Thursday, August 31, 2017

Friday: Employment Report, ISM Mfg Index, Construction Spending, Vehicle Sales

by Bill McBride on 8/31/2017 08:22:00 PM

Note: August vehicle sales might be the first economic report impacted by Hurricane Harvey. Next Thursday, weekly unemployment claims will probably be impacted.

Earlier:

My August Employment Preview

and Goldman: August Payrolls Preview

Friday:
• At 8:30 AM ET, Employment Report for August. The consensus is for an increase of 180,000 non-farm payroll jobs added in August, down from the 209,000 non-farm payroll jobs added in July. The consensus is for the unemployment rate to be unchanged at 4.3%.

• At 10:00 AM, ISM Manufacturing Index for August. The consensus is for the ISM to be at 56.6, up from 56.3 in August.

• Also at 10:00 AM, Construction Spending for July. The consensus is for a 0.6% increase in construction spending.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 97.2, unchanged from the preliminary reading 97.6.

• All day: Light vehicle sales for August. The consensus is for light vehicle sales to be 16.7 million SAAR in August, unchanged from 16.7 million in  July (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency rate declined in July, Lowest since December 2007

by Bill McBride on 8/31/2017 05:09:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 1.00% in July, from 1.01% in June. The serious delinquency rate is down from 1.30% in July 2016.

This is the lowest serious delinquency rate since December 2007.

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 somewhat under 1%. 

The Fannie Mae serious delinquency rate has fallen 0.30 percentage points over the last year, and at that rate of improvement, the serious delinquency rate should be below 1% next month.

By vintage, for loans made in 2004 or earlier (4% of portfolio), 2.63% are seriously delinquent. For loans made in 2005 through 2008 (7% of portfolio), 5.71% are seriously delinquent, For recent loans, originated in 2009 through 2017 (89% of portfolio), only 0.32% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

Note: Freddie Mac reported earlier.

Goldman: August Payrolls Preview

by Bill McBride on 8/31/2017 12:57:00 PM

A few brief excerpts from a note by Goldman Sachs economist Spencer Hill:

We estimate nonfarm payrolls increased by 160k in August, below consensus of +180k ... Our forecast reflects somewhat more mixed labor market fundamentals and a drag from residual seasonality, as first-reported August payroll growth has been consistently weak in recent years.

We expect household job growth will be sufficient to leave the unemployment rate unchanged at 4.3%, but due to particularly unfavorable calendar effects, we estimate a 0.1% monthly rise in average hourly earnings (+2.5% year-over-year).

August Employment Preview

by Bill McBride on 8/31/2017 11:53:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for August. The consensus, according to Bloomberg, is for an increase of 180,000 non-farm payroll jobs in August (with a range of estimates between 140,000 to 200,000), and for the unemployment rate to be unchanged at 4.3%.

The BLS reported 209,000 jobs added in July.

Here is a summary of recent data:

• The ADP employment report showed an increase of 237,000 private sector payroll jobs in August. This was well above consensus expectations of 182,000 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 above expectations. However, the ADP number has frequently been above the BLS number for August.

• The ISM manufacturing and non-manufacturing indexes have not been released yet.

Initial weekly unemployment claims averaged 237,000 in August,  down from 242,000 in July. For the BLS reference week (includes the 12th of the month), initial claims were at 232,000, down from 234,000 during the reference week in July.

The decrease during the reference week suggests slightly fewer layoffs during the reference week in August than in July. This suggests a similar employment report in August as in July.

• The final August University of Michigan consumer sentiment index increased to 97.6 from the July reading of 93.4. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion: Unfortunately the ISM reports will be released after the employment report this month, and those reports are helpful. Also August tends to be below the ADP report (and frequently below consensus). My sense (mostly based on history) is that job gains will be below consensus in August.

NAR: Pending Home Sales Index decreased 0.8% in July, down 1.3% year-over-year

by Bill McBride on 8/31/2017 10:03:00 AM

From the NAR: Pending Home Sales Lessen 0.8 Percent in July

Pending homes sales stumbled in July for the fourth time in five months as only the West saw an increase in contract activity, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.8 percent to 109.1 in July from a downwardly revised 110.0 in June. After last month’s decline, the index is now 1.3 percent below a year ago and has fallen on an annual basis in three of the past four months.
...
The PHSI in the Northeast inched backward 0.3 percent to 97.7 in July, but is still 2.4 percent above a year ago. In the Midwest the index decreased 0.7 percent to 103.3 in July, and is now 2.8 percent lower than July 2016.

Pending home sales in the South declined 1.7 percent to an index of 123.1 in July and are now 0.2 percent below last July. The index in the West expanded 0.6 percent in July to 102.3, but is still 4.0 percent below a year ago.
emphasis added
This was below expectations of a 0.8% 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 August and September.

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

by Bill McBride on 8/31/2017 08:39:00 AM

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

Personal income increased $65.6 billion (0.4 percent) in July according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $39.6 billion (0.3 percent) and personal consumption expenditures (PCE) increased $44.7 billion (0.3 percent).
...
Real PCE increased 0.2 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
The July PCE price index increased 1.4 percent year-over-year and the July PCE price index, excluding food and energy, also increased 1.4 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through July 2017 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

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

The increase in personal income was at expectations,  and the increase in PCE was slightly below expectations.

