Thursday, November 30, 2017

Friday: Vehicle Sales, ISM Mfg Index, Construction Spending

by Bill McBride on 11/30/2017 07:47:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Hit 1-Month Highs

Mortgage rates actually continued higher today at the same quicker pace seen yesterday. Due to the relatively narrow range during November, rates are now in line with their highest levels in more than a month whereas they were at 2-week lows just 2 days ago. The average lender is now quoting conventional 30yr fixed rates of 4.0% on top tier scenarios, with a few outliers at 3.875% and 4.125%. A few days ago, 3.875% was nearly as prevalent.
Tuesday:
• At 10:00 AM ET, ISM Manufacturing Index for November. The consensus is for the ISM to be at 58.4, down from 58.7 in October. In October, the employment index was at 59.8%, and the new orders index was at 63.4%.

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

• All day, Light vehicle sales for November. The consensus is for light vehicle sales to be 17.6 million SAAR in November, down from 18.0 million in October (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency rate unchanged in October

by Bill McBride on 11/30/2017 04:18:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate was unchanged at 1.01% in October, from 1.01% in September. The serious delinquency rate is down from 1.21% in October 2016.

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

By vintage, for loans made in 2004 or earlier (4% of portfolio), 2.82% are seriously delinquent. For loans made in 2005 through 2008 (7% of portfolio), 5.91% are seriously delinquent, For recent loans, originated in 2009 through 2017 (89% of portfolio), only 0.33% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

In the short term - over the next couple of months - the delinquency rate will probably increase slightly due to the hurricanes.  After the hurricane bump, maybe the rate will decline another 0.3 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Freddie Mac reported earlier.

Earlier: Chicago PMI "Softens" in November

by Bill McBride on 11/30/2017 02:28:00 PM

Earlier from the Chicago PMI: Chicago Business Barometer Softens to 63.9 in November

The MNI Chicago Business Barometer eased to 63.9 in November, down from 66.2 in October, to stand at the lowest level in three months.

Despite receding from October’s six-and-a-half year high, optimism among businesses recorded the fourth highest outturn this year. The Barometer has expanded for 21 straight months and is poised to see out 2017 in solid fashion.
...
“Despite November’s fall, the MNI Chicago Business Barometer remains on track to deliver the first full year of expansion in three years. Firms seem to have navigated through the worst of the bad weather conditions in recent months, though supplier deliveries rising to a thirteen-year high and persistent, high input costs suggests the effects are yet to fully dissipate away,” said Jamie Satchi, Economist at MNI Indicators.
emphasis added
This was close to the consensus forecast of 64.0, and still a solid reading.

Hotel Occupancy Rate Increased Year-over-Year, On Pace for Record Year

by Bill McBride on 11/30/2017 11:49:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 25 November

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 19-25 November 2017, according to data from STR.

In comparison with the week of 20-26 November 2016, the industry recorded the following:

Occupancy: +1.4% to 51.4%
• Average daily rate (ADR): +2.0% to US$109.99
• Revenue per available room (RevPAR): +3.4% to US$56.52

Among the Top 25 Markets, Houston, Texas, reported the largest increase in all three key performance metrics: occupancy (+32.8% to 56.0%), ADR (+16.0% to US$92.58) and RevPAR (+54.1% to US$51.86).
emphasis added
Note: The hurricanes continue to drive demand in Texas and Florida, especially in Houston.

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, to date, is ahead of the record year in 2015.  The hurricanes will push the annual occupancy rate to a new record in 2017.

Data Source: STR, Courtesy of HotelNewsNow.com

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

by Bill McBride on 11/30/2017 08:48:00 AM

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

Personal income increased $65.1 billion (0.4 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $66.1 billion (0.5 percent) and personal consumption expenditures (PCE) increased $34.4 billion (0.3 percent).
...
Real DPI increased 0.3 percent in October and Real PCE increased 0.1 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
The October PCE price index increased 1.6 percent year-over-year and the October PCE price index, excluding food and energy, increased 1.4 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through October 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 slightly above expectations,  and the increase in PCE was at expectations.

Weekly Initial Unemployment Claims decrease to 238,000

by Bill McBride on 11/30/2017 08:33:00 AM

The DOL reported:

In the week ending November 25, the advance figure for seasonally adjusted initial claims was 238,000, a decrease of 2,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 239,000 to 240,000. The 4-week moving average was 242,250, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 239,750 to 240,000.

Claims taking procedures continue to be disrupted in the Virgin Islands
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 increased to 242,250.

This was slightly lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

Wednesday, November 29, 2017

Thursday: Unemployment Claims, Personal Income and Outlays, Chicago PMI

by Bill McBride on 11/29/2017 08:55:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 239 thousand the previous week.

• Also at 8:30 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for November. The consensus is for a reading of 64.0, down from 66.2 in October.

