Monday, July 28, 2014

Tuesday: Case-Shiller

by Bill McBride on 7/28/2014 07:45:00 PM

A glass half empty view from Mark Hanson: Lack of Defaults/Foreclosures/Short Sales; A Serious Housing & Spending Headwind

Most think of the effects of foreclosures & short sales (distressed) only in the first derivative…that they are bad for housing and prices. As such, bullish leaning headlines of plunging defaults, foreclosures and short sales over the past two years are everywhere, often.

Some journalists and bloggers actually follow and publish the data weekly presenting them as further irrefutable evidence that “this” is the real “recovery”. But, of course, when it comes to new-era housing what instinctively sounds like a positive, or negative, is more often than not the exact opposite. And what’s ironic is that the lagging default, foreclosure, and short sale data they publish in the bullish sense is actually leading indicating data of a bearish trend-reversal in housing happening right now, which will lead to the third stimulus “hangover” in the past seven years.

So, the next time you see the headline “Mortgage Defaults (or Foreclosures) at a 6-year Low!!!” you might want to say to yourself “humm, that’s a real problem for purchase demand, house prices, construction labor, materials, appliance sales” and so on.

Bottom line: When it comes to defaults, foreclosures and short sales and how they really fit into the macro housing and economic mosaic less is bad. Foreclosures and short sales “were” a significant housing and macro economic tailwind that drove transactions, prices, home improvement retail, labor, materials, and durable goods sales, which now — down 75% since 2012 — have turned into a stiff headwind.
I like Mark, but how do we get from the crisis phase of the housing bust to a more normal market without seeing fewer foreclosures and short sales? It isn't possible.  

• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May. The consensus is for a 9.9% year-over-year increase in the Composite 20 index (NSA) for May.

• At 10:00 AM, the Conference Board's consumer confidence index for July. The consensus is for the index to increase to 85.5 from 85.2.

• Also at 10:00 AM, the Q2 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

Weekly Update: Housing Tracker Existing Home Inventory up 15.6% YoY on July 28th

by Bill McBride on 7/28/2014 05:53:00 PM

Here is another weekly update on housing inventory ...

SPECIAL NOTE from Ben at Housing Tracker:

I'm seeing higher than expected inventories in Dallas, Orlando and Tampa that do not appear to be accurate representations of reality. Data for those cities may be more suspect than data for other locales. National home inventory will also be skewed higher as a result. As always, consider this realtime data a rough and dirty estimate and use at your own risk.
There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for June and indicated inventory was up 6.5% year-over-year).  

Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, for the last several years.

Existing Home Sales Weekly data Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  

Inventory in 2014 (Red) is now 15.6% above the same week in 2013. (Note: There might be an issue with the Housing Tracker data over the last couple of weeks - Ben is checking - but inventory is still up significantly).

Inventory is also about 2.4% above the same week in 2012.  According to several of the house price indexes, house prices bottomed in early 2012, and low inventories were a key reason for the subsequent price increases.  Now that inventory is back above 2012 levels, I expect house price increases to slow (and possibly decline in some areas).

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess was inventory would be up 10% to 15% year-over-year at the end of 2014 based on the NAR report.  Right now it looks like inventory might increase more than I expected.

Freddie Mac: Mortgage Serious Delinquency rate declined in June, Lowest since January 2009

by Bill McBride on 7/28/2014 02:29:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.07% from 2.10% in May. Freddie's rate is down from 2.79% in June 2013, and this is the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for June on Thursday, July 31st.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.72 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2015 or early 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).

Dallas Fed: Manufacturing "Activity Picks up Pace Again" in July

by Bill McBride on 7/28/2014 10:33:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks up Pace Again

Texas factory activity increased again in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 15.5 to 19.1, indicating output grew at a faster pace than in June.

Other measures of current manufacturing activity reflected significantly stronger growth in July. The new orders index doubled from 6.5 to 13. The capacity utilization index also posted a strong rise, moving to 18 from 9.2 in June. The shipments index rose 12 points to 22.8, reaching its highest level since January 2013. The July readings for these indexes were all more than twice their 10-year averages, suggesting notably robust manufacturing growth.

Perceptions of broader business conditions were more optimistic this month. The general business activity index edged up from 11.4 to 12.7, pushing to its highest level in 10 months. ...

Labor market indicators reflected continued employment growth and longer workweeks. The July employment index posted a second robust reading, although it edged down from 13.1 to 11.4. ... The hours worked index edged up from 4.7 to 6.3, indicating a slightly stronger rise in hours worked than last month.
emphasis added
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 (dashed green, through July), and five Fed surveys are averaged (blue, through July) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through June (right axis).

All of the regional surveys showed stronger expansion in July, and it seems likely the ISM index will increase this month.  The ISM index for July will be released Friday, August 1st.

NAR: Pending Home Sales Index decreased 1.1% in June, down 7.3% year-over-year

by Bill McBride on 7/28/2014 10:00:00 AM

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8). Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).
The PHSI in the Northeast fell 2.9 percent to 83.8 in June, and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.

Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.
Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

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