Weekly Initial Unemployment Claims increase to 236,000

by Bill McBride on 8/31/2017 08:33:00 AM

The DOL reported:

In the week ending August 26, the advance figure for seasonally adjusted initial claims was 236,000, an increase of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 234,000 to 235,000. The 4-week moving average was 236,750, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 237,750 to 238,000.
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 236,750.

This was close to the consensus forecast.

The low level of claims suggests relatively few layoffs.

Note: Claims will increase over the next few weeks due to Hurricane Harvey.

Wednesday, August 30, 2017

Thursday: Unemployment Claims, Personal Income and Outlays, Chicago PMI, Pending Home Sales

by Bill McBride on 8/30/2017 07:46:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 237 thousand initial claims, up from 234 thousand the previous week. Note: The report tomorrow will be for the week ending Aug 26th. Unemployment claims will increase over the next few weeks due to Hurricane Harvey.

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

• At 9:45 AM, Chicago Purchasing Managers Index for August. The consensus is for a reading of 58.0, down from 58.9 in July.

• At 10:00 AM, Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 8/30/2017 04:05:00 PM

CR Note: This is a repeat of a previous post with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through June 2017).   The seasonal pattern was smaller back in the '90s and early '00s, and once the bubble burst.

The seasonal swings have declined since the bubble.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

Zillow Forecast: "July Case-Shiller Forecast: Slowdown Coming in Home Prices"

by Bill McBride on 8/30/2017 12:13:00 PM

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

From Svenja Gudell at Zillow: July Case-Shiller Forecast: Slowdown Coming in Home Prices

Following months of record highs in the Case-Shiller U.S. National Index for home prices, July is expected to bring a slowdown — to 5.6 percent from June’s 5.8 percent year-over-year, non-seasonally adjusted gain. The monthly gain for July is forecast at 0.2 percent, which is half the 0.4 percent growth that index posted for June.

The 10- and 20-month indices are expected to drop 0.1 percent from June to July, with the 10-city index gaining 4.8 percent in July over the previous year, down from June’s 4.9 percent annual growth, and the 20-city index climbing 5.4 percent annually, down from 5.7 percent in June.

Zillow’s full forecast for July Case-Shiller data is shown below. These forecasts are based on today’s June Case-Shiller data release and the July 2017 Zillow Home Value Index. The July S&P CoreLogic Case-Shiller Indices will not be released officially until Tuesday, September 26.
The year-over-year change for the Case-Shiller National index will probably be smaller in July than in June.

Zillow forecast for Case-Shiller

Q2 GDP Revised up to 3.0% Annual Rate

by Bill McBride on 8/30/2017 08:33:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2017 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; increases in personal consumption expenditures (PCE) and in nonresidential fixed investment were larger than previously estimated. These increases were partly offset by a larger decrease in state and local government spending ...
emphasis added
Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 2.8% to 3.3%. (solid PCE). Residential investment was revised up slightly from -6.8% to -6.5%. This was above the consensus forecast.

ADP: Private Employment increased 237,000 in August

by Bill McBride on 8/30/2017 08:19:00 AM

From ADP:

Private sector employment increased by 237,000 jobs from July to August according to the August 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.
...
“In August, the goods-producing sector saw the best performance in months with solid increases in both construction and manufacturing,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Additionally, the trade industry pulled ahead to lead job gains across all industries, adding the most jobs it has seen since the end of 2016. This could be an industry to watch as consumer spending and wage growth improves.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to power forward. Job creation is strong across nearly all industries, company sizes. Mounting labor shortages are set to get much worse. The initial BLS employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems.”
This was above the consensus forecast for 182,000 private sector jobs added in the ADP report. 

The BLS report for August will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in August.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 8/30/2017 07:00:00 AM

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

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 25, 2017.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 4 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to its lowest level since November 2016, 4.11 percent, from 4.12 percent, with points increasing to 0.43 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.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.


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

According to the MBA, purchase activity is up 4% year-over-year.

Tuesday, August 29, 2017

Wednesday: GDP, ADP Employment

by Bill McBride on 8/29/2017 07:22:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Now Easily into "High 3's"

It's one thing for the highly competitive environment of "rate table" advertising (where lenders compete and you get confused) to be reporting mortgage rates  approaching the mid 3's. In fact, in that arena, rates have been in the 3% range for quite some time. Whether or not you'd qualify or even be interested in the specific scenario that is conducive to such rates is another story.

It's an entirely different thing for me to be telling you that rates are now easily into the high 3's, because I'm talking about the most prevalently-quoted conventional 30yr fixed rates for the average top-tier scenario across all lenders.  3.875% is now a given at almost any well-priced lender, provided you have a high credit score and a decent amount of equity.  3.75% certainly isn't out of the question for the best scenarios, and the aggressive lenders have no issues quoting 3.625% today for perfectly-aligned stars.

With all of the above having been said, please keep in mind that just a few "hits" to your scenario (slightly lower credit, lower downpayment, less aggressive lender) and you shouldn't be surprised to see a "4%" as the first number in your 30yr fixed rate quote instead of a "3%."
emphasis added
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 August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, up from 178,000 added in July.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2017 (Second estimate). The consensus is that real GDP increased 2.8% annualized in Q2, up from advance estimate of 2.6%.

The Impact of Harvey on Unemployment Claims

by Bill McBride on 8/29/2017 03:41:00 PM

My thoughts are with the people of south Texas.