Policy Mistakes

by Bill McBride on 11/29/2017 06:27:00 PM

Over the last 20 years or so, we've seen several policy mistakes. The worst, of course, was the decision to invade Iraq (I opposed the Iraq war, and was shouted down and called names like "Saddam lover" for questioning the veracity of the information). Note: I started this blog in January 2005, and one of my earliest non-housing posts was "A Desolation called Peace" (I'm still angry).

From an economic perspective, the errors include the failure to properly regulate the banks and mortgage lenders, the Bush tax cuts, the original TARP proposal, and some minor mistakes in 2009 like the homebuyers tax credit and "cash-for-clunkers". Also the premature pivot to austerity in 2010, and the failure to pass infrastructure spending programs in the following years, were clear policy mistakes.

We'd better off if we hadn't made these mistakes, but we survived.

The current tax cut bill is another clear policy mistake.

First, if we look at the business cycle and the deficit, economic theory suggests that the government should increase the deficit during economic downturns, and work down the deficit during expansions.  The economy is currently in the mid-to-late stage of a recovery, so decreasing the deficit makes sense now - not increasing the deficit.

Are there any fiscal conservatives left in the GOP?  There are definitely no deficit hawks!

Also, a key problem in the US is income and wealth inequality.   How does this bill address these issues?   It does the opposite.

 Oh well, it looks like the US is about to make another policy mistake that will have to be reversed in a few years.

Freddie Mac: Mortgage Serious Delinquency rate unchanged in October

by Bill McBride on 11/29/2017 12:43:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in October was at 0.86%, unchanged from 0.86% in September.  Freddie's rate is down from 1.03% in October 2016.

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

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The recent slight increase in the delinquency rate was probably due to the hurricanes - and we might see a further increase over the next couple of months (These are serious delinquencies).

After the hurricane bump, 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 October soon.

NAR: Pending Home Sales Index increase in October, Down 0.6% Year-over-year

by Bill McBride on 11/29/2017 10:07:00 AM

From the NAR: Pending Home Sales Strengthen 3.5 Percent in October

Pending home sales rebounded strongly in October following three straight months of diminishing activity, but still continued their recent slide of falling behind year ago levels, according to the National Association of Realtors®. All major regions except for the West saw an increase in contract signings last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 3.5 percent to 109.3 in October from a downwardly revised 105.6 in September. The index is now at its highest reading since June (110.0), but is still 0.6 percent below a year ago.
...
The PHSI in the Northeast inched forward 0.5 percent to 95.0 in October, but is still 1.9 percent below a year ago. In the Midwest the index increased 2.8 percent to 105.8 in October, but remains 0.9 percent lower than October 2016.

Pending home sales in the South jumped 7.4 percent to an index of 123.6 in October and are now 2.0 percent higher than last October. The index in the West decreased 0.7 percent in October to 101.6, and is now 4.4 percent below a year ago.
emphasis added
This was above expectations of a 1.0% 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 November and December.

Q3 GDP Revised up to 3.3% Annual Rate

by Bill McBride on 11/29/2017 08:34:00 AM

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

Real gross domestic product (GDP) increased at an annual rate of 3.3 percent in the third quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.1 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 3.0 percent. With this second estimate for the third quarter, the general picture of economic growth remains the same; nonresidential fixed investment, state and local government spending, and private inventory investment were revised up from the prior estimate ...
emphasis added
Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 2.4% to 2.3%. Residential investment was revised up slightly from -6.0% to -5.1%. This was at the consensus forecast.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 11/29/2017 07:00:00 AM

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

Mortgage applications decreased 3.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 24, 2017. This week’s results include an adjustment for the Thanksgiving holiday.

... The Refinance Index decreased 8 percent from the previous week to its lowest level since January 2017. The seasonally adjusted Purchase Index increased 2 percent from one week earlier to its highest level since September 2017. The unadjusted Purchase Index decreased 32 percent compared with the previous week and was 6 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 4.20 percent, with points decreasing to 0.34 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity 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 6% year-over-year.

Tuesday, November 28, 2017

Wednesday: GDP, Pending Home Sales, Fed Chair Yellen

by Bill McBride on 11/28/2017 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 8:30 AM, Gross Domestic Product, 3rd quarter 2017 (Second estimate). The consensus is that real GDP increased 3.3% annualized in Q3, up from 3.0% in the advance report.

• At 10:00 AM, Testimony, Fed Chair Janet Yellen, Economic Outlook, Joint Economic Committee, U.S. Congress

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

Zillow Case-Shiller Forecast: More Solid House Price Gains in October

by Bill McBride on 11/28/2017 04:16:00 PM

The Case-Shiller house price indexes for September were released this morning. 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: Case-Shiller September Results and October Forecast: Underbuilding Continues to Take a Toll

The primary Case-Shiller indices paint a picture of a national housing market that’s largely stable and maybe even a bit boring from 50,000 feet, with home prices growing at roughly the same pace for the past year or more.

The U.S. National Index for September showed an annual increase in home prices of 6.2 percent. The month-over-month increase from August was 0.7 percent.

