Tuesday, January 31, 2017

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

by Bill McBride on 1/31/2017 08:01:00 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 January. This report is for private payrolls only (no government). The consensus is for 168,000 payroll jobs added in January, up from 153,000 added in December.

• At 10:00 AM, ISM Manufacturing Index for January. The consensus is for the ISM to be at 55.0, up from 54.7 in December.  The employment index was at 53.1% in December, and the new orders index was at 60.2%.

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

• All day, Light vehicle sales for January. The consensus is for light vehicle sales to decrease to 17.7 million SAAR in January, from 18.4 million in  December (Seasonally Adjusted Annual Rate).

• At 2:00 PM, FOMC Meeting Announcement. No change to FOMC policy is expected at this meeting.

Lawler: Table of Distressed Sales and All Cash Sales for Selected Cities in December

by Bill McBride on 1/31/2017 05:11:00 PM

Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in December.

On distressed: The total "distressed" share is down year-over-year in all of these markets.

Short sales and foreclosures are mostly down in these areas.

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

  Short
Sales
Share
Foreclosure
Sales
Share
Total
"Distressed"
Share
All
Cash
Share
Dec-
2016
Dec-
2015
Dec-
2016
Dec-
2015
Dec-
2016
Dec-
2015
Dec-
2016
Dec-
2015
Las Vegas4.8%6.8%6.2%5.9%11.0%12.7%28.7%28.4%
Reno**1.0%4.0%3.0%2.0%4.0%6.0%
Phoenix1.7%3.7%2.1%2.9%3.8%6.6%23.1%23.9%
Sacramento2.3%4.0%2.6%4.0%4.9%8.0%15.3%16.2%
Minneapolis1.6%2.6%5.5%9.0%7.1%11.6%12.8%13.3%
Mid-Atlantic3.4%4.2%9.3%12.5%12.7%16.7%16.5%18.7%
So. California*4.8%7.0%21.1%21.0%
Florida SF2.0%3.3%7.4%14.4%9.3%17.7%28.3%33.7%
Florida C/TH1.2%2.1%5.7%12.1%6.9%14.1%55.8%60.5%
Miami-Dade Co SF3.7%6.7%11.2%28.7%14.9%35.3%27.1%34.5%
Miami-Dade Co CTH2.3%2.9%10.8%17.0%13.1%19.9%57.6%64.5%
Northeast Florida13.1%24.0%
Chicago (city)14.6%17.9%
Spokane8.4%14.4%
Chicago (city)14.6%17.9%
Rhode Island9.5%11.0%
Toledo25.6%33.4%
Tucson23.7%28.0%
Knoxville21.6%25.4%
Peoria28.3%24.0%
Georgia***20.7%22.7%
Omaha15.7%19.0%
Richmond VA8.5%11.4%15.4%19.8%
Memphis10.3%15.6%
*share of existing home sales, based on property records
**Single Family Only
***GAMLS

Real Prices and Price-to-Rent Ratio in November

by Bill McBride on 1/31/2017 02:37:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.6% year-over-year in November

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being slightly above the previous bubble peak. However, in real terms, the National index (SA) is still about 14.9% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 5%. In November, the index was up 5.6% 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 $277,000 today adjusted for inflation (38.5%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

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 November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to August 2005 levels, and the CoreLogic index (NSA) is back to September 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 April 2004 levels, the Composite 20 index is back to November 2003, and the CoreLogic index back to March 2004.

In real terms, house prices are back to late 2003 / early 2004 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 October 2003 levels, the Composite 20 index is back to June 2003 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are back to late 2003 / early 2004  - and the price-to-rent ratio maybe moving a little more sideways now.

HVS: Q4 2016 Homeownership and Vacancy Rates

by Bill McBride on 1/31/2017 10:45:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q4 2016.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

Homeownership Rate Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate increased to 63.7% in Q4, from 63.5% in Q3.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

Homeowner Vacancy RateThe HVS homeowner vacancy was unchanged at 1.8% in Q4. 

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

Rental Vacancy RateThe rental vacancy rate increased to 6.9% in Q4.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate is probably close to the bottom.

Case-Shiller: National House Price Index increased 5.6% year-over-year in November

by Bill McBride on 1/31/2017 09:38:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November ("November" is a 3 month average of September, October and November 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: The S&P CoreLogic Case-Shiller National Index Hits New Peak as Home Prices Gains Continue

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.6% annual gain in November, up from 5.5% last month. The 10-City Composite posted a 4.5% annual increase, up from 4.3% the previous month. The 20-City Composite reported a year-over-year gain of 5.3%, up from 5.1% in October.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 10 months. In November, Seattle led the way with a 10.4% year-over-year price increase, followed by Portland with 10.1%, and Denver with an 8.7% increase. Eight cities reported greater price increases in the year ending November 2016 versus the year ending October 2016.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in November. Both the 10-City Composite and the 20-City Composite posted 0.2% increases in November. After seasonal adjustment, the National Index recorded a 0.8% month-over-month increase, while both the 10-City and 20-City Composites each reported 0.9% month-over-month increases. Ten of 20 cities reported increases in November before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.
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 9.2% from the peak, and up 0.9% in November (SA).