There will be some economic impacts from Hurricane Harvey (housing, oil, etc).

On housing, my initial expectations is that new home sales and housing starts will decline in the September report. Houston and south Texas are a major portion of starts and new home sales, and it will take some time to recover. We will probably also see a decline in existing home sales. We can't look back at Hurricane Katrina for guidance on housing because Katrina happened just after the housing bubble peaked - so starts and sales were already declining.

We can look back at Katrina (and Rita) for the impact on unemployment claims.

The following graph shows the 4-week moving average of weekly claims since 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average.

Hurricane Katrina made landfall on Aug 29, 2005.  Unemployment claims moved higher over the next month, and stayed elevated for a couple of months.

Note that claims also spiked following 9/11 and after Hurricane Sandy in late October 2012.  The increase following Sandy was significant, but only lasted a few weeks (so the 4-week average didn't increase as much as for Katrina).

My expectation is the 4-week average of claims will increase from the current level of 238,000 to over 300,000 over the next month.

Real House Prices and Price-to-Rent Ratio in June

by Bill McBride on 8/29/2017 11:12:00 AM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.8% year-over-year in June

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 3.2% above the previous bubble peak. However, in real terms, the National index (SA) is still about 13.3% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In June, the index was up 5.8% YoY.

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

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA (through June) 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 October 2005 levels.



Real House Prices

Real House PricesThe second graph shows the same two 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 July 2004 levels, and the Composite 20 index is back to March 2004.

In real terms, house prices are back to early-to-mid 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 and Composite 20 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 November 2003 levels, and the Composite 20 index is back to August 2003 levels.

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

Case-Shiller: National House Price Index increased 5.8% year-over-year in June

by Bill McBride on 8/29/2017 09:14:00 AM

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

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

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

From S&P: The S&P Corelogic Case-Shiller National Home Price Rises Again to All Time High

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.8% annual gain in June, up from 5.7% the previous month. The 10-City Composite posted a 4.9% annual increase, down from 5.0% the previous month. The 20-City Composite reported a 5.7% year-over-year gain, the same as the previous month.

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In June, Seattle led the way with a 13.4% year-over-year price increase, followed by Portland with 8.2%, and Dallas with a 7.7% increase. Nine cities reported greater price increases in the year ending June 2017 versus the year ending May 2017.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.9% in June. The 10-City and 20-City Composites both reported a 0.7% increase in June. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase. The 10-City Composite remained stagnant with no month-over-month increase. The 20-City Composite posted a 0.1% month-over-month increase. All 20 cities reported increases in June before seasonal adjustment; after seasonal adjustment, 14 cities saw prices rise.

“The trend of increasing home prices is continuing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Price increases are supported by a tight housing market. Both the number of homes for sale and the number of days a house is on the market have declined for four to five years. Currently the months-supply of existing homes for sale is low, at 4.2 months. In addition, housing starts remain below their pre-financial crisis peak as new home sales have not recovered as fast as existing home sales.”

“Rising prices are the principal factor driving affordability down. However, other drivers of affordability are more favorable: the national unemployment rate is down, and the number of jobs created continues to grow at a robust pace, rising to close to 200,000 per month. Wages and salaries are increasing, maintaining a growth rate a bit ahead of inflation. Mortgage rates, up slightly since the end of 2016, are under 4%. Given current economic conditions and the tight housing market, an immediate reversal in home price trends appears unlikely.”
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 6.7% from the peak, and up slightly in June (SA).

The Composite 20 index is off 3.9% from the peak, and up 0.1% (SA) in June.

The National index is 3.2% above the bubble peak (SA), and up 0.4% (SA) in June.  The National index is up 39.5% 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 4.9% compared to June 2016.  The Composite 20 SA is up 5.7% year-over-year.

The National index SA is up 5.8% year-over-year.

Note: According to the data, prices increased in 16 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

Monday, August 28, 2017

Tuesday: Case-Shiller House Prices

by Bill McBride on 8/28/2017 06:41:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Still at 2017 Lows

Mortgage rates held steady today, as the news cycle was dominated by Hurricane Harvey.  That's not to say that natural disasters prevent movement in mortgage rates, but in today's case, there simply wasn't much else to talk about.  An auction of 5yr Treasury notes helped bond markets improve slightly in the afternoon.  When bonds improve, rates tend to move lower, but only a few lenders adjusted mortgage rates lower in the afternoon.

The lack of movement continues to be just fine for the average borrower, considering rates are at their lowest levels since November 2016.  The most prevalent conventional 30yr fixed rate for to tier scenarios remains 3.875%.
Tuesday:
• At 9:00 AM ET, 9:00 AM ET: S&P/Case-Shiller House Price Index for June. The consensus is for a 5.7% year-over-year increase in the Comp 20 index for June.

Hotels: Occupancy Rate up Year-over-Year

by Bill McBride on 8/28/2017 03:05:00 PM

Note: Hotel occupancy rates increased noticeably following Hurricanes Katrina and Rita in 2005. I expect the overall occupancy rate will also increase following Hurricane Harvey - and stay elevated for several months. This might even push 2017 into record territory.

From HotelNewsNow.com: STR: US hotel results for week ending 19 August

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 13-19 August 2017, according to data from STR.

