrevised average of 271,500.

There were no special factors impacting this week's initial claims.
The previous week was unrevised at 277,000.

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 272,500.

This was sligthly higher than the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.

Wednesday, August 26, 2015

Thursday: GDP, Unemployment Claims, Penidng Home Sales, Jackson Hole Symposium

by Bill McBride on 8/26/2015 09:16:00 PM

From Tim Duy: Dudley Puts The Kibosh On September

Monday's action on Wall Street was too much for the Fed. That day, Atlanta Federal Reserve President Dennis Lockhart pulled back his previous dedication to a September rate hike earlier, reverting to only an expectation that rates rise sometimes this year. But today New York Federal Reserve President William Dudley explicitly called September into question. ...
...
Bottom Line: The Fed has long argued that the timing of the first rate hike does not matter. I had thought so as well, but that is clearly no longer the case. A rate hike during a period of substantial financial market turmoil would matter a great deal. It looks like the Fed's plans to raise rate will once again be overtaken by events.
I think the Fed is still data dependent, and the key will be if inflation picks up. This model is interesting, and suggests a slight pickup in inflation later this year and into 2016.

Thursday:
• All day: the Kansas City Fed Hosts Symposium in Jackson Hole, Wyoming (Thursday, Friday, and Saturday).

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2015 (second estimate). The consensus is that real GDP increased 3.2% annualized in Q2, revised up from 2.3% in the advance estimate.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, down from 277 thousand the previous week.

• At 10:00 AM, Pending Home Sales Index for July. The consensus is for a 1.0% increase in the index.

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

Last Week: Key Measures Show Low Inflation in July

by Bill McBride on 8/26/2015 06:01:00 PM

While I was on vacation, there were several key economic releases. Here is the CPI release ...

Last week the Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

ccording to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.8% annualized rate) in July. The 16% trimmed-mean Consumer Price Index also rose 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

[Last week], the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.6% annualized rate) in July. The CPI less food and energy also rose 0.1% (1.6% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed has the median CPI details for July here. Motor fuel was down sharply in July.

Inflation Measures Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.7%, and the CPI less food and energy rose 1.8%. Core PCE is for June and increased 1.3% year-over-year.

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.9% annualized, and core CPI was at 1.6% annualized.

On a year-over-year basis these measures suggest inflation remains below the Fed's target of 2% (median CPI is above 2%).

Inflation is still low.

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

by Bill McBride on 8/26/2015 03:01:00 PM

Economist Tom Lawler sent me an updated table below of short sales, foreclosures and cash buyers for selected cities in July.

On distressed: Total "distressed" share is down in most of these markets.  Distressed sales are up in the Mid-Atlantic due to an increase in foreclosures.

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.

  Short Sales ShareForeclosure Sales Share Total "Distressed" ShareAll Cash Share
Jul-
2015
Jul-
2014
Jul-
2015
Jul-
2014
Jul-
2015
Jul-
2014
Jul-
2015
Jul-
2014
Las Vegas7.0%11.5%7.7%9.1%14.7%20.6%27.1%35.6%
Reno**3.0%4.0%2.0%8.0%5.0%12.0%   
Phoenix2.8%3.7%3.5%5.9%6.3%9.6%23.4%24.8%
Sacramento4.7%5.7%4.6%6.3%9.3%12.1%18.1%20.9%
Minneapolis1.9%3.1%5.4%9.3%7.3%12.4%   
Mid-Atlantic3.4%4.3%9.4%7.7%12.8%12.1%15.8%17.1%
Orlando3.7%8.3%20.1%24.4%23.8%32.7%34.5%39.3%
Bay Area CA*2.4%2.8%2.4%2.6%4.8%5.4%20.1%20.7%
So. California*3.2%4.3%3.9%4.6%7.1%8.9%21.7%25.1%
Florida SF3.3%5.9%16.3%20.7%19.6%26.6%32.8%37.7%
Florida C/TH2.4%19.1%15.2%19.1%17.6%38.1%59.2%64.3%
Chicago (city)        13.5%17.7%   
Hampton Roads        15.1%17.2%   
Spokane        9.0%12.2%   
Northeast Florida        26.4%31.0%   
Toledo            27.0%32.9%
Tucson            23.7%26.2%
Peoria            15.6%18.4%
Georgia***            20.3%24.1%
Omaha            13.9%17.0%
Knoxville            21.8%25.5%
Richmond VA MSA    8.4%12.1%    18.1%18.4%
Memphis    12.6%13.3%       
Springfield IL**    5.6%7.2%       
*share of existing home sales, based on property records
**Single Family Only
***GAMLS

