Thursday, March 31, 2016

Freddie Mac: Mortgage Serious Delinquency rate decreased in February, Lowest since Sept 2008

by Bill McBride on 3/31/2016 06:56:00 PM

Friday:
• At 8:30 AM ET, Employment Report for March. The consensus is for an increase of 210,000 non-farm payroll jobs added in March, down from the 242,000 non-farm payroll jobs added in February. The consensus is for the unemployment rate to be unchanged at 4.9%.

• At 10:00 AM, the ISM Manufacturing Index for March. The consensus is for the ISM to be at 50.5, up from 49.5 in February. The ISM manufacturing index indicated contraction at 49.5% in February. The employment index was at 48.5%, and the new orders index was at 51.5%.

• Also at 10:00 AM, Construction Spending for February. The consensus is for a 0.2% increase in construction spending.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (final for March). The consensus is for a reading of 90.9, up from the preliminary reading 91.0.

• All day: Light vehicle sales for March. The consensus is for light vehicle sales to increase to 17.6 million SAAR in March from 17.5 million in February (Seasonally Adjusted Annual Rate).

On Freddie:

Freddie Mac reported that the Single-Family serious delinquency rate decreased in February to 1.26% from 1.33% in January. Freddie's rate is down from 1.81% in February 2015. This is the lowest rate since September 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 reported yesterday.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

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

The serious delinquency rate has fallen 0.55 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of this year.

I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Preview: Employment Report for March

by Bill McBride on 3/31/2016 01:47:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for March. The consensus, according to Bloomberg, is for an increase of 210,000 non-farm payroll jobs in March (with a range of estimates between 175,000 to 241,000), and for the unemployment rate to be unchanged at 4.9%.

The BLS reported 242,000 jobs added in February.

Here is a summary of recent data:

• The ADP employment report showed an increase of 200,000 private sector payroll jobs in March. This was close to expectations of 203,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth close to expectations.

• Since the employment report is being released on the 1st of April, the March ISM manufacturing and non-manufacturing employment indexes are not available yet, and will be released after the employment report this month.

Initial weekly unemployment claims averaged close to 263,000 in March, about the same as in February. For the BLS reference week (includes the 12th of the month), initial claims were at 265,000, up slightly from 262,000 during the reference week in February.

This suggests about the same level of layoffs in March as in February (very few).

• The preliminary March University of Michigan consumer sentiment index decreased to 90.0 from the February reading of 91.7. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• Conclusion: Some of the usual indicators will be released after the employment report this month. The available data suggests job growth in the 200 thousand plus range again in March.

Goldman: March Payrolls Preview

by Bill McBride on 3/31/2016 11:45:00 AM

A few excerpts from a note by Goldman Sachs economist David Mericle: March Payrolls Preview

We expect a 220k gain in nonfarm payroll employment in March, above consensus expectations for a 205k increase and in line with the average rate of employment growth over the last year. A further decline in jobless claims and improvements in the employment components of most business surveys were the highlights of the overall improvement in labor market indicators in March.

The unemployment rate is likely to remain unchanged at 4.9%, with risks to the downside. Average hourly earnings are likely to rise at a trend-like pace of 0.2% this month, with a rebound from last month’s surprisingly soft print offset by negative calendar effects.

Chicago PMI increases to 53.6

by Bill McBride on 3/31/2016 09:52:00 AM

Chicago PMI: March Chicago Business Barometer Up 6.0 Points to 53.6

The Chicago Business Barometer increased 6.0 points to 53.6 in March, led by sharp bouncebacks in Production and Employment.
...
The increase in the Barometer was led by a very sharp rise in Production, which followed an even steeper decline in the previous month. The biggest surprise came from the Employment component which rose above the 50 mark in March and to the highest level since April 2015.
...
Chief Economist of MNI Indicators Philip Uglow said, “The most signficant result from the March survey is the pick-up in the Employment component which has remained weak for much of the past year. Looking through some of the recent volatility, the data are consistent with steady, not spectacular, economic growth in the US.“
emphasis added
This was above the consensus forecast of 50.3.

Weekly Initial Unemployment Claims increase to 276,000

by Bill McBride on 3/31/2016 08:34:00 AM

The DOL reported:

In the week ending March 26, the advance figure for seasonally adjusted initial claims was 276,000, an increase of 11,000 from the previous week's unrevised level of 265,000. The 4-week moving average was 263,250, an increase of 3,500 from the previous week's unrevised average of 259,750.

There were no special factors impacting this week's initial claims. This marks 56 consecutive weeks of initial claims below 300,000, the longest streak since 1973.
The previous week was unrevised.

Note: 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 increased to 263,250.

This was above the consensus forecast of 266,000. The low level of the 4-week average suggests few layoffs.

Wednesday, March 30, 2016

Thursday: Unemployment Claims, Chicago PMI

by Bill McBride on 3/30/2016 06:40:00 PM

From Merrill Lynch on March payroll report:

The March employment report likely showed another strong month for the labor market. We anticipate a healthy 190,000 gain in nonfarm payrolls, with the private sector contributing 185,000. Job cuts likely continued in the mining sector given low oil prices. Meanwhile, early signs from the manufacturing sector point to a rebound in activity this month, so we may see a pick-up in hiring after the decline in February. Elsewhere, construction and services likely saw further healthy gains.

We expect the unemployment rate to hold in at 4.9% ... there is a risk that the unemployment rate heads lower to 4.8%. On wages, we think average hourly earnings posted a nice 0.3% mom gain, reversing the 0.1% decline previously. This would leave the yoy rate unchanged at 2.2%.
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 266 thousand initial claims, up from 265 thousand the previous week.