In comparison with the week of 14-20 August 2016, the industry recorded the following:

Occupancy: +1.4% to 72.3%
• Average daily rate (ADR): +2.1% to US$127.12
• Revenue per available room (RevPAR): +3.5% to US$91.85
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, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is tracking close to last year, and behind the record year in 2015.

Seasonally, the occupancy rate has peaked and will decline into the Fall.

Data Source: STR, Courtesy of HotelNewsNow.com

Dallas Fed: "Texas Manufacturing Activity Expands Again" in August

by Bill McBride on 8/28/2017 10:37:00 AM

From the Dallas Fed: Texas Manufacturing Activity Expands Again

Texas factory activity continued to increase in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, edged down to 20.3, indicating output grew but at a slightly slower pace than in July.

Other measures of current manufacturing activity also indicated continued growth. The new orders and the growth rate of orders indexes ticked down but stayed solidly positive, coming in at 14.3 and 11.7, respectively. The capacity utilization index fell six points to 12.2, while the shipments index increased seven points to 18.1.

Perceptions of broader business conditions remained positive in August. The general business activity index was largely unchanged at a robust 17.0. The company outlook index posted its 12th consecutive positive reading but slipped 10 points to 16.3 after surging to a multiyear high last month.

Labor market measures suggested continued employment gains and longer workweeks this month. The employment index came in at 9.9, slightly below the July reading, extending this year’s string of positive readings. Eighteen percent of firms noted net hiring, compared with eight percent noting net layoffs. The hours worked index rose five points to 14.5.
emphasis added
This was the last of the regional Fed surveys for August.

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

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

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

Based on these regional surveys, it seems likely the ISM manufacturing index will increase in August compared to July (to be released Friday, Sept 1st). The consensus is for the ISM index to increase to 56.6 in August from 56.3 in July.

Black Knight: House Price Index up 0.9% in June, Up 6.2% year-over-year

by Bill McBride on 8/28/2017 08:30:00 AM

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

From Black Knight: Black Knight Home Price Index Report: U.S. Home Prices Hit Another New High with 0.9 Percent Gain in June, Up 6.2 Percent Year-Over-Year

• After 62 consecutive months of annual home price appreciation, U.S. home prices hit yet another new peak in June

• Prices rose 0.9% from May, for a total of 5.5% growth since the start of the year

• The national level HPI now stands at $281K, and the rate of annual growth continues to accelerate (+6.2% Y/Y in June as compared to +6.1% in May)

• 12 of the 20 largest states and 21 of the 40 largest metros hit new home price peaks in June
The year-over-year increase in this index has been about the same for the last year (in the 5% and 6% range).

Note that house prices are above the bubble peak in nominal terms, but not in real terms (adjusted for inflation).  Case-Shiller for June will be released tomorrow.

Sunday, August 27, 2017

Sunday Night Futures

by Bill McBride on 8/27/2017 06:49:00 PM

My thoughts are with the people of south Texas. I was hoping the forecasts were wrong - and the rain and damage wouldn't be this severe - but once again the NHC forecasts were correct.

There will be some significant economic impacts from Hurricane Harvey (housing, oil, etc). I'll try to address some of these later this week after the deluge. Best wishes to all.

Weekend:
Schedule for Week of Aug 27, 2017

Monday:
• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for August.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 and DOW futures are mostly unchanged (fair value).

Oil prices were mixed over the last week with WTI futures at $48.03 per barrel and Brent at $52.83 per barrel.  A year ago, WTI was at $47, and Brent was at $50 - so oil prices are up slightly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.36 per gallon - a year ago prices were at $2.22 per gallon - so gasoline prices are up 14 cents per gallon year-over-year.

August 2017: Unofficial Problem Bank list declines to 123 Institutions

by Bill McBride on 8/27/2017 08:15:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for August 2017.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for August 2017.  The list shrank by a net 11 banks to 123 after twelve removals and one addition.  Aggregate assets dropped by $4½ billion to $32.8 billion.  A year ago, the list held 184 institutions with assets of $56½ billion.

Actions were terminated against Lone Star National Bank, Pharr, TX ($2.2 billion); State Bank of India (California), Los Angeles, CA ($633 million); Intercredit Bank, National Association, Miami, FL ($360 million); Central Federal Savings and Loan Association, Cicero, IL ($175 million); Alliance Bank & Trust Company, Gastonia, NC ($142 million Ticker: ABTO); Anthem Bank & Trust, Plaquemine, LA ($132 million); Community 1st Bank Las Vegas, Las Vegas, NM ($123 million); Hometown Bank of The Hudson Valley, Walden, NY ($118 million  Ticker: HTWC); People's Bank and Trust Company of Pickett County, Byrdstown, TN ($116 million); Valley Bank of Nevada, North Las Vegas, NV ($111 million); Signature Bank of Georgia, Sandy Springs, GA ($100 million); and Columbia Savings and Loan Association, Milwaukee, WI ($25 million).

The addition this month was the Farmers and Merchants State Bank of Argonia, Argonia, KS ($34 million).  In addition, the Federal Reserve issued a Prompt Corrective Action order against Heartland Bank, Little Rock, AR ($199 million), which has been on the list since December 2016.