Zillow Forecast: Expect Case-Shiller to show "Uptick in Appreciation" year-over-year change in July

by Bill McBride on 8/26/2015 11:59:00 AM

The Case-Shiller house price indexes for June were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: July Case-Shiller: Expect a Slight Uptick in Appreciation

The June S&P/Case-Shiller (SPCS) data published today showed home prices continuing to rise at an annual rate of five percent for the 20-city composite and 4.6 percent for the 10-city composite. The national index has risen 4.5 percent since June 2014.

The non-seasonally adjusted (NSA) 10- and 20-city indices were both down 0.1 percent from May to June. We expect the change in the July SPCS to show increases of 0.8 percent for the 20-city index and 0.7 percent for the 10-City Index.

All Case-Shiller forecasts are shown in the table below. These forecasts are based on today’s June SPCS data release and the July 2015 Zillow Home Value Index (ZHVI), release August 24. The SPCS Composite Home Price Indices for July will not be officially released until Tuesday, September 28.
This suggests the year-over-year change for the July Case-Shiller National index will be slightly higher than in the June report.

Zillow Case-Shiller Forecast
  Case-Shiller
Composite 10
Case-Shiller
Composite 20
Case-Shiller
National
NSASANSASANSASA
June
Actual YoY
4.6%4.6%5.0%5.0%4.5%4.5%
July
Forecast
YoY
4.8%4.8%5.2%5.2%4.6%4.6%
July
Forecast
MoM
0.7%0.1%0.8%0.1%0.7%0.3%

AIA: Architecture Billings Index indicated expansion in July

by Bill McBride on 8/26/2015 09:31:00 AM

This was released last week while I was on vacation.

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

From the AIA: Architecture Firm Billings Continued to Rise in July

Business conditions at U.S. architecture firms continued to improve in July. While the pace of growth of architecture firm billings decreased modestly from June, the ABI score of 54.7 for the month indicates that firm billings remain on the upswing overall. In addition, there continues to be plenty of work in the pipeline, with firms reporting strong inquiries into new projects as well as the highest design contracts score since the end of 2014.
...
By firm specialization, firms with an institutional focus are still reporting some of the strongest business conditions they have ever experienced, and firms with a commercial/industrial specialization continue to recover from some softness earlier in the year. In addition, firms with a residential specialization are coming close to emerging from the slump that they have experienced for the last six months, which came on the heels of several years of strong growth. Scores for this segment have been ticking up for the last two months and will hopefully return to positive territory before the end of the summer.
...
Sector index breakdown: institutional (57.3), commercial / industrial (53.4) multi-family residential (49.8)
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 54.7 in July, down from 55.7 in June. 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 sixth 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 a further increase in CRE investment over the next 12 months.

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

by Bill McBride on 8/26/2015 07:00:00 AM

From the MBA: Increase in Government Purchase Loans Drive Overall Increase in Latest MBA Weekly Survey

Mortgage applications increased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 21, 2015. ...

The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 0.3 percent 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 4.08 percent from 4.11 percent, with points decreasing to 0.36 from 0.37 (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.

Refinance activity remains very low.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year).


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, August 25, 2015

Wednesday: Durable Goods

by Bill McBride on 8/25/2015 08:46:00 PM

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, Durable Goods Orders for July from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

This is a leading indicator for industry production, from the ACC: Chemical Activity Barometer Follows Global Markets Downward

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), dropped 0.3 percent in August, a marked deceleration of activity from second quarter performance. The declined follows a 0.1 percent gain in July and 0.5 percent gain in both May and June. Data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.8 percent over this time last year, also a deceleration of annual growth as compared to this time last year when the barometer logged a 4.2 percent annual gain over 2013.
...
“Chemical, other equity, and product prices all suffered greatly in our latest reading of the Chemical Activity Barometer,” said ACC Chief Economist Kevin Swift. “There continued to be upward momentum in plastic resins for both consumer applications and light vehicles, but we also continue to see declines in oilfield chemicals and U.S. exports overall, largely as a result of softer oil prices and a strong U.S. dollar,” Swift said. Despite these modest headwinds, the Chemical Activity Barometer is still signaling slow gains in business activity into the early part of 2016.