The 10-city composite gained 5.7 percent annually and 0.6 percent from August to September, while the 20-city composite grew 6.2 percent annually and 0.5 percent month-over-month. Seattle, Las Vegas, and San Diego continued to post the largest annual gains among the 20-city composite, climbing 12.9 percent, 9 percent and 8.2 percent, respectively.

But the real action is on the sidelines. Demand is coming first and foremost from buyers in the entry-level and mid-market segments, but available inventory is largely concentrated at the high end – causing the nation’s most affordable homes to grow in value at more than twice the pace of homes at the top of the market. The past two months have shown promising signs of life from builders who have had difficulty meeting intense demand in the face of rising land, lumber and labor prices – but it’s going to take a lot more than two good months to erase a housing deficit accumulated from years of underbuilding.
The year-over-year change for the Case-Shiller National index will be about the same in October as in September.   Zillow is forecasting larger year-over-year increases for both the 10-city and 20-city indexes in October.

Zillow forecast for Case-Shiller

A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 11/28/2017 02:35:00 PM

CR Note: This is a repeat of earlier posts 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 former 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 September 2017).   The seasonal pattern was smaller back in the '90s and early '00s, and increased 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.

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

by Bill McBride on 11/28/2017 11:48:00 AM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.2% year-over-year in September

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 5.1% above the previous bubble peak. However, in real terms, the National index (SA) is still about 12.2% below the bubble peak (and historically there has been an upward slope to real house prices).

The year-over-year increase in prices is mostly moving sideways now around 6%. In September, the index was up 6.2% 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 $280,300 today adjusted for inflation (40%).  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 August) 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 November 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 August 2004 levels, and the Composite 20 index is back to March 2004.

In real terms, house prices are back 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 December 2003 levels, and the Composite 20 index is back to September 2003 levels.

In real terms, prices are back to mid 2004 levels, and the price-to-rent ratio is back to 2003 - and the price-to-rent ratio has been increasing slowly.

Richmond Fed: "Fifth District Manufacturing Activity Saw Robust Growth in November"

by Bill McBride on 11/28/2017 10:03:00 AM

From the Richmond Fed: Fifth District Manufacturing Activity Saw Robust Growth in November

Manufacturing firms reported robust growth in November, according to the latest survey by the Federal Reserve Bank of Richmond. The composite index jumped from 12 to 30, the highest it has been since 1993. This rise was bolstered by strengthening conditions across all three components of the index. While indicators of current wages and finished goods fell in November, both maintained positive values, dropping from 24 to 21 and 14 to 9, respectively.

District manufacturing firms remained optimistic that growth will continue in the coming six months. But a smaller share of firms raised their expectations than had in October in all areas, except for wages and capital expenditures.
emphasis added
This was the last of the regional Fed surveys for November.

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

Based on these regional surveys, it seems likely the ISM manufacturing index will be strong again in November (to be released Friday, Dec 1st).

Case-Shiller: National House Price Index increased 6.2% year-over-year in September

by Bill McBride on 11/28/2017 09:13:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for September ("September" is a 3 month average of July, August and September 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: September S&P CoreLogic Case-Shiller National Home Price NSA Index Up 6.2% In Last 12 Months

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.2% annual gain in September, up from 5.9% in the previous month. The 10-City Composite annual increase came in at 5.7%, up from 5.2% the previous month. The 20-City Composite posted a 6.2% year-over-year gain, up from 5.8% the previous month.

Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In September, Seattle led the way with a 12.9% year-over-year price increase, followed by Las Vegas with a 9.0% increase, and San Diego with an 8.2% increase. 13 cities reported greater price increases in the year ending September 2017 versus the year ending August 2017.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.4% in September. The 10-City and 20-City Composites reported increases of 0.5% and 0.4%, respectively. After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase in September. The 10-City and 20-City Composites posted 0.6% and 0.5% month-over-month increases, respectively. 15 of 20 cities reported increases in September before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

“Home prices continued to rise across the country with the S&P CoreLogic Case-Shiller National Index rising at the fastest annual rate since June 2014,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Home prices were higher in all 20 cities tracked by these indices compared to a year earlier; 16 cities saw annual price increases accelerate from last month. Strength continues to be concentrated in the west with Seattle, Las Vegas, San Diego and Portland seeing the largest gains. The smallest increases were in Atlanta, New York, Miami, Chicago and Washington. Eight cities have surpassed their pre-financial crisis peaks.”

“Most economic indicators suggest that home prices can see further gains. Rental rates and home prices are climbing, the rent-to-buy ratio remains stable, the average rate on a 30-year mortgage is still under 4%, and at a 3.8-month supply, the inventory of homes for sale is still low. The overall economy is growing with the unemployment rate at 4.1%, inflation at 2% and wages rising at 3% or more. One dark cloud for housing is affordability – rising prices mean that some people will be squeezed out of the market.”
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 5.3% from the peak, and up 0.6% in September (SA).

The Composite 20 index is off 2.6% from the peak, and up 0.5% (SA) in September.

The National index is 5.1% above the bubble peak (SA), and up 0.7% (SA) in September.  The National index is up 42.1% 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 5.7% compared to September 2016.  The Composite 20 SA is up 6.2% year-over-year.