The Composite 20 index is off 7.0% from the peak, and up 0.9% (SA) in November.

The National index is slightly above the previous peak (SA), and up 0.8% (SA) in November.  The National index is up 36.1% 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 4.5% compared to November 2015.

The Composite 20 SA is up 5.3% year-over-year.

The National index SA is up 5.6% year-over-year.

Note: According to the data, prices increased in all 20 cities month-over-month seasonally adjusted.

I'll have more later.

Monday, January 30, 2017

Tuesday: Case-Shiller House Prices, Chicago PMI

by Bill McBride on 1/30/2017 07:54:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Lower to Begin Week

Mortgage rates fell modestly today, keeping rates near the lower end of the range seen since January 18th. The catch is that rates moved sharply higher on the 18th, and from there, you'd have to go back to late December to see anything higher. Simply put, we're at the lower end of the recently higher range. ... 4.25% remains the most prevalent quote on top tier conventional 30yr fixed scenarios.
emphasis added
Thursday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for November. Although this is the November report, it is really a 3 month average of September, October and November prices. The consensus is for a 5.0% year-over-year increase in the Comp 20 index for November. The Zillow forecast is for the National Index to increase 5.6% year-over-year in November.

• At 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 55.2, up from 54.6 in December.

Fannie Mae: Mortgage Serious Delinquency rate decreased in December, Lowest since March 2008

by Bill McBride on 1/30/2017 05:18:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate decreased to 1.20% in December, down from 1.23% in November. The serious delinquency rate is down from 1.55% in December 2015.

This is the lowest serious delinquency rate since March 2008.

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

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

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

The Fannie Mae serious delinquency rate has fallen 0.35 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% for about 7 more months.

Note: Freddie Mac reported earlier.

Dallas Fed: Regional Manufacturing Activity "Continues to Expand" in January

by Bill McBride on 1/30/2017 02:34:00 PM

From the Dallas Fed: Texas Manufacturing Activity Continues to Expand

Texas factory activity increased for the seventh consecutive month in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, edged down but remained positive at 11.9, suggesting output growth continued but at a slightly slower pace this month. ...
...
The general business activity index posted a fourth consecutive positive reading and moved up to 22.1, its highest reading since April 2010.
...
Labor market measures indicated employment gains and longer workweeks. The employment index bounced back to 6.1 after dipping into negative territory last month. Twenty-three percent of firms noted net hiring, compared with 17 percent noting net layoffs. The hours worked index moved up to 9.1, its strongest reading since the end of 2015. ...
emphasis added
This was the last of the regional Fed surveys for January.

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

It seems likely the ISM manufacturing index will show stronger expansion in January, and the consensus is for a reading of 55.0.

Duy: FOMC Preview

by Bill McBride on 1/30/2017 12:12:00 PM

From Tim Duy at Fed Watch: FOMC Preview

The Fed will take a pass at this week’s FOMC meeting. The median policy participant forecasts just three 25bp rate hikes this year and incoming data offers no surprises to force one of those this month. March, however, remains in play.

The three forecasted rate hikes is not a promise. It could be one hike or could be four or more. The actual outcome will depend on the path of actual economic outcomes and what those outcomes imply for the forecast.
...
he Fed’s crystal ball is as cloudy as everyone else’s, but that’s hard to explain. For example, the potential positive demand shock from expected deficit spending could be overwhelmed by a potential negative supply shock from an increasingly xenophobic Trump Administration.

What does this mean for March? Currently, market participants place low odds of a March rate hike. The underlying bet is that if the Fed moves three times this year, the most likely timing will be June, September, and December. I think this is reasonable; bringing March into that mix requires a change in the tone of the data.
...
At this point I still do not anticipate a March hike. And note that a March move doesn’t guarantee a faster pace of rate hikes; it could be largely pre-emptive, just displacing a subsequent rate hike. But if they could justify a March move and you were anticipating two to three rate hikes this year, you should probably be thinking of three to four. Not to mention some action on the balance sheet added to the mix.
emphasis added

NAR: Pending Home Sales Index increased 1.6% in December, up 0.3% year-over-year

by Bill McBride on 1/30/2017 10:05:00 AM

From the NAR: Pending Home Sales Bounce Back in December

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 1.6 percent to 109.0 in December from 107.3 in November. With last month's uptick in activity, the index is now 0.3 percent above last December (108.7).
...
The PHSI in the Northeast declined 1.6 percent to 96.4 in December, and is now 1.2 percent below a year ago. In the Midwest the index decreased 0.8 percent to 102.7 in December, and is now 3.4 percent lower than December 2015.