• At 9:45 AM, Chicago Purchasing Managers Index for March. The consensus is for a reading of 50.3, up from 47.6 in February.

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

by Bill McBride on 3/30/2016 04:41:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in February to 1.52%, down from 1.55% in January. The serious delinquency rate is down from 1.83% in February 2015.

This is the lowest rate since July 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".

Note: Freddie Mac has not reported for February yet.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has only fallen 0.31 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.

Zillow Forecast: Expect Slightly Slower Growth in February for the Case-Shiller Indexes

by Bill McBride on 3/30/2016 11:27:00 AM

The Case-Shiller house price indexes for January 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: February Case-Shiller Forecast: More of the Same, But Slightly Slower

The January Case-Shiller indices grew at the exact same annual pace as December. Looking ahead, expect all three February Case-Shiller indices to show similar but slightly slower slower growth, with the 10-City Composite Index expected to register sub-5 percent annual growth for the first time in months, according to Zillow’s February Case-Shiller forecast.

The February Case-Shiller National Index is expected to gain another 0.3 percent in February from January, down from 0.5 percent growth in January from December. We expect the 10-City Index to grow 4.5 percent year-over-year, and the 20-City Index to grow 5.3 percent over the same period. The National Index also looks set to rise 5.3 percent year-over-year.

All SPCS forecasts are shown in the table below. These forecasts are based on today’s January Case-Shiller data release and the February 2016 Zillow Home Value Index (ZHVI). The February Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, April 26.
The year-over-year change for the 10-city and 20-city indexes, and the Case-Shiller National index, will probably be slightly lower in the February report than in the January report.

Zillow forecast for Case-Shiller

ADP: Private Employment increased 200,000 in March

by Bill McBride on 3/30/2016 08:19:00 AM

From ADP:

Private sector employment increased by 200,000 jobs from February to March according to the March ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment rose by 9,000 jobs in March, up from a downwardly revised 2,000 in February. The construction industry added 17,000 jobs, which was down from February’s 24,000. Meanwhile, manufacturing added 3,000 jobs after losing 9,000 the previous month.

Service-providing employment rose by 191,000 jobs in March, down from 204,000 in February.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues on its amazing streak. The March job gain of 200,000 is consistent with average monthly job growth of the past more than four years. The only industry reducing payrolls is energy as has been the case for over a year. All indications are that the job machine will remain in high gear.”
This was close to the consensus forecast for 203,000 private sector jobs added in the ADP report. 

The BLS report for March will be released Friday, and the consensus is for 210,000 non-farm payroll jobs added in March.

MBA: "Refinance Applications Down, Purchase Applications Up in Latest MBA Weekly Survey"

by Bill McBride on 3/30/2016 07:00:00 AM

From the MBA: Refinance Applications Down, Purchase Applications Up in Latest MBA Weekly Survey

Mortgage applications decreased 1.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 25, 2016.
...
The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 21 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) increased to 3.94 percent from 3.93 percent, with points increasing to 0.36 from 0.35 (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 since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity picked up earlier this year as rates declined.


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

According to the MBA, the unadjusted purchase index is 21% higher than a year ago.

Tuesday, March 29, 2016

Mortgage News Daily: "Mortgage Rates Drop After Yellen Speech"

by Bill McBride on 3/29/2016 06:34:00 PM

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

• At 8:15 AM, the ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 203,000 payroll jobs added in March, down from 214,000 in February.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Drop After Yellen Speech

Mortgage rates moved decisively lower today, following a speech from Fed Chair Janet Yellen. ... In fact, the MBS gains were so steep that most lenders didn't adjust rates to fully account for the market movement. This is typical when volatility increases, for better or worse. If markets are able to hold current levels, rates would continue to drop. As it stands, the most prevalent conventional 30yr fixed quote on top tier scenarios is now easily back down to 3.75%, with many lenders pushing back into 3.625%. Just last week, there were quite a few lenders up at 3.875%.
emphasis added
Here is a table from Mortgage News Daily:


Real Prices and Price-to-Rent Ratio in January

by Bill McBride on 3/29/2016 02:51:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.4% year-over-year in January

The year-over-year increase in prices is mostly moving sideways now around 5%. In January, the index was up 5.4% YoY.

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 3.3% below the bubble peak.   However, in real terms, the National index is still about 17% 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 December) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to October 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to April 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 January 2004 levels, the Composite 20 index is back to September 2003, and the CoreLogic index back to January 2004.

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

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to August 2003 levels, the Composite 20 index is back to May 2003 levels, and the CoreLogic index is back to August 2003.

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

Yellen: The Outlook, Uncertainty, and Monetary Policy

by Bill McBride on 3/29/2016 12:25:00 PM

From Fed Chair Janet Yellen: The Outlook, Uncertainty, and Monetary Policy. Excerpts on risks:

Although the baseline outlook has changed little on balance since December, global developments pose ongoing risks. These risks appear to have contributed to the financial market volatility witnessed both last summer and in recent months.

One concern pertains to the pace of global growth, which is importantly influenced by developments in China. There is a consensus that China's economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. There is much uncertainty, however, about how smoothly this transition will proceed and about the policy framework in place to manage any financial disruptions that might accompany it. These uncertainties were heightened by market confusion earlier this year over China's exchange rate policy.

A second concern relates to the prospects for commodity prices, particularly oil. For the United States, low oil prices, on net, likely will boost spending and economic activity over the next few years because we are still a major oil importer. But the apparent negative reaction of financial markets to recent declines in oil prices may in part reflect market concern that the price of oil was nearing a financial tipping point for some countries and energy firms. In the case of countries reliant on oil exports, the result might be a sharp cutback in government spending; for energy-related firms, it could entail significant financial strains and increased layoffs. In the event oil prices were to fall again, either development could have adverse spillover effects to the rest of the global economy.