The National index SA is up 6.2% year-over-year.

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

I'll have more later.

Monday, November 27, 2017

Tuesday: Case-Shiller House Prices, Richmond Fed Mfg, Jerome Powell Fed Nomination Hearing

by Bill McBride on 11/27/2017 07:45:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Flat as Markets Get Back to Business

Mortgage rates were almost perfectly unchanged today as markets returned to full force following the extended Thanksgiving break [30YR FIXED - 4.0%]. Bond markets (which dictate mortgage rate momentum) had been consolidating in a narrower and narrower range in the weeks leading up to Thanksgiving. While it's safe to assume that we'll see a bigger move in the coming weeks, today didn't deliver.

The volatility is widely expected to result from the tax reform process. The Senate will begin debate this week, but don't expect anything conclusive until mid-to-late December. Markets are ready to react to success (which would be bad for rates) or failure (which would be good), and will move in the direction of those results to whatever extent one seems more likely than the other.
Tuesday:
• At 9:00 AM ET, FHFA House Price Index for September 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• Also at 9:00 AM, S&P/Case-Shiller House Price Index for September. The consensus is for a 6.2% year-over-year increase in the Comp 20 index for September.

• At 9:45 AM, Testimony, Fed Governor Jerome Powell, Nomination Hearing, Committee on Banking, Housing, and Urban Affairs, U.S. Senate

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for November. This is the last of the regional surveys for November.

Dallas Fed: "Manufacturing Expansion Slows but Remains Solid" in November

by Bill McBride on 11/27/2017 02:09:00 PM

Earlier from the Dallas Fed: Manufacturing Expansion Slows but Remains Solid

Texas factory activity continued to expand in November, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell 10 points from its October reading but remained elevated at 15.1.

Other measures of manufacturing activity also pointed to November growth that was slightly slower than in October but still well above average. The new orders index moved down five points to 20.0, and the capacity utilization and shipments indexes similarly fell to 17.3 and 16.7, respectively. Meanwhile, the growth rate of orders index signaled a stronger pickup in demand, climbing six points to 18.1. This represents the index’s highest reading since 2010.

Perceptions of broader business conditions remained highly positive in November. The general business activity index came in at 19.4, down eight points from October. The company outlook index posted its 15th consecutive positive reading but dipped to 18.5.

Labor market measures suggested slower employment growth and longer workweeks this month. The employment index fell 10 points from October to 6.3, reflecting a more normal index level after several months of elevated readings. Nineteen percent of firms noted net hiring, compared with 13 percent noting net layoffs. The hours worked index edged down but remained positive at 11.5, indicating a continued lengthening of workweeks.
emphasis added

Black Knight: House Price Index up 0.2% in September, Up 6.4% year-over-year

by Bill McBride on 11/27/2017 01:08:00 PM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA 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: Monthly Appreciation Continues to Slow as U.S. Home Prices Gain 0.16 Percent in September; Year-Over-Year Growth Accelerates Slightly at 6.36 Percent

• The rate of monthly appreciation declined again in September, falling by one-third from August and marking the sixth consecutive month of slowing growth

• New York home prices led all states for the third month in a row, seeing a 1.08 percent rise in home prices from August

• Half of the nation’s 20 largest states and 17 of the largest metros saw prices fall from last month
...
• The number of states and metros setting new home price peaks continued to fall, with just six of the 20 largest states and 11 of the 40 largest metros hitting new highs in September
Once again, this index is Not seasonally adjusted, and seasonally slow appreciation is expected (so don't read too much into slowing growth).  The year-over-year increase in this index has been about the same for the last year (close to 6% range).

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

A few Comments on October New Home Sales

by Bill McBride on 11/27/2017 11:10:00 AM

New home sales for October were reported at 685,000 on a seasonally adjusted annual rate basis (SAAR). This was well above the consensus forecast, and the highest sales rate since October 2007. However the three previous months were revised down (combined).

There was clearly some rebound following hurricane Harvey. Sales in the South were up sharply in both September and October, from August, and at the highest level since October 2007. Some contracts in the South, that would have been signed in August, were probably delayed until September and October.  Also some people who lost homes, might have signed contracts for new homes in September and October (New home sales are counted when contracts are signed).

Sales were up 18.7% year-over-year in September.

Earlier: New Home Sales increase to 685,000 Annual Rate in October.

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).

For the first ten months of 2017, new home sales are up 8.9% compared to the same period in 2016.

This was a solid year-over-year increase through October.

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 October 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.

New Home Sales increase to 685,000 Annual Rate in October

by Bill McBride on 11/27/2017 10:12:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 685 thousand.

The previous three months combined were revised down.

"Sales of new single-family houses in October 2017 were at a seasonally adjusted annual rate of 685,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.2 percent above the revised September rate of 645,000 and is 18.7 percent above the October 2016 estimate of 577,000."
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 decreased in October to 4.9 months from 5.2 month in September.