Pending home sales in the South rose 2.4 percent to an index of 121.3 in December and are now 0.5 percent above last December. The index in the West jumped 5.0 percent in December to 106.1, and is now 5.0 percent higher than a year ago.
emphasis added
This was above expectations of a 0.6% 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 January and February.

Personal Income increased 0.3% in December, Spending increased 0.5%

by Bill McBride on 1/30/2017 09:04:00 AM

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

Personal income increased $50.2 billion (0.3 percent) in December according to estimates released today by the Bureau of Economic Analysis ... personal consumption expenditures (PCE) increased $63.1 billion (0.5 percent).
...
Real PCE increased 0.3 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
On inflation: The PCE price index increased 1.6 percent year-over-year. (This was up from 1.4% year-over-year in November). The core PCE price index (excluding food and energy) increased 1.7 percent year-over-year in December (the same as in November).

Sunday, January 29, 2017

Sunday Night Futures

by Bill McBride on 1/29/2017 07:11:00 PM

On Trump immigration executive order:

"This isn't normal. Its not humane, its not thought through, its not necessary, its not wise, its not decent and above all, its not American."
Eliot A. Cohen, Counselor in the United States Department of State under Condoleezza Rice and President George W. Bush

Weekend:
Schedule for Week of Jan 29, 2017

These are Not Normal Times

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 8, and DOW futures are down 60 (fair value).

Oil prices were down over the last week with WTI futures at $52.97 per barrel and Brent at $55.52 per barrel.  A year ago, WTI was at $33, and Brent was at $33 - so oil prices are up sharply year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.27 per gallon - a year ago prices were at $1.82 per gallon - so gasoline prices are up 45 cents a gallon year-over-year.

January 2017: Unofficial Problem Bank list unchanged at 163 Institutions

by Bill McBride on 1/29/2017 11:37:00 AM

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

Here is the unofficial problem bank list for January 2017.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for January 2017.  During the month, the list dropped from 169 to 163 institutions after six removals.  Aggregate assets fell by $1.5 billion to $43.5 billion.  A year ago, the list held 238 institutions with assets of $69.5 billion.

Actions were terminated against The Baraboo National Bank, Baraboo, WI ($412 million); International Finance Bank, Miami, FL ($354 million); First National Bank USA, Boutte, LA ($132 million); and First Federal of South Carolina, FSB, Walterboro, SC ($77 million  Ticker: FSGB).

Removals through failure were Seaway Bank and Trust Company, Chicago, IL ($361 million) and Harvest Community Bank, Pennsville, NJ ($126 million).  It has been 15 months since the last month with two or more bank failures.  The failure in Chicago is the 18th bank to fail in that city since September 2009 and the 64th bank to fail in Illinois since 2008.

Saturday, January 28, 2017

These are Not Normal Times

by Bill McBride on 1/28/2017 08:02:00 PM

These are not normal times, and I can't just post economic data and remain silent on other issues.

Mr. Trump's executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.

From the NY Times: Donald Trump’s Muslim Ban Is Cowardly and Dangerous

The first casualties of this bigoted, cowardly, self-defeating policy were detained early Saturday at American airports just hours after the executive order, ludicrously titled “Protecting the Nation From Foreign Terrorist Entry Into the United States,” went into effect. It must have felt like the worst trick of fate for these refugees to hit the wall of Donald Trump’s political posturing at the very last step of a yearslong, rigorous vetting process. This ban will also disrupt the lives and careers of potentially hundreds of thousands of immigrants who have been cleared to live in America under visas or permanent residency permits.

That the order, breathtaking in scope and inflammatory in tone, was issued on Holocaust Remembrance Day spoke of the president’s callousness and indifference to history, to America’s deepest lessons about its own values.

The order lacks any logic. It invokes the attacks of Sept. 11 as a rationale, while exempting the countries of origin of all the hijackers who carried out that plot and also, perhaps not coincidentally, several countries where the Trump family does business. The document does not explicitly mention any religion, yet it sets a blatantly unconstitutional standard by excluding Muslims while giving government officials the discretion to admit people of other faiths.
...
Republicans in Congress who remain quiet or tacitly supportive of the ban should recognize that history will remember them as cowards.

Schedule for Week of Jan 29, 2017

by Bill McBride on 1/28/2017 08:11:00 AM

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

Other key indicators include the January ISM manufacturing and non-manufacturing indexes, and January auto sales.

The FOMC meets on Tuesday and Wednesday, and no change to policy is expected.

----- Monday, Jan 30th -----

8:30 AM: Personal Income and Outlays for December. The consensus is for a 0.4% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.2%.

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

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

----- Tuesday, Jan 31st-----

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

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the October 2016 report (the Composite 20 was started in January 2000).

The consensus is for a 5.0% year-over-year increase in the Comp 20 index for November. The Zillow forecast is for the National Index to increase 5.6% year-over-year in November.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a reading of 55.2, up from 54.6 in December.