If such downside risks to the outlook were to materialize, they would likely slow U.S. economic activity, at least to some extent, both directly and through financial market channels as investors respond by demanding higher returns to hold risky assets, causing financial conditions to tighten. But at the same time, we should not ignore the welcome possibility that economic conditions could turn out to be more favorable than we now expect. The improvement in the labor market in 2014 and 2015 was considerably faster than expected by either FOMC participants or private forecasters, and that experience could be repeated if, for example, the economic headwinds we face were to abate more quickly than anticipated. For these reasons, the FOMC must watch carefully for signs that the economy may be evolving in unexpected ways, good or bad.
emphasis added

Case-Shiller: National House Price Index increased 5.4% year-over-year in January

by Bill McBride on 3/29/2016 09:22:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for January ("January" is a 3 month average of November, December and January 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 Increases Continue in January 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 5.4% annual increase in January 2016. The 10-City Composite is up slightly at 5.1% for the year. The 20-City Composite’s year-over-year gain is 5.7%. After seasonal adjustment, the National, 10-City Composite, and 20-City Composite rose 0.5%, 0.8%, and 0.7%, respectively, from the prior month.
...
Before seasonal adjustment, the National Index, the 10-City Composite, and the 20-City Composite all remained unchanged in January. After seasonal adjustment, all three composites reported strong advances. Eleven of 20 cities reported increases in January before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month
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 11.8% from the peak, and up 0.5% in January (SA).

The Composite 20 index is off 10.2% from the peak, and up 0.8% (SA) in January.

The National index is off 3.3% from the peak, and up 0.7% (SA) in January.  The National index is up 30.6% 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 5.1% compared to January 2015.

The Composite 20 SA is up 5.7% year-over-year..

The National index SA is up 5.4% year-over-year.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in December seasonally adjusted.  (Prices increased in 11 of the 20 cities NSA)  Prices in Las Vegas are off 37.8% from the peak.

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 57% above January 2000 (57% nominal gain in almost 16 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 17% above the change in overall prices due to inflation.

Seven cities - Charlotte, Boston, Dallas, Denver, Portland, San Francisco and Seattle.    Detroit prices are only 5% above the January 2000 level.

I'll have more on house prices later.

Monday, March 28, 2016

Tuesday: Yellen, Case-Shiller House Prices

by Bill McBride on 3/28/2016 09:21:00 PM

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for January. Although this is the January report, it is really a 3 month average of November, December and January prices. The consensus is for a 5.8% year-over-year increase in the Comp 20 index for January. The Zillow forecast is for the National Index to increase 5.6% year-over-year in January.

• At 12:20 PM, Speech by Fed Chair Janet Yellen, Economic Outlook and Monetary Policy, At the Economic Club of New York Luncheon, New York, New York

ATA Trucking Index increased 7.2% in February

by Bill McBride on 3/28/2016 04:39:00 PM

From the ATA: ATA Truck Tonnage Index Jumps 7.2% in February

American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index jumped 7.2% in February, following a revised 0.3% reduction during January. In February, the index equaled 144 (2000=100), up from 134.3 in January. February’s level is an all-time high.

Compared with February 2015, the SA index was up 8.6%, which was up from January’s 1.1% year-over-year gain.
...
“While it is nice to see a strong February, I caution everyone not read too much into it,” said ATA Chief Economist Bob Costello. “The strength was mainly due to a weaker than average January, including bad winter storms, thus there was some catch-up going on in February. Normally, fleets report large declines to ATA in February tonnage, in the range of 5.4% to 6.7% over the last three years. So, the small increase this year yielded a big seasonally adjusted gain. If March is strong, then I’ll get more excited.

“I’m still concerned about the elevated inventories throughout the supply chain. Last week, the Census Bureau reported that relative to sales, inventories rose again in January, which is troubling.” he said. “We need those inventories reduced before trucking can count on more consistent, better freight volumes.”
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 8.6% year-over-year.

Black Knight: House Price Index up 0.1% in January, Up 5.3% year-over-year

by Bill McBride on 3/28/2016 01:38:00 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: Black Knight Home Price Index Report: January Transactions; U.S. Home Prices Up 0.1 Percent for the Month; Up 5.3 Percent Year-Over-Year

• U.S. home prices were basically flat for the month, rising just 0.1% from December, and up 5.3% on a year-over- year basis

• This puts national home prices up 26.7% since the bottom of the market at the start of 2012

• At $253K, the national level HPI is now just 5.4% off its June 2006 peak of $267K (this last has been revised slightly - from $268K - due to additional historical data)

• New York again led gains among the states with 0.9 percent month-over-month appreciation, while Illinois saw the most negative movement at -0.4 percent

• Of the nation’s 40 largest metros, 9 hit new peaks:
◦Austin, TX ($287K)
◦Dallas, TX ($220K)
◦Denver, CO ($327K)
◦Houston, TX ($220K)
◦Kansas City, MO ($173K)
◦Nashville, TN ($222K)
◦Portland, OR ($326K)
◦San Francisco, CA ($728K)
◦San Jose, CA ($867K)
The year-over-year increase in the index has been about the same for the last year.

Dallas Fed: "Texas Manufacturing Activity Rebounds in March"

by Bill McBride on 3/28/2016 10:36:00 AM

From the Dallas Fed: Texas Manufacturing Activity Rebounds in March

Texas factory activity expanded slightly in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rebounded to positive territory this month—coming in at 3.3—after two months of negative readings.
...
Perceptions of broader business conditions remained negative but showed signs of slight stabilization in March. The general business activity index jumped 18 points but remained negative for a 15th month, posting a reading of -13.6. The company outlook index posted a fourth negative reading in a row but edged up to -11.0.