This week the FDIC released their official Problem Bank figures for the end of the second quarter of 2017, with their list holding 105 institutions with assets of $17.2 billion, which equates to an average asset size of about $164 million.  Last quarter, the FDIC said the official list had 112 institutions with assets of $23.7 billion, which equated to an average asset size of $212 million.  Thus, during the second quarter of 2017, the FDIC removed a net seven institutions and $6.5 billion of assets from the official list.  The average asset size of the seven institutions the FDIC removed from the official list was about $929 million.  Currently, the unofficial list only has five institutions larger than $950 million; therefore, it seems a bit of a stretch for the aggregate assets on the official list to decline by $6.5 billion during the second quarter.  We know the FDIC does not like publishing the official figures, so it is unlikely they would provide us readers/analysts with an average or median asset figure to improve our understanding of the characteristics of the institutions on the official list.

Saturday, August 26, 2017

Schedule for Week of Aug 27, 2017

by Bill McBride on 8/26/2017 08:11:00 AM

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

Other key indicators include the second estimate of Q2 GDP, the August ISM manufacturing index, August auto sales and the June Case-Shiller house prices.

----- Monday, Aug 28th -----

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

----- Tuesday, Aug 29th -----

Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for June.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the May 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 5.7% year-over-year increase in the Comp 20 index for June.

----- Wednesday, Aug 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 August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, up from 178,000 added in July.

8:30 AM: Gross Domestic Product, 2nd quarter 2017 (Second estimate). The consensus is that real GDP increased 2.8% annualized in Q2, up from advance estimate of 2.6%.

----- Thursday, Aug 31st -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 237 thousand initial claims, up from 234 thousand the previous week.

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

9:45 AM: Chicago Purchasing Managers Index for August. The consensus is for a reading of 58.0, down from 58.9 in July.

10:00 AM: Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

----- Friday, Sept 1st -----

8:30 AM: Employment Report for August. The consensus is for an increase of 180,000 non-farm payroll jobs added in August, down from the 209,000 non-farm payroll jobs added in July.

Year-over-year change employmentThe consensus is for the unemployment rate to be unchanged at 4.3%.

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

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

A key will be the change in wages.

ISM PMI10:00 AM: ISM Manufacturing Index for August. The consensus is for the ISM to be at 56.6, up from 56.3 in August.

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

The ISM manufacturing index indicated expansion in July. The PMI was at 56.3% in July, the employment index was at 55.2%, and the new orders index was at 60.4%.

10:00 AM: Construction Spending for July. The consensus is for a 0.6% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for August. The consensus is for light vehicle sales to be 16.7 million SAAR in August, unchanged from 16.7 million in  July (Seasonally Adjusted Annual Rate).

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

10:00 AM: University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 97.2, unchanged from the preliminary reading 97.6.

Friday, August 25, 2017

Oil Rigs "Rig counts rolling off"

by Bill McBride on 8/25/2017 04:53:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Aug 25, 2017:

• Continued decline in rig counts

• Total US oil rigs were down 4 to 759

• Horizontal oil rigs were down 3 at 647
...
• Drilling Info is showing more optimistic rig numbers than Baker Hughes

• Thesis is unchanged: Expect rigs counts to roll off for the next three months or so, with oil prices languishing in the $46-49 range typically
Oil Rig CountClick on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

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

Vehicle Sales Forecast: Sixth consecutive month below 17 million SAAR

by Bill McBride on 8/25/2017 01:41:00 PM

The automakers will report July vehicle sales on Friday, September 1st.

Note: There were 27 selling days in August 2017, there were 26 in August 2016.

From WardsAuto: Forecast: U.S. Auto Market Continues Downward Trend in August

A WardsAuto forecast calls for U.S. automakers to deliver 1.51 million light vehicles in August. ... The report puts the seasonally adjusted annual rate of sales for August at 16.5 million units, below the 17.1 million SAAR in same-month 2016 and 16.7 million in prior-month 2017.
...
Light-vehicle inventory stood at 3.86 million units at the end of July, up 9.4% from year-ago and about 15% higher than necessary with current sales rates. The streak of record-high stock is expected to continue with 3.8 million units at the end of August, 7.5% greater than same-month 2016. This will leave automakers with a 69 days’ supply, same as prior-month, but well above year-ago’s 62. Slowdowns in production and higher sales incentives through September are expected to narrow the gap between supply and demand.
emphasis added
Overall sales through July are down about 3% from the record level in 2016.

Freddie Mac: Mortgage Serious Delinquency rate unchanged in July

by Bill McBride on 8/25/2017 11:30:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate in July was at 0.85%, unchanged from 0.85% in June.  Freddie's rate is down from 1.08% in July 2016.

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

This ties last month as the lowest serious delinquency rate since April 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 still generally declining, the rate of decline has slowed.

Maybe the rate will decline another 0.2 to 0.3 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report for July soon.

Yellen: "Financial Stability a Decade after the Onset of the Crisis"

by Bill McBride on 8/25/2017 10:08:00 AM

From Fed Chair Janet Yellen: Financial Stability a Decade after the Onset of the Crisis. A few excerpts (here Dr. Yellen argues for keeping most of existing regulations put in place after the financial crisis):

Is This Safer System Supporting Growth?

I suspect many in this audience would agree with the narrative of my remarks so far: The events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer. Now--a decade from the onset of the crisis and nearly seven years since the passage of the Dodd-Frank Act and international agreement on the key banking reforms--a new question is being asked: Have reforms gone too far, resulting in a financial system that is too burdened to support prudent risk-taking and economic growth?