----- Wednesday, Feb 1st -----

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

Vehicle SalesAll day: Light vehicle sales for January. The consensus is for light vehicle sales to decrease to 17.7 million SAAR in January, from 18.4 million in  December (Seasonally Adjusted Annual Rate).

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

8:15 AM: The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 168,000 payroll jobs added in January, up from 153,000 added in December.

ISM PMI10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 55.0, up from 54.7 in December.

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

The ISM manufacturing index indicated expansion at 54.7% in December. The employment index was at 53.1%, and the new orders index was at 60.2%.

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

2:00 PM: FOMC Meeting Announcement. No change to FOMC policy is expected at this meeting.

----- Thursday, Feb 2nd -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 253 thousand initial claims, down from 259 thousand the previous week.

----- Friday, Feb 3rd -----

8:30 AM: Employment Report for January. The consensus is for an increase of 175,000 non-farm payroll jobs added in January, up from the 156,000 non-farm payroll jobs added in December.

The consensus is for the unemployment rate to be unchanged at 4.7%.

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

In December, the year-over-year change was 2.16 million jobs.

A key will be the change in wages.

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

10:00 AM: the ISM non-Manufacturing Index for January. The consensus is for index to increase to 57.2 from 57.1 in December.

Friday, January 27, 2017

Oil: "Another huge week for total US oil rigs"

by Bill McBride on 1/27/2017 05:47:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC:

• Another huge week, total US oil rigs up 15 to 566

• Horizontal oil rig counts up +17 to 463
...
• Widespread gains: Permian, EF, Bakken, Cana Woodford – the shale sector as a whole has turned back on

• Another month of this will torpedo the OPEC deal
HZ Rig CountClick on graph for larger image.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

Freddie Mac: Mortgage Serious Delinquency rate falls to 1.0% in December, Lowest since June 2008

by Bill McBride on 1/27/2017 02:58:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in December was at 1.00%, down from 1.03% in November.  Freddie's rate is down from 1.32% in December 2015.

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

This is the lowest serious delinquency rate since June 2008.

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

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

Maybe the rate will decline another 0.25 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.

Philly Fed: State Coincident Indexes increased in 41 states in December

by Bill McBride on 1/27/2017 12:58:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2016. In the past month, the indexes increased in 41 states, decreased in two, and remained stable in seven, for a one-month diffusion index of 78. Over the past three months, the indexes increased in 47 states, decreased in two, and remained stable in one, for a three-month diffusion index of 90.
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed.Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In December 46 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices. Now that oil prices have recovered somewhat, most states are increasing again.

Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.

Q4 GDP: Investment

by Bill McBride on 1/27/2017 09:58:00 AM

The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential investment (RI) increased at a 10.2% annual rate in Q4.  Equipment investment increased at a 3.1% annual rate, and investment in non-residential structures decreased at a 5.0% annual rate.

On a 3 quarter trailing average basis, RI (red) is unchanged,  equipment (green) is also unchanged, and nonresidential structures (blue) is slightly positive.

I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to pick up going forward, and for the economy to continue to grow.

Residential Investment
The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has generally been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

non-Residential InvestmentThe third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - has declined a little recently..  Investment in nonresidential structures - as a percent of GDP - had been moving down due to less investment in energy and power, and is now moving sideways.

Still no worries - residential investment will pickup (still very low), and oil and related non-residential will also pickup.

BEA: Real GDP increased at 1.9% Annualized Rate in Q4

by Bill McBride on 1/27/2017 08:36:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2016 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent.
...
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in PCE, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment.
emphasis added
The advance Q4 GDP report, with 1.9% annualized growth, was below expectations of a 2.2% increase.

Personal consumption expenditures (PCE) increased at a 2.5% annualized rate in Q4, down from 3.0% in Q3.   Residential investment (RI) increased at a 10.2% pace. Equipment investment increased at a 3.1% annualized rate, and investment in non-residential structures decreased at a 5.0% pace.

I'll have more later ...

Thursday, January 26, 2017

Friday: GDP

by Bill McBride on 1/26/2017 06:39:00 PM

From the Atlanta Fed: GDPNow

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.9 percent on January 26, up from 2.8 percent on January 19. After this morning's advance economic indicators release from the U.S. Census Bureau, the forecast of the contribution of inventory investment to fourth-quarter growth increased from 0.74 percentage points to 0.94 percentage points and the forecast of the contribution of net exports to growth decreased from -0.55 percentage points to -0.64 percentage points.
From the NY Fed NowCast
The FRBNY Staff Nowcast stands at 2.1% for 2016:Q4 and at 2.7% for 2017:Q1.
From Merrill Lynch:
The advance goods trade deficit narrowed to $65.0bn in December from $65.3bn, which was better than our expectations of $65.5bn. Exports in particular surged 3.0% mom, while imports also gained a solid 1.8%. Advance wholesale and retail inventories were also included in this report, with the former surging 1.0% mom and the latter coming in flat. On balance, these data bumped up our 4Q GDP tracking model by 0.2pp to 2.6% qoq saar, which is our updated forecast heading into tomorrow's advance GDP release.
Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2016 (advance estimate). The consensus is that real GDP increased 2.2% annualized in Q4, down from 3.5% in Q3.