Labor market indicators reflected continued decline in March. The employment index was largely unchanged at -10.3, with 12 percent of firms noting net hiring and 22 percent noting net layoffs. The hours worked index remained negative for a third month in a row but edged up to -5.6.
emphasis added
This was the last of the regional Fed surveys for March.

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

It seems likely the ISM manufacturing index will show expansion in March following five months of contraction.  The consensus is the ISM index will increase to 50.5% from 49.5% in February (above 50 is expansion).

NAR: Pending Home Sales Index increased 3.5% in February, up 0.7% year-over-year

by Bill McBride on 3/28/2016 10:03:00 AM

From the NAR: Pending Home Sales Move Forward in February

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 3.5 percent to 109.1 in February from a downwardly revised 105.4 in January and is now 0.7 percent above February 2015 (108.3). Although the index has now increased year-over-year for 18 consecutive months, last month's annual gain was the smallest.
...
The PHSI in the Northeast declined 0.2 percent to 94.0 in February, but is still 12.6 percent above a year ago. In the Midwest the index shot up 11.4 percent to 112.6 in February, and is now 2.5 percent above February 2015.

Pending home sales in the South increased 2.1 percent to an index of 122.4 in February but are 0.4 percent lower than last February. The index in the West climbed 0.7 percent in February to 96.4, but is now 6.2 percent below a year ago.
emphasis added
This was above expectations of a 1.5% increase for this index.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in March and April.

Personal Income increased 0.2% in February, Spending increased 0.1%

by Bill McBride on 3/28/2016 08:40:00 AM

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

Personal income increased $23.7 billion, or 0.2 percent ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $11.0 billion, or 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in February, in contrast to a decrease of less than 0.1 percent in January. ... The price index for PCE decreased 0.1 percent in February, in contrast to an increase of 0.1 percent in January. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.3 percent.

The February PCE price index increased 1.0 percent from February a year ago. The February PCE price index, excluding food and energy, increased 1.7 percent from February a year ago.
The following graph shows real Personal Consumption Expenditures (PCE) through February 2016 (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 larger than expected.  And the increase in PCE was at the 0.1% increase consensus.

On inflation: The PCE price index increased 1.0 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.7 percent year-over-year in February.

Using the two-month method to estimate Q1 PCE growth, PCE was increasing at a 1.8% annual rate in Q1 2016 (using the mid-month method, PCE was increasing 1.6%). This suggests sluggish PCE growth in Q1.

Sunday, March 27, 2016

Monday: Personal Income and Outlays, Pending Home Sales

by Bill McBride on 3/27/2016 08:02:00 PM

This immigration program has really boosted sales in certain California and New York areas, from the WSJ: U.S. Immigration Program for Foreign Investors Sees Demand Surge

The program, known as EB-5, received applications from 17,691 investors in 2015, up from 11,744 in 2014 and 6,554 in 2013, according to figures released last week by U.S. Citizenship and Immigration Services.
...
The EB-5 program offers green cards to aspiring immigrants who invest at least $500,000 into certain businesses that have been determined to create at least 10 jobs per investor.

First created in 1990, EB-5 was barely used until the aftermath of the 2008 recession, when real-estate developers realized it offered a cheap and accessible form of financing when banks were reluctant to lend. The program has since become mainstream within the real-estate development world, particularly among high-end developers in New York, who recruit heavily in China.
Weekend:
Schedule for Week of March 27, 2016

Monday:
• At 8:30 AM ET, Personal Income and Outlays for February. The consensus is for a 0.1% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:00 AM, Pending Home Sales Index for February. The consensus is for a 1.5% increase in the index.

• At 10:30 AM, Dallas Fed Manufacturing Survey for March. This is the last of the regional Fed manufacturing surveys for March.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are up 4 and DOW futures are up 44 (fair value).

Oil prices were mixed over the last week with WTI futures at $39.75 per barrel and Brent at $40.64 per barrel.  A year ago, WTI was at $46, and Brent was at $54 - so prices are down about 15% to 22% year-over-year, respectively.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.04 per gallon (down almost $0.40 per gallon from a year ago).

Hotels: Supply increased faster than Demand in January and February

by Bill McBride on 3/27/2016 10:22:00 AM

From HotelNewsNow.com: Freitag’s 5: US RevPAR growth underwhelms in February

1. RevPAR has now grown for 72 months

Even though the numbers are small, they are positive. We expect them to be so for the next 18 months. Just like last month, RevPAR growth was driven by average daily rate, as occupancies are on a declining trajectory:



This should not come as a surprise because we have been warning about pipeline growth for a while. But it shows that when the weather does not cooperate and the U.S. economy catches a mild cold, there is an immediate impact on occupancies. However, the 61.7% occupancy for February is still the second-highest occupancy ever recorded.

2. Supply growth has outpaced demand growth for two consecutive months

Demand increased only 0.6%. It is worth pointing out that demand is still growing, so while that continues to be true we are breaking demand records every month.

But 0.6% growth sounds pretty flat, and with the increase in supply of 1.6% you get the occupancy decline as described above. As I suggested last month, the supply uptick is a sequential 0.1% (from +1.5% in January), but it is also worth emphasizing that it represents a doubling of the supply percent change from February 2015, which at the time was 0.8% growth.
And weekly data from HotelNewsNow.com: STR: US hotel results for week ending 19 March
The U.S. hotel industry reported positive results in the three key performance metrics during the week of 13-19 March 2016, according to data from STR.

In year-over-year comparisons, the industry’s occupancy increased 1.9% to 70.5%. Average daily rate for the week was up 4.2% to US$127.72. Revenue per available room increased 6.2% to US$90.04.
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate should continue to increase into the Spring, and then increase further during the Summer travel period.