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 October was 282,000. This represents a supply of 4.9 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 October 2017 (red column), 55 thousand new homes were sold (NSA). Last year, 46 thousand homes were sold in October.

The all time high for October was 105 thousand in 2005, and the all time low for October was 23 thousand in 2010.

This was well above expectations of 620,000 sales SAAR, however the previous months were revised down, combined.   Some of the recent pickup might be hurricane related (delayed signings). I'll have more later today.

Sunday, November 26, 2017

Monday: New Home Sales

by Bill McBride on 11/26/2017 06:34:00 PM

Weekend:
Schedule for Week of Nov 26, 2017

Monday:
• At 10:00 AM ET, New Home Sales for October from the Census Bureau. The consensus is for 620 thousand SAAR, down from 667 thousand in September.

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up slightly, and DOW futures are up 10 (fair value).

Oil prices were up over the last week with WTI futures at $58.87 per barrel and Brent at $63.79 per barrel.  A year ago, WTI was at $47, and Brent was at $46 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.50 per gallon. A year ago prices were at $2.13 per gallon - so gasoline prices are up 37 cents per gallon year-over-year.

Q4 GDP Forecasts

by Bill McBride on 11/26/2017 08:38:00 AM

From the Altanta Fed: GDPNow

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 3.4 percent on November 22, unchanged from November 17.
emphasis added
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast for 2017:Q4 stands at 3.7%.
From Merrill Lynch:
We continue to track 2.3% for 4Q.
From Goldman Sachs:
We revised up our Q4 GDP tracking estimate by a total of three tenths to 2.6% (qoq ar) over the last week
CR Note: These forecasts are for Q4. The second estimate of Q3 GDP will be released this week, and the consensus is that real GDP increased 3.3% annualized in Q3, up from 3.0% in the advance report.

Saturday, November 25, 2017

Schedule for Week of Nov 26, 2017

by Bill McBride on 11/25/2017 08:11:00 AM

The key economic reports this week are the second estimate of Q3 GDP, and New Home sales for October.

Other key indicators include Case-Shiller house prices for September, the November ISM manufacturing index, and November auto sales.

----- Monday, Nov 27th -----

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

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

The consensus is for 620 thousand SAAR, down from 667 thousand in September.

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

----- Tuesday, Nov 28th -----

9:00 AM ET: FHFA House Price Index for September 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

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

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

The consensus is for a 6.2% year-over-year increase in the Comp 20 index for September.

9:45 AM: Testimony, Fed Governor Jerome Powell, Nomination Hearing, Committee on Banking, Housing, and Urban Affairs, U.S. Senate

10:00 AM: Richmond Fed Survey of Manufacturing Activity for November. This is the last of the regional surveys for November.

----- Wednesday, Nov 29th -----

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

8:30 AM: Gross Domestic Product, 3rd quarter 2017 (Second estimate). The consensus is that real GDP increased 3.3% annualized in Q3, up from 3.0% in the advance report.

10:00 AM: Testimony, Fed Chair Janet Yellen, Economic Outlook, Joint Economic Committee, U.S. Congress

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

----- Thursday, Nov 30th -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 239 thousand the previous week.

8:30 AM: Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for November. The consensus is for a reading of 64.0, down from 66.2 in October.

----- Friday, Dec 1st -----

ISM PMI10:00 AM: ISM Manufacturing Index for November. The consensus is for the ISM to be at 58.4, down from 58.7 in September.

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

The ISM manufacturing index indicated expansion in October. The PMI was at 58.4% in October, the employment index was at 59.8%, and the new orders index was at 63.4%.

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

Vehicle SalesAll day: Light vehicle sales for November. The consensus is for light vehicle sales to be 17.6 million SAAR in November, down from 18.0 million in October (Seasonally Adjusted Annual Rate).

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

Friday, November 24, 2017

November 2017: Unofficial Problem Bank list declines to 108 Institutions

by Bill McBride on 11/24/2017 03:53:00 PM

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

Here is the unofficial problem bank list for November 2017.

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

Update on the Unofficial Problem Bank List for November 2017. The list declined by three to 108 banks after four removals and one addition. Aggregate assets dropped by $1.1 billion to $25.5 billion, with the drop including $105 million from asset shrinkage using updated third quarter figures. A year ago, the list held 173 institutions with assets of $59.9 billion.

Actions were terminated against Pacific Valley Bank, Salinas, CA ($256 million Ticker: PVBK); Grand Bank, National Association, Hamilton, NJ ($210 million); and First Trust & Savings Bank of Albany, Illinois , Albany, IL ($193 million). First National Bank, Waupaca, WI ($429 million) found its way off the list through a merger partner.

Joining the list this month is Citizens Savings Bank and Trust Company, Nashville, TN ($108 million).

This week the FDIC released their official Problem Bank figures for the end of the third quarter of 2017. The FDIC official list holds 104 institutions with assets of $16.0 billion, which equates to an average asset size of about $154 million. Last quarter, the FDIC said the official list had 105 institutions with assets of $17.2 billion, which equated to an average asset size of $164 million. Thus, during the third quarter of 2017, the FDIC had a net change of one institution and removed $1.2 billion of assets from their official list.