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

• At 10:00 AM, <University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, up from the preliminary reading 98.1.

A few Comments on December New Home Sales

by Bill McBride on 1/26/2017 12:36:00 PM

New home sales for December were reported at 536,000 on a seasonally adjusted annual rate basis (SAAR).  This was well below the consensus forecast, however the previous months combined were revised up slightly.

Sales were down 0.4% year-over-year in December. And sales are up 12.2% in 2016 compared to 2015.  This was very solid annual sales growth.

Note that these sales (for December) mostly happened after mortgage rates increased following the election.  As I've noted before, interest rate changes impact new home sales before existing home sales because new home sales are counted when the contract is signed, and existing home sales at the close of escrow.

This is just one month of data, and overall sales growth was solid in 2016, but we might see a dip in sales due to higher interest rates.  If so, this will start impacting expecting existing home sales in January.

On Tuesday, after existing home sales for December were released, I wrote:

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013. So we might see sales fall to 5 million SAAR or below over the next 6 months. That would still be solid existing home sales. We might also see a little more inventory in the coming months, and therefore less price appreciation.
It will take several months of data to see the impact of higher mortgage rates - and this is the seasonally weak period - so we might have to wait for the March and April data.

Earlier: New Home Sales decrease to 536,000 Annual Rate in December.

New Home Sales 2015 2016Click on graph for larger image.

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  Sales were up 12.2% year-over-year.

Note that December 2015 was a strong month for 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 November 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.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

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.

Kansas City Fed: Regional Manufacturing Activity "Continued to Expand Moderately" in January

by Bill McBride on 1/26/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Expand Moderately

The Federal Reserve Bank of Kansas City released the January 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 continued to expand moderately with strong expectations for future activity.

“We had another solid composite index reading in January, and firms’ expectations for future activity were the highest in more than twelve years,” said Wilkerson.
...
The month-over-month composite index was 9 in January, unchanged from 9 in December but up from 0 in November.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity in durable goods plants increased moderately, particularly for metals, electronics, and machinery, while nondurable goods plants expanded at a slower pace with food production falling considerably.  Most month-over-month indexes improved slightly in January.  The production index moved slightly higher from 18 to 20, and the shipments, new orders, and order backlog indexes also increased.  The employment index moderated somewhat from 8 to 6, and the new orders for exports index remained negative.  ...
emphasis added
The Kansas City region was hit hard by the decline in oil prices, but activity is expanding again.

New Home Sales decrease to 536,000 Annual Rate in December

by Bill McBride on 1/26/2017 10:12:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 536 thousand.

The previous three months were revised up combined.

"Sales of new single-family houses in December 2016 were at a seasonally adjusted annual rate of 536,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.4 percent below the revised November rate of 598,000 and is 0.4 percent below the December 2015 estimate of 538,000.

An estimated 563,000 new homes were sold in 2016. This is 12.2 percent above the 2015 figure of 501,000."

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 over the last several years, 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 increased in December to 5.8 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 December was 259,000. This represents a supply of 5.8 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 December 2016 (red column), 38 thousand new homes were sold (NSA). Last year, 38 thousand homes were also sold in December.

The all time high for December was 87 thousand in 2005, and the all time low for December was 23 thousand in 1966 and 2010.

This was well below expectations of 590,000 sales SAAR.   I'll have more later today.

Weekly Initial Unemployment Claims increase to 259,000

by Bill McBride on 1/26/2017 08:37:00 AM

The DOL reported:

In the week ending January 21, the advance figure for seasonally adjusted initial claims was 259,000, an increase of 22,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 234,000 to 237,000. The 4-week moving average was 245,500, a decrease of 2,000 from the previous week's revised average. This is the lowest level for this average since November 3, 1973 when it was 244,000. The previous week's average was revised up by 750 from 246,750 to 247,500.
emphasis added
The previous week was revised up.

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 245,500.

This was above the consensus forecast.  This is the lowest level for the four week average since 1973 (with a much larger population today).

The low level of claims suggests relatively few layoffs.

Wednesday, January 25, 2017

Thursday: New Home Sales, Unemployment Claims

by Bill McBride on 1/25/2017 04:51:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Resume Big-Picture Uptrend

Mortgage rates moved higher for the 5th time in the past 6 business days. The past 2 days have combined to bring rates a full .125% higher. That's the increment by which rates are most commonly divided (i.e. 4.0, 4.125%, 4.25%, etc.). ... The average lender is once-again quoting 4.25% on top tier conventional 30yr fixed scenarios. This isn't the first time we've seen 4.25% this year, but closing costs are slightly higher today. That means effective rates are at 2017 highs. Several lenders are already up to 4.375% and a scant few remain at 4.125%.
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 247 thousand initial claims, up from 234 thousand the previous week.