Hotel Occupancy RateThe red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is just behind 2015.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Saturday, March 26, 2016

Schedule for Week of March 27, 2016

by Bill McBride on 3/26/2016 02:02:00 PM

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

Other key indicators include March vehicle sales, the March ISM manufacturing index, February Personal income and outlays, and the January Case-Shiller house price index.

Fed Chair Janet Yellen speaks on Tuesday on the "Economic Outlook and Monetary Policy".

----- Monday, March 28th -----

8:30 AM ET: Personal Income and Outlays for February. The consensus is for a 0.1% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.2%.

10:00 AM: Pending Home Sales Index for February. The consensus is for a 1.5% increase in the index.

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

----- Tuesday, March 29th -----

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

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

The consensus is for a 5.8% year-over-year increase in the Comp 20 index for January. The Zillow forecast is for the National Index to increase 5.6% year-over-year in January.

12:20 PM: Speech by Fed Chair Janet Yellen, Economic Outlook and Monetary Policy, At the Economic Club of New York Luncheon, New York, New York

----- Wednesday, March 30th -----

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

8:15 AM: The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 203,000 payroll jobs added in March, down from 214,000 in February.

----- Thursday, March 31st -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 266 thousand initial claims, up from 265 thousand the previous week.

9:45 AM: Chicago Purchasing Managers Index for March. The consensus is for a reading of 50.3, up from 47.6 in February.

----- Friday, April 1st -----

8:30 AM: Employment Report for March. The consensus is for an increase of 210,000 non-farm payroll jobs added in March, down from the 242,000 non-farm payroll jobs added in February.

The consensus is for the unemployment rate to be unchanged at 4.9%.

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

In February, the year-over-year change was 2.67 million jobs.

A key will be the change in real wages.

ISM PMI10:00 AM: ISM Manufacturing Index for March. The consensus is for the ISM to be at 50.5, up from 49.5 in February.

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

The ISM manufacturing index indicated contraction at 49.5% in February. The employment index was at 48.5%, and the new orders index was at 51.5%.

10:00 AM: Construction Spending for February. The consensus is for a 0.2% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for March. The consensus is for light vehicle sales to increase to 17.6 million SAAR in March from 17.5 million in February (Seasonally Adjusted Annual Rate).

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

10:00 AM: University of Michigan's Consumer sentiment index (final for March). The consensus is for a reading of 90.9, up from the preliminary reading 91.0.

March 2016: Unofficial Problem Bank list declines to 222 Institutions, Q1 2016 Transition Matrix

by Bill McBride on 3/26/2016 11:21:00 AM

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

Here is the unofficial problem bank list for March 2016.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for March 2016. During the month, the list fell from 228 institutions to 222 after eight removals and two additions. Assets dropped by $1.4 billion to an aggregate $64.6 billion. A year ago, the list held 349 institutions with assets of $106.2 billion.

This month, actions have been terminated against Bank of Washington, Washington, MO ($599 million); Community First Bank, Inc., Walhalla, SC ($355 million); Union National Bank and Trust Company of Elgin, Elgin, IL ($311 million); First State Bank, Mesquite, TX ($172 million Ticker: CFOK); American Bank of Baxter Springs, Baxter Springs, KS ($91 million); Freedom Bank, Columbia Falls, MT ($58 million); and Pacific West Bank, West Linn, OR ($54 million Ticker: PWBO).

North Milwaukee State Bank, Milwaukee, WI ($67 million) exited the list through failure on March 11, 2016. This is first failed bank since October 2, 2015.

The additions this month were both from Kentucky -- Peoples Bank & Trust Company of Hazard, Hazard, KY ($278 million) and Blue Grass Federal Savings and Loan Association, Paris, KY ($38 million). Perhaps in a few months, the list will begin to see new additions from banks operated in local economies where the oil & gas industry is a large driver.
Unofficial Problem Banks
With it being the end of the first quarter, we bring an updated transition matrix to detail how banks are moving off the Unofficial Problem Bank List. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,705 institutions have appeared on a weekly or monthly list at some point. There have been 1,483 institutions that have transitioned through the list. Departure methods include 837 action terminations, 396 failures, 236 mergers, and 14 voluntary liquidations. The first quarter of 2015 started with 250 institutions on the list, so the 28 action terminations during the quarter reduced the list by 11.2 percent. Of the 389 institutions on the first published list, 26 or 6.7 percent still remain more than six years later. The 396 failures represent 23.2 percent of the 1,705 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.
Unofficial Problem Bank List
Change Summary
  Number of InstitutionsAssets ($Thousands)
Start (8/7/2009)  389276,313,429
 
Subtractions     
  Action Terminated162(61,658,424)
  Unassisted Merger40(10,183,639)
  Voluntary Liquidation4(10,584,114)
  Failures157(184,803,449)
  Asset Change(2,514,219)
 
Still on List at 3/31/2016  266,569,584
 
Additions after
8/7/2009
  19658,049,809
 
End (3/31//2016)  22264,619,393
 
Intraperiod Deletions1     
  Action Terminated675276,185,701
  Unassisted Merger19678,425,969
  Voluntary Liquidation102,324,142
  Failures239119,641,968
  Total1,120476,577,780
1Institution not on 8/7/2009 or 3/31/2016 list but appeared on a weekly list.

Friday, March 25, 2016

DOT: Vehicle Miles Driven increased 2.0% year-over-year in January

by Bill McBride on 3/25/2016 01:32:00 PM

The Department of Transportation (DOT) reported today:

Travel on all roads and streets changed by 2.0% (4.8 billion vehicle miles) for January 2016 as compared with January 2015.