The Federal Reserve is committed individually, and in coordination with other U.S. government agencies through forums such as the FSOC and internationally through bodies such as the Basel Committee on Banking Supervision and the FSB, to evaluating the effects of financial market regulations and considering appropriate adjustments. Furthermore, the Federal Reserve has independently taken steps to evaluate potential adjustments to its regulatory and supervisory practices. For example, the Federal Reserve initiated a review of its stress tests following the 2015 cycle, and this review suggested changes to reduce the burden on participating institutions, especially smaller institutions, and to better align the supervisory stress tests with regulatory capital requirements. In addition, a broader set of changes to the new financial regulatory framework may deserve consideration. Such changes include adjustments that may simplify regulations applying to small and medium-sized banks and enhance resolution planning.

More broadly, we continue to monitor economic conditions, and to review and conduct research, to better understand the effect of regulatory reforms and possible implications for regulation. I will briefly summarize the current state of play in two areas: the effect of regulation on credit availability and on changes in market liquidity.

The effects of capital regulation on credit availability have been investigated extensively. Some studies suggest that higher capital weighs on banks' lending, while others suggest that higher capital supports lending. Such conflicting results in academic research are not altogether surprising. It is difficult to identify the effects of regulatory capital requirements on lending because material changes to capital requirements are rare and are often precipitated, as in the recent case, by financial crises that also have large effects on lending.

Given the uncertainty regarding the effect of capital regulation on lending, rulemakings of the Federal Reserve and other agencies were informed by analyses that balanced the possible stability gains from greater loss-absorbing capacity against the possible adverse effects on lending and economic growth. This ex ante assessment pointed to sizable net benefits to economic growth from higher capital standards--and subsequent research supports this assessment. The steps to improve the capital positions of banks promptly and significantly following the crisis, beginning with the 2009 Supervisory Capital Assessment Program, have resulted in a return of lending growth and profitability among U.S. banks more quickly than among their global peers.

While material adverse effects of capital regulation on broad measures of lending are not readily apparent, credit may be less available to some borrowers, especially homebuyers with less-than-perfect credit histories and, perhaps, small businesses. In retrospect, mortgage borrowing was clearly too easy for some households in the mid-2000s, resulting in debt burdens that were unsustainable and ultimately damaging to the financial system. Currently, many factors are likely affecting mortgage lending, including changes in market perceptions of the risk associated with mortgage lending; changes in practices at the government-sponsored enterprises and the Federal Housing Administration; changes in technology that may be contributing to entry by nonbank lenders; changes in consumer protection regulations; and, perhaps to a limited degree, changes in capital and liquidity regulations within the banking sector. These issues are complex and interact with a broader set of challenges related to the domestic housing finance system.

Credit appears broadly available to small businesses with solid credit histories, although indicators point to some difficulties facing firms with weak credit scores and insufficient credit histories. Small business formation is critical to economic dynamism and growth. Smaller firms rely disproportionately on lending from smaller banks, and the Federal Reserve has been taking steps and examining additional steps to reduce unnecessary complexity in regulations affecting smaller banks.

Finally, many financial market participants have expressed concerns about the ability to transact in volume at low cost--that is, about market liquidity, particularly in certain fixed-income markets such as that for corporate bonds. Market liquidity for corporate bonds remains robust overall, and the healthy condition of the market is apparent in low bid-ask spreads and the large volume of corporate bond issuance in recent years. That said, liquidity conditions are clearly evolving. Large dealers appear to devote less of their balance sheets to holding inventories of securities to facilitate trades and instead increasingly facilitate trades by directly matching buyers and sellers. In addition, algorithmic traders and institutional investors are a larger presence in various markets than previously, and the willingness of these institutions to support liquidity in stressful conditions is uncertain. While no single factor appears to be the predominant cause of the evolution of market liquidity, some regulations may be affecting market liquidity somewhat. There may be benefits to simplifying aspects of the Volcker rule, which limits proprietary trading by banking firms, and to reviewing the interaction of the enhanced supplementary leverage ratio with risk-based capital requirements. At the same time, the new regulatory framework overall has made dealers more resilient to shocks, and, in the past, distress at dealers following adverse shocks has been an important factor driving market illiquidity. As a result, any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years.
emphasis added

Thursday, August 24, 2017

Friday: Durable Goods, Jackson Hole Symposium, Yellen Speech

by Bill McBride on 8/24/2017 08:46:00 PM

Here is the program for the 2017 Jackson Hole Economic Symposium, "Fostering a Dynamic Global Economy.

Friday:
• At 8:30 AM ET, Durable Goods Orders for July from the Census Bureau. The consensus is for a 5.7% decrease in durable goods orders.

• At 10:00 AM ET, Speech by Fed Chair Janet L. Yellen, Financial Stability, At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

• At 3:00 PM ET, Mario Draghi Luncheon Address, President, European Central Bank at Jackson Hole.

Black Knight: Foreclosure inventory below 400,000 for the first time since February 2007

by Bill McBride on 8/24/2017 04:20:00 PM

CR Note: The month-to-month increase in delinquencies is mostly seasonal (happens every July).

From Black Knight: Black Knight Financial Services’ First Look at July 2017 Mortgage Data

• Foreclosure inventory fell by 12,000 in July, bringing the total below 400,000 for the first time since February 2007

• Active foreclosure inventory has declined by 28 percent (more than 150,000) over the past 12 months

• July’s 53,300 foreclosure starts mark the second lowest (next to April 2017) monthly volume since the start of 2005

• Early-stage mortgage delinquencies experienced a slight seasonal uptick in July
According to Black Knight's First Look report for July, the percent of loans delinquent increased 2.8% in July compared to June, and declined 13.5% year-over-year.