• Also at 8:30 AM, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, New Home Sales for December from the Census Bureau. The consensus is for a decrease in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 592 thousand in November.

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

Vehicle Sales Forecast: Sales Around 17 Million SAAR in January

by Bill McBride on 1/25/2017 12:49:00 PM

The automakers will report January vehicle sales on Wednesday, February 1st.

Note: There were 24 selling days in January 2017, unchanged from 24 in January 2016.

From WardsAuto: Forecast: January Forecast Calls for Low Sales, High Inventory

The U.S. automotive industry is expected to a have a slow start in the new year, with January light-vehicle sales down 4.4% from like-2016. ... The resulting seasonally adjusted annual rate is 17.0 million units, well below the 18.3 million in the previous month and 17.4 million year-ago.
...
December inventory was 9.2% above same-month 2015, the biggest year-over-year gap since the summer of 2014. Weak sales in January will keep inventory levels high, 16.0% greater than year-ago. A 93-day supply is expected to be available at the end of the month, a major jump from 62 days in December and 77 in January 2016.
emphasis added
Here is a table (source: BEA) showing the top 10 years for light vehicle sales.

2016 was the best ever, and 2017 will probably be mostly flat (no growth) compared to 2016.  With high inventories, production in 2017 will probably decline - even with solid sales.

Light Vehicle Sales, Top 10 Years
  YearSales (000s)
1 201617,465
2 201517,396
3 200017,350
4 200117,122
5 200516,948
6 199916,894
7 200416,867
8 200216,816
9 200316,639
10200616,504

Goldman Sachs FOMC Preview

by Bill McBride on 1/25/2017 10:26:00 AM

A few excerpts from a note by Goldman Sachs economists Zach Pandl and Jan Hatzius: FOMC Preview: Holding Pattern

The FOMC looks very likely to keep policy unchanged next week, and should make only modest revisions to the post-meeting statement.

We expect constructive comments on economic activity, assuming GDP growth for Q4 (reported this Friday) is in line with or better than our +2.2% forecast. The committee will probably keep its description of inflation trends roughly unchanged, but it may acknowledge that headline PCE inflation should reach 2% relatively soon (instead of “over the medium term”).

We look for the balance of risk assessment and the characterization of current policy (“accommodative”) to remain unchanged. The statement will likely leave out any explicit mention of fiscal policy for the time being.
CR note: The FOMC meeting is scheduled next week for Tuesday, January 31st and Wednesday, February 1st. The consensus is there will be no change in policy at this meeting.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 1/25/2017 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Surve

Mortgage applications increased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2017. This week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index increased 0.2 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier to its highest level since June 2016. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 0.1 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,000 or less) increased to 4.35 percent from 4.27 percent, with points decreasing to 0.30 from 0.39 (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.

It would take a substantial decrease in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


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

Even with the increase in mortgage rates, purchase activity is still holding up - this is the highest level for the index since June 2016.

However refinance activity has declined significantly.

Tuesday, January 24, 2017

Chemical Activity Barometer "Starts New Year with Strong Gain"

by Bill McBride on 1/24/2017 03:44:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Starts New Year with Strong Gain

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), started the year on a strong note, posting a monthly gain of 0.4 percent in January. This follows a 0.3 percent gain in December, November and October. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB was up 4.6 percent over this time last year.
...
In January all of the four core categories for the CAB improved and the diffusion index was stable at 65 percent. Production-related indicators were positive, with the housing report indicating accelerating activity and trends in construction-related resins, pigments and related performance chemistry generally improved. Other indicators, including equity prices, product prices, and inventory were also positive.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen 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).

CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production over the next year.

BLS: Unemployment Rates Lower in 10 states, Stable in 39 states in December

by Bill McBride on 1/24/2017 01:15:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were significantly lower in December in 10 states, higher in 1 state, and stable in 39 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Eleven states had notable jobless rate decreases from a year earlier, 2 states had increases, and 37 states and the District had no significant change. The national unemployment rate, 4.7 percent, was little changed from November but 0.3 percentage point lower than in December 2015.
...
New Hampshire had the lowest unemployment rate in December, 2.6 percent, followed by Massachusetts and South Dakota, 2.8 percent each. Alaska and New Mexico had the highest jobless rates, 6.7 percent and 6.6 percent, respectively.
emphasis added
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 6.7%, had the highest state unemployment rate.  Note that the lowest recorded unemployment rate in Alaska was 6.3%, so this is pretty close to the all time low.

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 four states are at or above 6% (dark blue). The states are Alaska (6.7%), New Mexico (6.6%),  Alabama (6.2%), and Louisiana (6.1%).