Travel for the month is estimated to be 240.7 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for January 2016 is 264.3 billion miles, a 2.7% (7.0 billion vehicle miles) increase over January 2015. It also represents a -0.8% change (-2.1 billion vehicle miles) compared with December 2015.
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 - mostly due to lower gasoline prices - 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 2015.

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

Vehicle Miles Driven YoY In January 2015, gasoline averaged $2.06 per gallon according to the EIA.  That was down from January 2015 when prices averaged $2.21 per gallon.

Gasoline prices aren't the only factor - demographics are also important. However, with lower gasoline prices, miles driven on a rolling 12 month basis, is setting new highs each month.

BLS: Unemployment Rate decreased in 22 States in February

by Bill McBride on 3/25/2016 10:19:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were little changed in February. Twenty-two states had unemployment rate decreases from January, 8 states had increases, and 20 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.
...
New Hampshire and South Dakota had the lowest jobless rates in February, 2.7 percent each, followed by North Dakota, 2.9 percent. Alaska had the highest rate, 6.6 percent, closely followed by Mississippi and West Virginia, 6.5 percent each.
State Unemployment Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska, at 6.6%, had the highest state unemployment rate.

State UnemploymentThe second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only seven states are at or above 6% (dark blue).

Q4 GDP Revised Up to 1.4% Annual Rate

by Bill McBride on 3/25/2016 08:34:00 AM

From the BEA: Gross Domestic Product: Fourth 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 1.4 percent in the fourth quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 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 increase in real GDP was 1.0 percent. With this third estimate for the fourth quarter, the general picture of economic growth remains largely the same; personal consumption expenditures (PCE) increased more than previously estimated ...
emphasis added
Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 2.0% to 2.4%. Residential investment was revised up from 8.0% to 10.1%.  This was above the consensus forecast.

Thursday, March 24, 2016

Goldman: "Inflation Finally Begins to Firm"

by Bill McBride on 3/24/2016 07:42:00 PM

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2015 (Third estimate). The consensus is that real GDP increased 1.0% annualized in Q4, unrevised from the second estimate.

• At 10:00 AM, Regional and State Employment and Unemployment (Monthly) for February 2016 from BLS.

A few excerpts from a research piece by Goldman Sachs economists David Mericle and Chris Mischaikow: Inflation Finally Begins to Firm

Fed officials have long argued that inflation has been soft primarily due to transitory factors and would eventually rise as these influences faded and the labor market tightened. Over the last half year, inflation has picked up substantially in a manner that closely fits the Fed’s narrative. Yet at the March FOMC meeting, both the Committee’s inflation projections and comments from Chair Yellen suggested a puzzlingly skeptical take on the encouraging recent data.

We see three broad reasons for the skepticism of some FOMC participants. First, some see ... one-off factors that are unlikely to persist. Second, others likely see downside risks from recent declines in inflation expectations. Third, some participants likely expect further drag from past or future dollar appreciation. ...

In our view, the FOMC had it right the first time. We expect disinflationary forces to fade further this year, while inflationary pressures should strengthen as the labor market continues to tighten ... As a result, we expect core PCE inflation to reach 1.8% by 2016Q4, 0.2pp above the FOMC’s projection, and headline PCE inflation to reach 1.5%, 0.3pp above the FOMC’s projection.

... As the year progresses, we expect that the FOMC will gradually revise up its inflation projections and ultimately conclude that an even stronger acceleration to 1.8% merits three hikes this year rather than two.

Vehicle Sales Forecast: Sales to Reach All Time High for the Month of March

by Bill McBride on 3/24/2016 02:00:00 PM

The automakers will report March vehicle sales on Friday, April 1st.

Note:  There were 27 selling days in March, up from 25 in March 2015.

From WardsAuto: Forecast: March Sales Set to Hit Record-High

A WardsAuto forecast calls for U.S. automakers to deliver 1.7 million light vehicles this month, a record high for March and the largest volume for any month since July 2005’s 1,804,240 units.

The forecasted daily sales rate of 61,727 over 27 days is a best-ever March result. This DSR represents a 0.2% improvement from like-2015 (25 days), while total volume for the month would be 8.2% greater than year-ago. If deliveries meet or exceed WardsAuto’s expectations, March will be the eight consecutive month to outpace prior-year on a DSR basis.
...
The report puts the seasonally adjusted annual rate of sales for the month at 17.3 million units, below the 17.4 million SAAR from the first two months of 2016 combined, but well above the 17.1 million SAAR from same-month year-ago.
emphasis added
Looks like another strong month for vehicle sales.

Kansas City Fed: Regional Manufacturing Activity "remained negative" in March

by Bill McBride on 3/24/2016 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Remained Negative

The Federal Reserve Bank of Kansas City released the March 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 remained negative.

“Factories reported another decline in activity in March, although the drop was somewhat smaller than in the previous three months” said Wilkerson.
...
Tenth District manufacturing activity remained negative, while producers’ expectations for future activity weakened. Most price indexes edged higher in March, but remained at low levels.

The month-over-month composite index was -6 in March, up from -12 in February and -9 in January ... The new orders, order backlog, and employment indexes improved slightly but remained in negative territory.
emphasis added
The Kansas City region continues to be hit hard by lower oil prices and the stronger dollar.

Weekly Initial Unemployment Claims increase to 265,000

by Bill McBride on 3/24/2016 08:38:00 AM

The DOL reported:

Note: This week's release reflects the annual revision to the weekly unemployment claims seasonal adjustment factors. The seasonal adjustment factors used for the UI Weekly Claims data from 2011 forward, along with the resulting seasonally adjusted values for initial claims and continuing claims, have been revised.