Las Vegas: On Pace for Record Convention Attendance in 2017

by Bill McBride on 11/24/2017 11:15:00 AM

During the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic has recovered to new record highs.

As of September, visitor traffic is running slightly behind the record set in 2016 and on pace to be 8% above the pre-recession peak.

And convention attendance is now at record levels too. Here is the data from the Las Vegas Convention and Visitors Authority.  

Las Vegas Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale). 

At this pace, convention attendance will set a new record in 2017, and be 2% above the pre-recession peak set in 2006.

There were many housing related conventions during the housing bubble, so it took some time for convention attendance to recover.  But attendance has really picked up over the last three years.

Hotel Occupancy Rate Increased Year-over-Year, On Pace for Record Year

by Bill McBride on 11/24/2017 08:09:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 18 November

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 12-18 November 2017, according to data from STR.

In comparison with the week of 13-19 November 2016, the industry recorded the following:

Occupancy: +0.8% to 66.1%
• Average daily rate (ADR): +1.9% to US$124.65
• Revenue per available room (RevPAR): +2.6% to US$82.42

Among the Top 25 Markets, Houston, Texas, reported the largest increase in all three key performance metrics: occupancy (+27.0% to 80.3%), ADR (+11.0% to US$117.82) and RevPAR (+40.9% to US$94.60).

Miami/Hialeah, Florida, posted the second-highest increase in RevPAR (+22.5% to US$155.08), due primarily to the second-largest increase in occupancy (+11.9% to 83.4%)
emphasis added
Note: The hurricanes continues to drive demand in Texas and Florida, especially in Houston.

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, to date, is ahead of the record year in 2015.  The hurricanes will probably push the annual occupancy rate to a new record in 2017.

Data Source: STR, Courtesy of HotelNewsNow.com

Thursday, November 23, 2017

Five Economic Reasons to be Thankful

by Bill McBride on 11/23/2017 08:19:00 AM

With a Hat Tip to Neil Irwin (he started doing this several years ago) ... here are five economic reasons to be thankful this Thanksgiving ...

1) Low unemployment rate.

The unemployment rate declined to 4.1% in October.  The unemployment rate is down from 4.8% in October 2016 (a year ago), and is down from the cycle peak of 10.0% in October 2009.

unemployment rateClick on graph for larger image.

This is the lowest level for the unemployment rate since December 2000.

Also, this is the largest decline in the unemployment rate, from cycle peak-to-trough, since the BLS started tracking the unemployment rate in 1948.  (In the early '80s, the unemployment rate declined from 10.8% to 5.0%; a decline of 5.8 percentage points.  The current decline from 10.0% to 4.1% is 5.9 percentage points!)

2) Low unemployment claims.

The number of new claims for unemployment insurance benefits is close to the lowest level in 40 years (with a much smaller population back then).  The four week average of new unemployment has fallen to 239,750, down from 251,000 a year ago, and down from the peak of 660,000 during the great recession.

Here is a graph of initial weekly unemployment claims.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims is at 239,750.

The low level of claims suggests relatively few layoffs.

3) Job Openings Near Record Levels.

There were 6.09 million job openings in September. This is close to the record high of 6.14 million in July 2017.

Job Openings and Labor Turnover Survey This graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Job openings (yellow) have been above 5 million for 33 consecutive months.

Note that Quits are up 4% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

More job openings, and rising quits, are positive signs for the labor market.

4) Household Debt burdens are near record lows.

Household debt burdens have declined sharply over the last several years.

The Household debt service ratio was at 13.2% in 2007, and has fallen to under 10% now.

Financial ObligationsThe graph, based on data from the Federal Reserve, shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased slightly in Q2 2017, and has been moving sideways and is near a record low.  Note: The financial obligation ratio (FOR) was unchanged in Q2 and is also near a record low (not shown).

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

This data suggests aggregate household cash flow has improved.

5) New Home Sales are increasing - and will probably increase more.

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

New home sales were at 667 thousand SAAR (Seasonally Adjusted Annual Rate) in September, up from 570 thousand SAAR in September 2016, and up from the cycle low of 270 thousand SAAR in February 2011. This was the highest sales rate since October 2007.

Even with the increase in sales over the last several years, new home sales are still somewhat low historically and will probably increase over the next couple of years.

There are still problems, some people have not participated in the current expansion, wage growth has stalled in 2017 after picking up in 2015 and 2016, wealth and income inequality are at record extremes, and climate change is posing a real threat to the economy in the future - but there are economic reasons to be thankful this Thanksgiving.

Happy Thanksgiving to All!

Wednesday, November 22, 2017

FOMC Minutes: Several Participants Worried about "A sharp reversal in asset Prices"

by Bill McBride on 11/22/2017 03:04:00 PM

A couple of key excerpts, the first on asset prices, and the second that low inflation might "prove more persistent".