The percent of loans in the foreclosure process declined 3.0% in July and were down 28.0% 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 3.90% in July, up from 3.80% in June.

The percent of loans in the foreclosure process declined in July to 0.78%.

The number of delinquent properties, but not in foreclosure, is down 300,000 properties year-over-year, and the number of properties in the foreclosure process is down 152,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  July
2017
June
2017
July
2016
July
2015
Delinquent3.90%3.80%4.51%4.71%
In Foreclosure0.78%0.82%1.09%1.40%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,986,0001,932,0002,286,0002,389,000
Number of properties in foreclosure pre-sale inventory:398,000410,000550,000711,000
Total Properties2,384,0002,342,0002,836,0003,100,000

A Few Comments on July Existing Home Sales

by Bill McBride on 8/24/2017 02:20:00 PM

Earlier: NAR: "Existing-Home Sales Slide 1.3 Percent in July"

First, as usual, housing economist Tom Lawler's estimate was much closer to the NAR report than the consensus.    So the decline in sales in July was no surprise for CR readers.

Inventory is still very low and falling year-over-year (down 9.0% year-over-year in July). Inventory has declined year-over-year for 26 consecutive months.  I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely.

Inventory is a key metric to watch.  More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in July (red column) were the same as  July 2016. (NSA).

Note that sales NSA are now in the seasonally strong period (March through September).

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through July 2017. 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.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

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

MBA: Mortgage Delinquency Rate in Q2 at Lowest Level Since 2000

by Bill McBride on 8/24/2017 11:30:00 AM

From the MBA: Delinquencies and Foreclosures Continue to Decline in Q2 2017

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 4.24 percent of all loans outstanding at the end of the second quarter of 2017.  The delinquency rate was down 47 basis points from the previous quarter, and was 42 basis points lower than one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.

The percentage of loans on which foreclosure actions were started during the second quarter was 0.26 percent, a decrease of four basis points from the previous quarter, and six basis points lower than one year ago.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the second quarter was 1.29 percent, down 10 basis points from the previous quarter and 35 basis points lower than one year ago.

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 2.49 percent in the second quarter, down 27 basis points from the previous quarter and 62 basis points lower than one year ago.

Mortgage delinquencies decreased in the second quarter of 2017 across all loan types - conventional, FHA and VA - on a seasonally-adjusted basis.  The conventional delinquency rate dropped to 3.47 percent from 4.04 percent in the first quarter, reaching its lowest level since 2005.  The FHA delinquency rate decreased to 7.94 percent from 8.09 percent in the first quarter, reaching its lowest level since 1996.  The VA delinquency rate dropped to 3.72 percent from 3.90 percent in the first quarter, reaching its lowest level since 1979.

Marina Walsh, MBA's Vice President of Industry Analysis, offered the following commentary on the survey results:

"In the second quarter of 2017, the overall delinquency rate was at its lowest level since the second quarter of 2000.  The foreclosure inventory rate was at its lowest level since the first quarter of 2007. In addition, the seriously delinquent rate, which combines loans that are 90 days or more past due with those loans in the process of foreclosure, dropped to a ten-year low.
emphasis added
MBA Delinquency by PeriodClick on graph for larger image.

This graph shows the percent of loans delinquent by days past due.

Note that the overall delinquency rate is the lowest since 2000.

The percent of loans 30 and 60 days delinquent decreased in Q2, and is below the normal historical level.

The 90 day bucket decreased in Q2, but remains a little elevated.

The percent of loans in the foreclosure process continues to decline, and is close to normal levels.

Kansas City Fed: Regional Manufacturing Activity "Expanded Moderately" in August

by Bill McBride on 8/24/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Expanded Moderately

The Federal Reserve Bank of Kansas City released the August 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 expanded at a faster pace and expectations remained solid.

“Factories reported acceleration in activity in August to the fastest pace since March,” said Wilkerson.  “Many firms also reported plans to raise finished goods prices in coming months.”
...
The month-over-month composite index was 16 in [August], up from 10 in July and 11 in June.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Factory activity increased solidly at durable goods plants, particularly for electronics, metals, and aircraft products, while nondurable goods activity rose more modestly.  Most month-over-month indexes increased over the previous month.  The production index jumped from 4 to 22, and shipments, new orders, and order backlog indexes rebounded strongly after falling last month.  The employment index has remained basically unchanged for the past three months, while the new orders for exports index edged higher.  The finished goods inventory index fell from 7 to 2, while the raw materials inventory index was unchanged.
emphasis added
The Kansas City region was hit hard by the sharp decline in oil prices, but activity started expanding last year when oil prices increased. Now growth is moderate with oil prices mostly moving sideways.