Real Prices and Price-to-Rent Ratio in June

by Bill McBride on 8/25/2015 03:04:00 PM

The year-over-year increase in prices is mostly moving sideways now at between 4% and 5%.. In October 2013, the National index was up 10.9% year-over-year (YoY). In June 2015, the index was up 4.5% YoY.

Here is the YoY change since January 2014 for the National Index:

MonthYoY Change
Jan-1410.5%
Feb-1410.2%
Mar-148.9%
Apr-147.9%
May-147.0%
Jun-146.3%
Jul-145.6%
Aug-145.1%
Sep-144.8%
Oct-144.6%
Nov-144.6%
Dec-144.6%
Jan-154.4%
Feb-154.3%
Mar-154.2%
Apr-154.3%
May-154.4%
Jun-154.5%

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 $276,000 today adjusted for inflation (38%).  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 7.5% 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 June) 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 June 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 May 2003 levels, the Composite 20 index is back to April 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 1.1% 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 April 2003 levels, the Composite 20 index is back to January 2003 levels, and the CoreLogic index is back to October 2003.

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

Comments on July New Home Sales

by Bill McBride on 8/25/2015 12:27:00 PM

The new home sales report for July was slightly below expectations and there were also minor downward revisions to prior months.  However sales are still up solidly for 2015 compared to 2014.

Earlier: New Home Sales increased to 507,000 Annual Rate in July.

The Census Bureau reported that new home sales this year, through July, were 316,000, not seasonally adjusted (NSA). That is up 21.2% from 260,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for the first seven months of 2015!

Sales were up 25.8% year-over-year in July.

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

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through July 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 mostly move sideways over the next few years (distressed sales will continue to decline and be offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

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 507,000 Annual Rate in July

by Bill McBride on 8/25/2015 10:11:00 AM

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 507 thousand.

The previous three months were revised down by a total of 12 thousand (SA).

"Sales of new single-family houses in July 2015 were at a seasonally adjusted annual rate of 507,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.4 percent above the revised June rate of 481,000 and is 25.8 percent above the July 2014 estimate of 403,000."
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 July to 5.3 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 July was 218,000. This represents a supply of 5.2 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

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

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

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

In July 2015 (red column), 43 thousand new homes were sold (NSA). Last year 35 thousand homes were sold in July.  This is the highest for July since 2008.

The all time high for July was 117 thousand in 2005, and the all time low for July was 26 thousand in 2010.

This was below expectations of 516,000 sales in July, however new home sales are still on pace for solid growth in 2015.  I'll have more later today.

Case-Shiller: National House Price Index increased 4.5% year-over-year in June

by Bill McBride on 8/25/2015 09:15:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for June ("June" is a 3 month average of April, May and June 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 Prices Continue Upward Trend According to the S&P/Case-Shiller Home Price Indices

The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 4.5% annual increase in June 2015 versus a 4.4% increase in May 2015. The 10-City Composite had marginally lower year-over-year gains, with an increase of 4.6% year-over-year. The 20-City Composite year-over-year pace was virtually unchanged from last month, rising 5.0% year-over-year.
...
Before seasonal adjustment, the National index and 20-City Composite both reported gains of 1.0% month-over-month in June. The 10-City Composite posted a gain of 0.9% month-over-month. After seasonal adjustment, the National index posted a gain of 0.1% while the 10-City and 20-City Composites were both down 0.1% month-over-month. All 20 cities reported increases in June before seasonal adjustment; after seasonal adjustment, nine were down, nine were up, and two were unchanged.
...
“Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.
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 14.6% from the peak, and down 0.2% in June (SA).

The Composite 20 index is off 13.3% from the peak, and down 0.1% (SA) in June.

The National index is off 7.5% from the peak, and up 0.1% (SA) in June.  The National index is up 25.0% 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 June 2014.

The Composite 20 SA is up 5.0% year-over-year..

The National index SA is up 4.5% year-over-year.