From the Fed: Minutes of the Federal Open Market Committee, October 31-November 1, 2017:

In their comments regarding financial markets, participants generally judged that financial conditions remained accommodative despite the recent increases in the exchange value of the dollar and Treasury yields. In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy. It was noted, however, that elevated asset prices could be partly explained by a low neutral rate of interest. It was also observed that regulatory changes had contributed to an appreciable strengthening of capital and liquidity positions in the financial sector over recent years, increasing the resilience of the financial system to potential reversals in valuations.
...
Many participants observed, however, that continued low readings on inflation, which had occurred even as the labor market tightened, might reflect not only transitory factors, but also the influence of developments that could prove more persistent. A number of these participants were worried that a decline in longer-term inflation expectations would make it more challenging for the Committee to promote a return of inflation to 2 percent over the medium term. These participants' concerns were sharpened by the apparently weak responsiveness of inflation to resource utilization and the low level of the neutral interest rate, and such considerations suggested that the removal of policy accommodation should be quite gradual. In contrast, some other participants were concerned about upside risks to inflation in an environment in which the economy had reached full employment and the labor market was projected to tighten further, or about still very accommodative financial conditions. They cautioned that waiting too long to remove accommodation, or removing accommodation too slowly, could result in a substantial overshoot of the maximum sustainable level of employment that would likely be costly to reverse or could lead to increased risks to financial stability. A few of these participants emphasized that the lags in the response of inflation to tightening resource utilization implied that there could be increasing upside risks to inflation as the labor market tightened further.
emphasis added

Vehicle Forecast: Sales Expected to Exceed 17 million SAAR Again in November

by Bill McBride on 11/22/2017 12:17:00 PM

The automakers will report November vehicle sales on Friday, Dec 1st.

Note: There are 25 selling days in November 2017, there were also 25 selling days in November 2016.

From WardsAuto: November U.S. Forecast: Post Sales-Surge Market Will Hit 17.1 Million SAAR

A WardsAuto forecast calls for U.S. automakers to deliver 1.36 million light vehicles in November.
...
The report puts the seasonally adjusted annual rate of sales for the month at 17.1 million units, below last year’s 17.6 million and last month’s exceptionally high 18.0 million.
emphasis added
Sales had been below 17 million SAAR (Seasonally Adjusted Annual Rate) for six consecutive months, until September (18.5 million SAAR) and October (18.0 million SAAR), when sales spiked due to buying following Hurricane Harvey. Sales in November were probably also a little elevated due to the hurricanes.

Even with the pickup in sales in September and October, sales are still down about 2% through October compared to the same period in 2006.

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

by Bill McBride on 11/22/2017 10:49:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2017. Over the past three months, the indexes increased in 40 states, decreased in nine, and remained stable in one, for a three-month diffusion index of 62. In the past month, the indexes increased in 41 states, decreased in seven, and remained stable in two, for a one-month diffusion index of 68.
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 State Conincident MapClick on map for larger image.

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 all or mostly green during most of the recent expansion.

Recently several states have turned red.

Source: Philly Fed.

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

Philly Fed Number of States with Increasing ActivityAnd here 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 October, 42 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 mid-2017 sharp decrease in the number of states with increasing activity is unclear.

MBA: Mortgage Applications Increase Slightly in Latest Weekly Survey

by Bill McBride on 11/22/2017 09:39:00 AM

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

Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 17, 2017.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 1 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) increased to 4.20 percent from 4.18 percent, with points increasing to 0.42 from 0.40 (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.

Weekly Initial Unemployment Claims decrease to 239,000

by Bill McBride on 11/22/2017 08:33:00 AM

The DOL reported:

In the week ending November 18, the advance figure for seasonally adjusted initial claims was 239,000, a decrease of 13,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 249,000 to 252,000. The 4-week moving average was 239,750, an increase of 1,250 from the previous week's revised average. The previous week's average was revised up by 750 from 237,750 to 238,500.

Claims taking procedures continue to be disrupted in the Virgin Islands. The ability to take claims has improved in Puerto Rico.
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 increased to 239,750.

This was close to the consensus forecast. The low level of claims suggest relatively few layoffs.

Tuesday, November 21, 2017

Wednesday: Durable Goods, Unemployment Claims, FOMC Minutes

by Bill McBride on 11/21/2017 07:19:00 PM

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

• At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, down from 249 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 97.9, up from the preliminary reading 97.8.

• At 2:00 PM, FOMC Minutes, Meeting of October 31- November 1, 2017

NYU Stern's "In Conversation with Mervyn King" Series Presents Janet Yellen, Tuesday, November 21, 2017

Chemical Activity Barometer Increased in November

by Bill McBride on 11/21/2017 04:57:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Continues Solid Gains Into 3rd Quarter

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), notched another solid increase over October’s reading both on a three-month moving average (3MMA) basis and an unadjusted basis. The CAB was up 0.4 percent and 0.3 percent, respectively. The increases continued a bounce back from the effects of Hurricanes Harvey and Irma. Compared to a year earlier, the CAB is up 3.3 percent on a 3MMA basis, a pace that continues to suggest further gains in U.S. commercial and industrial activity into 2nd quarter 2018.
...
pplying 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 increased solidly in early 2017 suggesting an increase in Industrial Production. The year-over-year increase in the CAB has slowed recently, but this still suggests further gains in industrial production in 2018.