In the week ending March 19, the advance figure for seasonally adjusted initial claims was 265,000, an increase of 6,000 from the previous week's revised level. The previous week's level was revised down by 6,000 from 265,000 to 259,000. The 4-week moving average was 259,750, an increase of 250 from the previous week's revised average. The previous week's average was revised down by 8,500 from 268,000 to 259,500.

There were no special factors impacting this week's initial claims. This marks 55 consecutive weeks of initial claims below 300,000, the longest streak since 1973.
The previous week was revised down.

Note: 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 increased to 259,750.

This was below the consensus forecast of 268,000. The low level of the 4-week average suggests few layoffs.

Wednesday, March 23, 2016

Thursday: Durable Goods, Unemployment Claims

by Bill McBride on 3/23/2016 06:58:00 PM

Here is an interesting paper from Jordan Rappaport at the Kansas City Fed: The Limited Supply of Homes

Over the longer term, the supply of homes for purchase should considerably improve as baby boomers increasingly downsize from single-family to multifamily homes. But recent experience suggests that downsizing typically begins when people are in their late seventies, a milestone the leading edge of the baby boomers will not reach for another five years (Rappaport 2015). Until then, the supply of single-family homes for purchase is likely to remain tight, putting continuing upward pressure on home prices.
Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for 268 thousand initial claims, up from 265 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for February from the Census Bureau. The consensus is for a 3.0% decrease in durable goods orders.

• At 11:00 AM, the Kansas City Fed Survey of Manufacturing Activity for March.

Comments on February New Home Sales

by Bill McBride on 3/23/2016 03:20:00 PM

The new home sales report for February was slightly above expectations at 512,000 on a seasonally adjusted annual rate basis (SAAR), and combined sales for November, December and January were revised up.

Sales were down 6.1% year-over-year (YoY) compared to February 2015.   However, we have to remember February 2015 was the strongest month of 2015 at 545,000  SAAR.  Sales for all of 2015 were 501,000 (up 14.5% from 2014) - and since January and February were especially strong months last year, the YoY comparisons have been difficult so far.

Earlier: New Home Sales increased to 512,000 Annual Rate in February.


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

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).

The comparisons for the first two months was difficult.  I also expect lower growth this year overall.

Houston (and other oil producing areas) will have a problem this year. Inventory of existing homes is increasing quickly and prices will probably decline in those areas. And that means new home construction will slow in those areas too.

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 February 2016. This graph starts in 1994, but the relationship had 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 more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

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.

AIA: "Modest Expansion for Architecture Billings Index"

by Bill McBride on 3/23/2016 12:58:00 PM

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

From the AIA: Modest Expansion for Architecture Billings Index

The Architecture Billings Index saw a dip into negative terrain for the first time in five months in January, but inched back up in February with a small increase in demand for design services. 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 February ABI score was 50.3, up slightly from the mark of 49.6 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.5, up from a reading of 55.3 the previous month.

“March and April are traditionally the busiest months for architecture firms, so we should get a clearer reading of underlying momentum over the next couple of months,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Hopefully the relatively mild weather conditions recently in most parts of the country will help design and construction activity move ahead at a somewhat faster pace.”
...
• Regional averages: South (51.1), West (49.9), Northeast (49.5), Midwest (49.3)

• Sector index breakdown: multi-family residential (53.0), commercial / industrial (52.3), institutional (48.1), mixed practice (47.7)
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 50.3 in February, up from 49.6 in January. 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 most of last year - suggesting a slowdown or less growth for apartments - but has been positive for the last five months.

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 8 of the last 12 months, suggesting a further increase in CRE investment in 2016.

New Home Sales increased to 512,000 Annual Rate in February

by Bill McBride on 3/23/2016 10:13:00 AM

The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 512 thousand.

The previous three months were revised up by a total of 12 thousand (SAAR).

"Sales of new single-family houses in February 2016 were at a seasonally adjusted annual rate of 512,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.0 percent above the revised January rate of 502,000, but is 6.1 percent below the February 2015 estimate of 545,000."
emphasis added
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 fairly low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply was unchanged in February at 5.6 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 February was 240,000. This represents a supply of 5.6 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 February 2016 (red column), 44 thousand new homes were sold (NSA). Last year 45 thousand homes were sold in February.

The all time high for February was 109 thousand in 2005, and the all time low for February was 22 thousand in 2011.

This was close to expectations of 512,000 sales SAAR in February, and prior months were revised up slightly - although sales were down year-over-year.  Still a decent report.  I'll have more later today.

MBA: Mortgage Applications Decreased in Latest Weekly Survey, Purchase Applications up 25% YoY

by Bill McBride on 3/23/2016 07:01:00 AM

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

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 18, 2016.
...
The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 25 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 3.93 percent from 3.94 percent, with points decreasing to 0.35 from 0.42 (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 since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity picked up earlier this year as rate declined.


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

According to the MBA, the unadjusted purchase index is 25% higher than a year ago.

Black Knight's First Look at February Mortgage Data: Delinquency rate lowest since April 2007

by Bill McBride on 3/23/2016 12:01:00 AM

From Black Knight: Black Knight Financial Services’ First Look at February Mortgage Data: Delinquencies Fully Recover from January Spike, Hit Lowest Level Since April 2007

• Delinquency rate down 13 percent month-over-month; down nearly 16 percent year-over-year

• Total non-current inventory falls below 3 million for the first time in over eight years
According to Black Knight's First Look report for February, the percent of loans delinquent decreased 12.6% in February compared to January, and declined 15.9% year-over-year.

The percent of loans in the foreclosure process declined 0.6% in February and were down 24.6% 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 4.45% in February, down from 5.09% in January.  This is the lowest delinquency rate since April 2007.