NAR: "Existing-Home Sales Slide 1.3 Percent in July"

by Bill McBride on 8/24/2017 10:13:00 AM

From the NAR: Existing-Home Sales Slide 1.3 Percent in July

Listings in July typically went under contract in under 30 days for the fourth consecutive month because of high buyer demand, but existing-home sales ultimately pulled back as large declines in the Northeast and Midwest outweighed sales increases in the South and West, 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, slipped 1.3 percent to a seasonally adjusted annual rate of 5.44 million in July from a downwardly revised 5.51 million in June. July’s sales pace is still 2.1 percent above a year ago, but is the lowest of 2017.
...
Total housing inventory at the end of July declined 1.0 percent to 1.92 million existing homes available for sale, and is now 9.0 percent lower than a year ago (2.11 million) and has fallen year-over-year for 26 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.8 months a year ago.
emphasis added
Existing Home SalesClick on graph for larger image.

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

Sales in July (5.44 million SAAR) were 1.3% lower than last month, and were 2.1% above the July 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.92 million in July from 1.94 million in June.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last 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 9.0% year-over-year in July compared to July 2016.  

Months of supply was at 4.2 months in July.

As expected, sales were below the consensus view. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

Weekly Initial Unemployment Claims increase to 234,000

by Bill McBride on 8/24/2017 08:32:00 AM

The DOL reported:

In the week ending August 19, the advance figure for seasonally adjusted initial claims was 234,000, an increase of 2,000 from the previous week's unrevised level of 232,000. The 4-week moving average was 237,750, a decrease of 2,750 from the previous week's unrevised average of 240,500.
emphasis added
The previous week was unrevised.

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 237,750.

This was close to the consensus forecast.

The low level of claims suggests relatively few layoffs.

Wednesday, August 23, 2017

Thursday: Existing Home Sales, Unemployment Claims, Jackson Hole Economic Symposium

by Bill McBride on 8/23/2017 08:50:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 236 thousand initial claims, up from 232 thousand the previous week.

• At 10:00 AM, Existing Home Sales for July from the National Association of Realtors (NAR). The consensus is for 5.57 million SAAR, up from 5.52 million in June. Take the under!

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

• Three days (Thursday, Friday and Saturday): The 2017 Jackson Hole Economic Symposium, "Fostering a Dynamic Global Economy, will take place Aug. 24-26, 2017.  (The program will be available at 6 p.m., MT, Aug. 24, 2017)."

Philly Fed: State Coincident Indexes increased in 33 states in July

by Bill McBride on 8/23/2017 05:32:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for July 2017. Over the past three months, the indexes increased in 41 states and decreased in nine, for a three-month diffusion index of 64. In the past month, the indexes increased in 33 states, decreased in 15, and remained stable in two, for a one-month diffusion index of 36.
emphasis added
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 by production workers, 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 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 July, 34 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.  

The reason for the recent sharp decrease in the number of states with increasing activity is unclear - and might be revised away.

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.

A few Comments on July New Home Sales

by Bill McBride on 8/23/2017 02:44:00 PM

New home sales for July were reported at 571,000 on a seasonally adjusted annual rate basis (SAAR). This was well below the consensus forecast, however the three previous months were revised up sharply.  Overall this was decent report.

Sales were down 8.9% year-over-year in July.

Earlier: New Home Sales decrease to 571,000 Annual Rate in July.

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

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were down 8.9% year-over-year in July.

Note that sales in July 2016 were strong, so this was a difficult year-over-year comparison.

For the first seven months of 2017, new home sales are up 9.2% compared to the same period in 2016.

This was a strong year-over-year increase through July.

AIA: Architecture Billings Index "growth moderates" in July

by Bill McBride on 8/23/2017 11:47:00 AM

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

From the AIA: Architecture Billings Index growth moderates

For the sixth consecutive month, architecture firms reported increasing demand for design services as reflected in the July Architecture Billings Index (ABI). 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 July ABI score was 51.9, down from a score of 54.2 in the previous month. This score still reflects an 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 58.6 the previous month, while the new design contracts index increased from 53.7 to 56.4.

“The July figures show the continuation of healthy trends in the construction sector of our economy,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “In addition to the balanced increases in design billings across all major regions and construction sectors, the strong gains in new project work coming into architecture firms points to future growth in design and construction activity over coming quarters.”
...
• Regional averages: South (53.8), Midwest (53.8), Northeast (53.6), West (50.9)

• Sector index breakdown: multi-family residential (55.8), commercial / industrial (55.4), institutional (52.0), mixed practice (48.4)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 51.9 in July, up from 54.2 the previous month. 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.

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 9 of the last 12 months, suggesting a further increase in CRE investment in 2017 and early 2018.

New Home Sales decrease to 571,000 Annual Rate in July

by Bill McBride on 8/23/2017 10:12:00 AM

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 571 thousand.

The previous three months were revised up solidly.

"Sales of new single-family houses in July 2017 were at a seasonally adjusted annual rate of 571,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.4 percent below the revised June rate of 630,000 and is 8.9 percent below the July 2016 estimate of 627,000."
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 somewhat low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply increased in July to 5.8 months from 5.2 month in June.

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

This is in the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of July was 276,000. 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 July 2017 (red column), 49 thousand new homes were sold (NSA). Last year, 54 thousand homes were sold in July.

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

This was below expectations of 610,000 sales SAAR, however the previous months were revised up solidly.   I'll have more later today.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 8/23/2017 07:00:00 AM

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

Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 18, 2017.

... The Refinance Index increased 0.3 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 9 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged from the week prior at 4.12 percent, with points increasing to 0.39 from 0.38 (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 will not pick up significantly unless mortgage rates fall well below 4%.


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

According to the MBA, purchase activity is up 9% year-over-year.