FDIC: Fewer Problem banks, Residential REO Declined in Q3

by Bill McBride on 11/21/2017 02:45:00 PM

The FDIC released the Quarterly Banking Profile for Q3 today:

Higher net interest income, reflecting modest growth in interest-bearing assets and wider net interest margins, helped earnings increase in the third quarter. Quarterly net income at the 5,737 commercial banks and savings institutions insured by the FDIC rose to $47.9 billion, an increase of $2.4 billion (5.2 percent) from third quarter 2016.1 The average return on assets (ROA) rose to 1.12 percent from 1.10 percent a year earlier. More than two out of every three banks—67.3 percent—reported year-over-year increases in earnings, and 59.8 percent reported higher quarterly ROAs. Only 3.9 percent of banks reported net losses for the quarter, compared with 4.6 percent in third quarter 2016.
...
The Deposit Insurance Fund (DIF) balance increased by $2.9 billion, to $90.5 billion, during the third quarter. ... The DIF’s reserve ratio (the fund balance as a percent of estimated insured deposits) rose to 1.28 percent on September 30, 2017, from 1.24 percent at June 30, 2017, and 1.18 percent four quarters ago. The September 30, 2017, reserve ratio is the highest for the DIF since June 30, 2005, when the reserve ratio was also 1.28 percent.
emphasis added
FDIC Problem Banks Click on graph for larger image.

The FDIC reported the number of problem banks declined slightly:
During the third quarter, mergers absorbed 50 insured institutions. Two new charters were added during the third quarter, and there were no bank failures. ... The number of banks on the FDIC’s “Problem Bank List” declined from 105 to 104 during the third quarter. Total assets of “problem” banks fell from $17.2 billion to $16 billion.
FDIC Insured Institution REOThe dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $3.30 billion in Q2 2017 to $3.08 billion in Q3. This is the lowest level of REOs since Q4 2006.

This graph shows the nominal dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Since REOs are reported in dollars, and house prices have increased, it is unlikely FDIC institution REOs will get back to the $2.0 to $2.5 billion range back that happened in 2003 to 2005.    FDIC REOs will probably bottom close to the current level.

A Few Comments on October Existing Home Sales

by Bill McBride on 11/21/2017 12:43:00 PM

Earlier: NAR: "Existing-Home Sales Grow 2.0 Percent in October"

My view is a sales rate of 5.48 million is solid. In fact, I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc. - but overall the economic impact is small compared to a new home sale.

Inventory is still very low and falling year-over-year (down 10.4% year-over-year in October). Inventory has declined year-over-year for 29 consecutive months.  I started the year expecting inventory would be increasing year-over-year by the end of 2017. However it looks like 2017 will be another year of declining inventory.

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 October (458,000, red column) were above sales in  October 2016 (445,000, NSA) and at the highest level for October since 2006.

Sales NSA are now slowing seasonally, and sales NSA will be lower through February.

NAR: "Existing-Home Sales Grow 2.0 Percent in October"

by Bill McBride on 11/21/2017 10:00:00 AM

From the NAR: Existing-Home Sales Grow 2.0 Percent in October

Existing-home sales increased in October to their strongest pace since earlier this summer, but continual supply shortages led to fewer closings on an annual basis for the second straight month, 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, increased 2.0 percent to a seasonally adjusted annual rate of 5.48 million in October from a downwardly revised 5.37 million in September. After last month's increase, sales are at their strongest pace since June (5.51 million), but still remain 0.9 percent below a year ago.
...
Total housing inventory at the end of October decreased 3.2 percent to 1.80 million existing homes available for sale, and is now 10.4 percent lower than a year ago (2.01 million) and has fallen year-over-year for 29 consecutive months. Unsold inventory is at a 3.9-month supply at the current sales pace, which is down from 4.4 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 October (5.48 million SAAR) were 2.0% higher than last month, and were 0.9% below the October 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.80 million in October from 1.86 million in September.   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 10.4% year-over-year in October compared to October 2016.  

Months of supply was at 3.9 months in October.

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

Chicago Fed "Index Points to a Pickup in Economic Growth in October"

by Bill McBride on 11/21/2017 08:39:00 AM

From the Chicago Fed: Index Points to a Pickup in Economic Growth in October

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.65 in October from +0.36 in September. One of the four broad categories of indicators that make up the index increased from September, but three of the four categories made positive contributions to the index in October. The index’s three-month moving average, CFNAI-MA3, increased to +0.28 in October from +0.01 in September.
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This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

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

This suggests economic activity was above the historical trend in October (using the three-month average).

According to the Chicago Fed:
The index is a weighted average of 85 indicators of growth in national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.
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A zero value for the monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.