The percent of loans in the foreclosure process declined slightly in February to 1.30%.

The number of delinquent properties, but not in foreclosure, is down 419,000 properties year-over-year, and the number of properties in the foreclosure process is down 211,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for February on April 4th.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Feb
2016
Jan
2016
Feb
2015
Feb
2014
Delinquent4.45%5.09%5.30%5.94%
In Foreclosure1.30%1.30%1.72%2.30%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,252,0002,575,0002,671,0002,994,000
Number of properties in foreclosure pre-sale inventory:655,000659,000866,0001,156,000
Total Properties2,907,0003,234,0003,537,0004,150,000

Tuesday, March 22, 2016

Wednesday: New Home Sales

by Bill McBride on 3/22/2016 07:03:00 PM

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

• At 10:00 AM, New Home Sales for February from the Census Bureau. The consensus is for an increase in sales to 510 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 494 thousand in January.

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

Chemical Activity Barometer Expands in March

by Bill McBride on 3/22/2016 01:49:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Expands in March

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.1 percent in March following a revised 0.2 percent decline in February and 0.1 percent downward revision in January. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.5 percent over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7 percent year-over-year gain from 2014.
...
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. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
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).

Currently CAB is up slightly year-over-year, and this suggests a slight increase in Industrial Production over the next year is possible.

Richmond Fed: Manufacturing Sector Activity Expanded in March

by Bill McBride on 3/22/2016 10:06:00 AM

From the Richmond Fed: Manufacturing Sector Activity Expanded; New Orders and Shipments Increased

Fifth District manufacturing activity expanded in March, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders increased this month. Employment advanced at a slightly faster pace in March, while average wages grew moderately and the average workweek lengthened. Prices of raw materials and finished goods rose at a faster pace compared to last month.

Overall, manufacturing activity increased markedly in March. The composite index for manufacturing climbed to a reading of 22, the highest since April 2010. The index for shipments added 38 points and the new orders index advanced 30 points, finishing at strong readings of 27 and 24, respectively. Manufacturing employment grew at a slightly faster pace this month; the employment indicator added two points to end at 11.
emphasis added
Based on the regional surveys released so far for March, it seems likely the ISM manufacturing index will suggest expansion in March after five months of contraction.

Lawler: “Shortfall” in Single-Family Production Almost All in Moderately Sized Homes

by Bill McBride on 3/22/2016 08:11:00 AM

From housing economist Tom Lawler:

CR Update: Added Census Bureau discussion of square footage at bottom.

While single-family housing production has continued to recover, the overall level of production – in terms of units – has been well short of consensus forecasts from a few years ago. In looking at the production “shortfall,” the one thing that is striking is that production of moderately sized homes has barely recovered from the cyclical lows, while production of big homes (3000+ square feet) has been running at a higher pace that in all but one year of the 1990’s.

Starts square footageClick on graph for larger image.

Before going into the distribution of single-family housing production by square feet of floor area, here is a chart of the median square feet of floor area by year for single-family housing completions from 1971 through 2015.

While Census has not yet released its annual report on the characteristics of new single-family home completions for 2015, both the median and the average square footage for completions were similar to 2014, and as such it’s probably not unreasonable to assume that the distribution of single-family completions by square feet of floor area was also similar.

starts square footageIt is a little tricky to look at the distribution of single-family housing completions over long periods of time, because (1) Census only provides annual data by broad ranges, and (2) Census has changed those ranges over time. However, looking at various relationships, and taking advantage of the fact that there is a five-year period where data are available for both the “old” and the “new” ranges, it is possible to construct reasonable estimates of production by constant ranges over time. Here is a chart based on such estimates.

And here are these estimates by averages for five-year periods, as well as for each of the last five years.

Single-Family Housing Completions by Square Feet of Floor Area (000's, Average per Year)
  <16001600-19992000-23992400-29993000+Total
1971-197560212919574371,038
1976-1980573236209107591,184
1981-19854621831079053894
1986-19904112331691411091,064
1991-19953142311771571341,013
1996-20003212652151941881,183
2001-20053152982582622941,427
2006-2010189185162173232941
201198847079116447
201293898093128483
20138910297115166569
201490104102131193620
201596109106136200647

And here’s a comparison of single-family housing completions by square footage for the last two years compared to the average of the 1990’s.

Single-Family Housing Completions by Square Feet of Floor Area (000's, Average per Year)
  <16001600-19992000-23992400-29993000+Total
1990-1999 Average3192421891701511,070
2014-2015 Average93107104134197634
% Change -70.8% -55.9%-45.0%-21.5%30.1%-40.8%

And here’s a fun stat.

Estimated Single-Family Homes Completed with Square Footage of 3,000 or More

1971-1995 (25 years): 1.962 million

2001-2008 (8 years): 2.399 million.

Update: From Census:
"For these statistics, floor area is defined as all completely finished floor space, including space in basements and attics with finished walls, floors, and ceilings. This does not include a garage, carport, porch, unfinished attic or utility room, or any unfinished area of the basement.

In concept, measurement is based on exterior dimensions. Measurements are taken to the outside of exterior walls for detached houses. Builders sometimes provide the gross square footage (based on exterior dimensions) of a detached structure. This footage usually does not contain unfinished space. However, in townhouses, the gross square footage often includes the whole lower level, even though that area might include a garage and unfinished rooms. For purposes of these statistics, where the floor area for a new house was reported based on interior dimensions, the figure is converted to exterior dimensions by multiplying by a standard conversion factor of 1.08. A standard conversion factor of 1.04 is used to convert figures to exterior dimensions where it was not known whether the reported area was based on exterior or interior dimensions."