Prices increased (SA) in 10 of the 20 Case-Shiller cities in June seasonally adjusted.  (Prices increased in 20 of the 20 cities NSA)  Prices in Las Vegas are off 39.5% from the peak, and prices in Denver and Dallas are at new highs (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 67% 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, August 24, 2015

Tuesday: New Home Sales, Case-Shiller House Prices, Richmond Fed Mfg

by Bill McBride on 8/24/2015 09:08:00 PM

Tuesday:
• At 8:30 AM: S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May and June prices. The consensus is for a 5.2% year-over-year increase in the Comp 20 index for June. The Zillow forecast is for the National Index to increase 4.3% year-over-year in June.

• At 9:00 AM, FHFA House Price Index for June 2015. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% month-to-month increase for this index.

• At 10:00 AM, New Home Sales for July from the Census Bureau. The consensus is for an increase in sales to 516 thousand Seasonally Adjusted Annual Rate (SAAR) in July from 482 thousand in June.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for August.

S&P 500
To put the recent sell-off in perspective, here is a graph (click on graph for larger image) from Doug Short and shows the S&P 500 since the 2007 high ...

Catching Up: Existing Home Sales in July: 5.59 million SAAR, Highest Pace in Eight Years

by Bill McBride on 8/24/2015 04:24:00 PM

While I was on vacation, there were several key economic releases. I'm catching up ...

The NAR reported last week: Existing-Home Sales Maintain Solid Growth in July

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.0 percent to a seasonally adjusted annual rate of 5.59 million in July from a downwardly revised 5.48 million in June. Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3 percent above a year ago (5.07 million). ...

Total housing inventory at the end of July declined 0.4 percent to 2.24 million existing homes available for sale, and is now 4.7 percent lower than a year ago (2.35 million). Unsold inventory is at a 4.8-month supply at the current sales pace, down from 4.9 months in June.
Existing Home SalesClick on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July (5.59 million SAAR) were 2.0% higher than last month, and were 10.3% above the July 2014 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 2.24 million in July from 2.25 million in June.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory decreased 4.7% year-over-year in July compared to July 2014.  

Months of supply was at 4.8 months in June.

This was above expectations of sales of 5.40 million.

As always, new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale. Also I wouldn't be surprised if the seasonally adjusted pace for existing home sales slows over the next several months due to limited inventory.

Inventory is still very low (down 4.7% year-over-year in July). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. This will be important to watch.

Also, the NAR reported total sales were up 10.3% from July 2014, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):
Representing the lowest share since NAR began tracking in October 2008, distressed sales — foreclosures and short sales — declined to 7 percent in July from 8 percent in June; they were 9 percent a year ago. Five percent of July sales were foreclosures and 2 percent were short sales.
Last year in July the NAR reported that 9% of sales were distressed sales.

A rough estimate: Sales in July 2014 were reported at 5.07 million SAAR with 9% distressed.  That gives 456 thousand distressed (annual rate), and 4.64 million equity / non-distressed.  In July 2015, sales were 5.59 million SAAR, with 7% distressed.  That gives 391 thousand distressed - a decline of about 14% from July 2014 - and 5.20 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 13%.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSASales NSA in July (red column) were the highest for July since 2006 (NSA).

Catching Up: Housing Starts increased to 1.206 Million Annual Rate in July

by Bill McBride on 8/24/2015 01:47:00 PM

While I was on vacation, there were several major economic releases. I'm catching up ...

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,206,000. This is 0.2 percent above the revised June estimate of 1,204,000 and is 10.1 percent above the July 2014 rate of 1,095,000.

Single-family housing starts in July were at a rate of 782,000; this is 12.8 percent above the revised June figure of 693,000. The July rate for units in buildings with five units or more was 413,000.

Building Permits:
Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,119,000. This is 16.3 percent below the revised June rate of 1,337,000, but is 7.5 percent above the July 2014 estimate of 1,041,000.

Single-family authorizations in July were at a rate of 679,000; this is 1.9 percent below the revised June figure of 692,000. Authorizations of units in buildings with five units or more were at a rate of 412,000 in July.
emphasis added
Total Housing Starts and Single Family Housing Starts Click on graph for larger image.

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

Multi-family starts (red, 2+ units) decreased in July.  Multi-family starts were down slightly year-over-year.

Single-family starts (blue)  increased in July and are up about 19% year-over-year.

The second graph shows total and single unit starts since 1968.