A Few Comments on December Existing Home Sales

by Bill McBride on 1/24/2017 11:36:00 AM

Earlier: NAR: "Existing-Home Sales Slide in December; 2016 Sales Best Since 2006"

Two key points:

1) Many of these December existing home sales were already in escrow - with mortgage rates locked - before the recent increase in mortgage rates (rates started increasing after the election).

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013.   So we might see sales fall to 5 million SAAR or below over the next 6 months.  That would still be solid existing home sales.   We might also see a little more inventory in the coming months, and therefore less price appreciation.

Usually a change in interest rates impacts new home sales first, because new home sales are reported when the contract is signed, whereas existing home sales are reported when the contract closes.  So we might see some impact on new home sales for December.

2) Inventory is still very low and falling year-over-year (down 6.3% year-over-year in December). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I've heard reports of more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.  But we haven't seen a change in trend for inventory yet.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in December (red column) were the highest for December since 2006 (NSA).

Note that sales NSA are in the slower seasonal period, and will really slow seasonally in January and February.

NAR: "Existing-Home Sales Slide in December; 2016 Sales Best Since 2006"

by Bill McBride on 1/24/2017 10:12:00 AM

From the NAR: Existing-Home Sales Slide in December; 2016 Sales Best Since 2006

Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).

In December, existing sales decreased 2.8 percent to a seasonally adjusted annual rate of 5.49 million in December from an upwardly revised 5.65 million in November. With last month's slide, sales are only 0.7 percent higher than a year ago....

Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015). 
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 December (5.49 million SAAR) were 2.8% lower than last month, and were 0.7% above the December 2015 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.65 million in December from 1.85 million in November.   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 6.3% year-over-year in December compared to December 2015.  

Months of supply was at 3.6 months in December.

This was slightly below consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

Monday, January 23, 2017

Tuesday: Existing Home Sales

by Bill McBride on 1/23/2017 06:54:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Erase Last Week's Losses

Mortgage rates fell somewhat significantly today, fully offsetting last week's rise. Specifically, today's average rates are back in line with those seen on Friday ... 4.125% is back in play, now sharing relatively equal territory with 4.25% as the two most prevalently-quoted conventional 30yr fixed rates on top tier scenarios.
emphasis added
Tuesday:
• At 10:00 AM ET, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.54 million SAAR, down from 5.61 million in November. Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in December.

• Also at 10:00 AM, Richmond Fed Survey of Manufacturing Activity for January.

• Also at 10:00 AM, Regional and State Employment and Unemployment (Monthly) for December 2016

Trump Economic Goals for Jobs and GDP

by Bill McBride on 1/23/2017 03:13:00 PM

Just noting these goals for future reference. Based on demographics, I think 2.5 million jobs per year is too high. On GDP, now that the prime working age group is increasing again (by about 0.5% per year), I'd expect some pickup in GDP growth. To average 3.5% over the next four years, we'd have to see an increase in productivity too.

• Jobs: Ten Million jobs over the next four years. "Create a dynamic booming economy that will create 25 million new jobs over the next decade." Source.

• GDP: 3.5% real annual GDP growth. "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate." Source.

NMHC: Apartment Market Tightness Index remained negative in January Survey

by Bill McBride on 1/23/2017 11:51:00 AM

From the National Multifamily Housing Council (NMHC): Apartment Markets Soften in the January NMHC Quarterly Survey

— Apartment markets continued to retreat in the January National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. All four indexes of Market Tightness (25), Sales Volume (25), Equity Financing (33) and Debt Financing (14) remained below the breakeven level of 50 for the second quarter in a row.

“Weaker conditions are evident across all sectors as the apartment industry adjusts to changing conditions,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Rising supply—particularly during a seasonally weak quarter—is causing rent growth to moderate in many markets. At the same time, the sharp rise in interest rates in recent months was a triple whammy for the industry. First, higher rates directly worsen debt financing conditions. Second, the associated rise in cap rates also put a crimp in sales of apartment properties. Third, higher cap rates following the long run-up in apartment prices caused greater caution among equity investors.”

“The underlying demand for apartment residences remains strong, however. While new apartments continue to come online at a good clip, absorptions of those apartments remain strong. As long as the job market continues its steady expansion, any local supply overshoots should be manageable,” said Obrinsky.

The Market Tightness Index dropped three points to 25the fifth consecutive quarter of declining conditions and the lowest in more than seven years. Over half (58 percent) reported looser conditions from three months ago, compared to only eight percent who reported tighter conditions.
emphasis added
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

This is the fifth consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to slow.

Black Knight: Mortgage Delinquencies Declined in December

by Bill McBride on 1/23/2017 10:11:00 AM

From Black Knight: Black Knight Financial Services’ First Look at December 2016 Mortgage Data

• The inventory of loans in active foreclosure nationwide declined by more than 200,000 in 2016

  • Delinquencies were down 0.91 percent from November 2016 and 7.5 percent from December 2015

  • December’s 59,700 foreclosure starts represented a 24 percent decline from the same time last year

  • Pre-payment activity continues to slow, down 5.5 percent from November
According to Black Knight's First Look report for December, the percent of loans delinquent decreased 0.9% in December compared to November, and declined 7.5% year-over-year.