Total Housing Starts and Single Family Housing Starts The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in July were above expectations, and, including the upward revisions to May and June, starts were solid - especially single family starts.

This third graph shows the month to month comparison between 2014 (blue) and 2015 (red).

Starts Housing 2013 and 2014Even with weak housing starts in February and March, total starts are still running 11.3% ahead of 2014 through July.

Single family starts are running 11.2% ahead of 2014 through July.

Starts for 5+ units are up 12.2% for the first six months compared to last year.

Below is an update to 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).

Multi-family completions are increasing sharply.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked - although I expect solid multi-family starts for a few more years (based on demographics).

Single family Starts and completionsThe second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

A strong report, especially for single family starts.

Black Knight: House Price Index up 0.9% in June, 5.1% year-over-year

by Bill McBride on 8/24/2015 11:14:00 AM

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: U.S. Home Prices Up 0.9 Percent for the Month; Up 5.1 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 June 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 0.9% percent in June, and is off 5.8% 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 nine months.

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

Black Knight shows prices off 38.5% from the peak in Las Vegas, off 31.5% in Orlando, and 27.9% off from the peak in Riverside-San Bernardino, CA (Inland Empire).

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

Chicago Fed: Index shows "Economic growth picked up in July"

by Bill McBride on 8/24/2015 09:55:00 AM

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

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.34 in July from –0.07 in June. Two of the four broad categories of indicators that make up the index increased from June, and three of the four categories made positive contributions to the index in July.

The index’s three-month moving average, CFNAI-MA3, edged up to a neutral reading in July from –0.08 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

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

This suggests economic activity was close to the historical trend in July (using the three-month average).

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

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

Black Knight's First Look at July: Foreclosure Inventory at Lowest Level Since 2007

by Bill McBride on 8/24/2015 07:01:00 AM

From Black Knight: Black Knight Financial Services' First Look at July Mortgage Data: Foreclosure Inventory Down 24 Percent Year-Over-Year; Lowest Level Since 2007

According to Black Knight's First Look report for July, the percent of loans delinquent decreased 2% in July compared to June, and declined 16.5% year-over-year.

The percent of loans in the foreclosure process declined 4% in July and were down 24% 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 4.71% in July, down from 4.82% in June.

The percent of loans in the foreclosure process declined in July to 1.40%.  This was the lowest level of foreclosure inventory since 2007.

The number of delinquent properties, but not in foreclosure, is down 460,000 properties year-over-year, and the number of properties in the foreclosure process is down 224,000 properties year-over-year.

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

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  July
2015
June
2015
July
2014
July
2013
Delinquent4.71%4.82%5.64%6.41%
In Foreclosure1.40%1.46%1.85%2.82%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:1,503,0001,549,0001,7130001,846,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:886,000895,0001,136,0001,347,000
Number of properties in foreclosure pre-sale inventory:711,000739,000935,0001,406,000
Total Properties3,100,0003,183,0003,785,0004,599,000

Sunday, August 23, 2015

Sunday Night Futures

by Bill McBride on 8/23/2015 11:32:00 PM

I take a one week vacation, and the market turns ugly.  Oh well ...

From the WSJ: Refinery Woes Stall Gasoline Price Drops

U.S. oil prices briefly dropped below $40 a barrel on Friday—hitting a six-year low that adds to pressure on pump prices for Labor Day road trips. But cheap gasoline isn’t a sure bet everywhere.

Even as most drivers around the country are spending 25% less on fuel than they did a year ago, California drivers have missed out on the gasoline price windfall because of refinery outages. ... Production woes are spreading to other parts of the country, including the Midwest. ...

“Gas prices are not as low as they should be because of unexpected problems at major refineries and strong demand from drivers,” said Michael Green, a AAA spokesman. The group says the nationwide average could fall to $2 a gallon this year, but only if there are no more production hiccups.
Weekend:
Schedule for Week of August 23, 2015

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

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 46 and DOW futures are down 400 (fair value).

Oil prices were down over the last week with WTI futures at $39.43 per barrel and Brent at $44.52 per barrel.  A year ago, WTI was at $94, and Brent was at $100 - so prices are down over 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.60 per gallon (down about $0.84 per gallon from a year ago).  Gasoline prices should follow oil prices down - once the refinery issues are resolved.