The percent of loans in the foreclosure process declined 3.3% in December and were down 30.5% 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 4.42% in December, down from 4.46% in November.

The percent of loans in the foreclosure process declined in December to 0.95%.

The number of delinquent properties, but not in foreclosure, is down 286,000 properties year-over-year, and the number of properties in the foreclosure process is down 206,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for December by February 6th.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Dec
2016
Nov
2016
Dec
2015
Dec
2014
Delinquent4.42%4.46%4.78%5.62%
In Foreclosure0.95%0.98%1.37%1.75%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,248,0002,263,0002,408,0002,833,000
Number of properties in foreclosure pre-sale inventory:483,000498,000689,000881,000
Total Properties2,731,0002,761,0003,097,0003,715,000

Sunday, January 22, 2017

Sunday Night Futures

by Bill McBride on 1/22/2017 09:01:00 PM

Menzie Chinn at Econbrowser recommends a new site: EconoFact

EconoFact is a non-partisan publication, online starting today, designed to bring key facts and incisive analysis to the national debate on economic and social policies. It is written by leading academic economists from across the country who belong to the EconoFact Network, and published by the Edward R. Murrow Center for a Digital World at The Fletcher School at Tufts University. The co-editors are Michael Klein and Edward Schumacher-Matos.

Inaugural memos tackle Trump’s promise to bring back manufacturing jobs, the prospects for the big, beautiful wall, charter schools, the destination based border tax, whether the trade deficit is a drag on growth, and whether China is now manipulating its currency.
Weekend:
Schedule for Week of Jan 22, 2017

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 5, and DOW futures are down 34 (fair value).

Oil prices were down over the last week with WTI futures at $53.28 per barrel and Brent at $55.53 per barrel.  A year ago, WTI was at $28, and Brent was at $28 - so oil prices are up sharply year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.30 per gallon - a year ago prices were at $1.85 per gallon - so gasoline prices are up 45 cents a gallon year-over-year.

Hotels: Concerns about Fewer Foreign Visitors in 2017

by Bill McBride on 1/22/2017 11:09:00 AM

From HotelNewsNow.com: US hoteliers keep eye on dip in bookings from Europe

U.S. hoteliers have reported seeing a decline in bookings from European travelers heading into 2017 and are looking to explain what has caused the drop.

Possible factors include economic uncertainty in the continent, coupled with a new U.S. president who is unpopular in several European countries. But it’s hard to say what combination of things, if any, is keeping Europeans away.

PM Hotel Group began watching reservations originating from other countries shortly after the presidential election, President Joe Bojanowski said. Company officials had serious concerns about foreign inbound travel in the New York City and San Francisco areas, he said, and the company has seen a decline in reservations in those markets.
From HotelNewsNow.com: STR: US hotel results for week ending 14 January
The U.S. hotel industry reported mixed results in the three key performance metrics during the week of 8-14 January 2017, according to data from STR.

In year-over-year comparisons, the industry’s occupancy decreased 0.9% to 56.6%. However, average daily rate (ADR) rose 2.8% to US$122.29, and revenue per available room (RevPAR) increased 1.9% to US$69.24.
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateThe red line is for 2017, 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 2017 is close to 2015, and well ahead of the median rate.  

For hotels, this is the slow season of the year, and occupancy will pick up into the Spring.

Data Source: STR, Courtesy of HotelNewsNow.com

Saturday, January 21, 2017

Schedule for Week of Jan 22nd

by Bill McBride on 1/21/2017 08:04:00 AM

The key economic report this week is the advance report of Q4 GDP on Friday.

Other key reports are December New and Existing Home sales.

----- Monday, Jan 23rd -----

No economic releases scheduled.

----- Tuesday, Jan 24th-----

Existing Home Sales10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.54 million SAAR, down from 5.61 million in November.

Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in December.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for January.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for December 2016

----- Wednesday, Jan 25th -----

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

9:00 AM: FHFA House Price Index for November 2016. This was originally a GSE only repeat sales, however there is also an expanded index.

----- Thursday, Jan 26th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 247 thousand initial claims, up from 234 thousand the previous week.

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

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

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

The consensus is for a decrease in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 592 thousand in November.

11:00 AM: the Kansas City Fed manufacturing survey for January.
----- Friday, Jan 27th -----

8:30 AM: Gross Domestic Product, 4th quarter 2016 (advance estimate). The consensus is that real GDP increased 2.2% annualized in Q4, down from 3.5% in Q3.

8:30 AM: Durable Goods Orders for December from the Census Bureau. The consensus is for a 3.0% increase in durable goods orders.

10:00 AM: University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, up from the preliminary reading 98.1.