Tuesday, May 22, 2018

Wednesday: New Home Sales, FOMC Minutes

by Bill McBride on 5/22/2018 07:24:00 PM

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

• At 10:00 AM: New Home Sales for April from the Census Bureau. The consensus is for 677 thousand SAAR, down from 694 thousand in March.

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

• At 2:00 PM: FOMC Minutes for the Meeting of May 1-2, 2018

FDIC: Fewer Problem banks, Residential REO Declined in Q1

by Bill McBride on 5/22/2018 03:51:00 PM

The FDIC released the Quarterly Banking Profile for Q1 today:

Aggregate net income for the 5,606 FDIC-insured commercial banks and savings institutions reporting first quarter performance totaled $56 billion in first quarter 2018, an increase of $12.1 billion (27.5 percent) from a year earlier. Improvement in net income was attributable to higher net operating revenue (the sum of net interest income and noninterest income) and a lower effective tax rate, but was offset in part by higher loan-loss provisions and noninterest expense.
...
The Deposit Insurance Fund (DIF) balance increased by $2.3 billion, to $95.1 billion, during the first quarter. … No banks failed during the quarter. ... The DIF’s reserve ratio (the fund balance as a percent of estimated insured deposits) was 1.30 percent on March 31, 2018, unchanged from year-end 2017 due primarily to strong first quarter growth in estimated insured deposits. The reserve ratio increased by ten basis points from one year earlier.
emphasis added
FDIC Problem Banks Click on graph for larger image.

The FDIC reported the number of problem banks declined slightly.

This graph from the FDIC shows the number of problem banks declined to 92 institutions from 95 at the end of 2017.

Note: The number of assets for problem banks increased significantly, suggesting a fairly large bank was added to the list (more on this when we update the unofficial list at the end of the month).

FDIC Insured Institution REOThe dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $2.92 billion in Q4 2017 to $2.84 billion in Q1. This is the lowest level of REOs since Q3 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.

Existing Home Sales: Take the Under for April

by Bill McBride on 5/22/2018 02:01:00 PM

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for 8+ years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initially reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

As an example, last month (March 2018) the consensus was for sales of 5.28 million on a seasonally adjusted annual rate (SAAR) basis. Lawler estimated 5.51 million, and the NAR reported 5.60 million (the consensus missed by 320 thousand compared to 90 thousand for Lawler).

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

For April 2018, the consensus is that the NAR will report sales of 5.60 million  SAAR. However,  housing economist Tom Lawler estimates the NAR will report sales of 5.48 million.

Lawler's estimate is a little below the consensus, so I'd take the under for April. Note: The NAR is scheduled to report April Existing Home Sales on Thursday, May 24th at 10:00 AM ET.

Over the last eight years, the consensus average miss was 145 thousand, and  Lawler's average miss was 69 thousand.

Existing Home Sales, Forecasts and NAR Report
millions, seasonally adjusted annual rate basis (SAAR)
MonthConsensusLawlerNAR reported1
May-106.205.835.66
Jun-105.305.305.37
Jul-104.663.953.83
Aug-104.104.104.13
Sep-104.304.504.53
Oct-104.504.464.43
Nov-104.854.614.68
Dec-104.905.135.28
Jan-115.205.175.36
Feb-115.155.004.88
Mar-115.005.085.10
Apr-115.205.155.05
May-114.754.804.81
Jun-114.904.714.77
Jul-114.924.694.67
Aug-114.754.925.03
Sep-114.934.834.91
Oct-114.804.864.97
Nov-115.084.404.42
Dec-114.604.644.61
Jan-124.694.664.57
Feb-124.614.634.59
Mar-124.624.594.48
Apr-124.664.534.62
May-124.574.664.55
Jun-124.654.564.37
Jul-124.504.474.47
Aug-124.554.874.82
Sep-124.754.704.75
Oct-124.744.844.79
Nov-124.905.105.04
Dec-125.104.974.94
Jan-134.904.944.92
Feb-135.014.874.98
Mar-135.034.894.92
Apr-134.925.034.97
May-135.005.205.18
Jun-135.274.995.08
Jul-135.135.335.39
Aug-135.255.355.48
Sep-135.305.265.29
Oct-135.135.085.12
Nov-135.024.984.90
Dec-134.904.964.87
Jan-144.704.674.62
Feb-144.644.604.60
Mar-144.564.644.59
Apr-144.674.704.65
May-144.754.814.89
Jun-144.994.965.04
Jul-145.005.095.15
Aug-145.185.125.05
Sep-145.095.145.17
Oct-145.155.285.26
Nov-145.204.904.93
Dec-145.055.155.04
Jan-155.004.904.82
Feb-154.944.874.88
Mar-155.045.185.19
Apr-155.225.205.04
May-155.255.295.35
Jun-155.405.455.49
Jul-155.415.645.59
Aug-155.505.545.31
Sep-155.355.565.55
Oct-155.415.335.36
Nov-155.324.974.76
Dec-155.195.365.46
Jan-165.325.365.47
Feb-165.305.205.08
Mar-165.275.275.33
Apr-165.405.445.45
May-165.645.555.53
Jun-165.485.625.57
Jul-165.525.415.39
Aug-165.445.495.33
Sep-165.355.555.47
Oct-165.445.475.60
Nov-165.545.605.61
Dec-165.545.555.49
Jan-175.555.605.69
Feb-175.555.415.48
Mar-175.615.745.71
Apr-175.675.565.57
May-175.555.655.62
Jun-175.585.595.52
Jul-175.575.385.44
Aug-175.485.395.35
Sep-175.305.385.39
Oct-175.305.605.48
Nov-175.525.775.81
Dec-175.755.665.57
Jan-185.655.485.38
Feb-185.425.445.54
Mar-185.285.515.60
Apr-185.605.48---
1NAR initially reported before revisions.

Richmond Fed: "Fifth District Manufacturing Firms Reported Robust Growth in May"

by Bill McBride on 5/22/2018 10:05:00 AM

From the Richmond Fed: Fifth District Manufacturing Firms Reported Robust Growth in May

Fifth District manufacturing firms saw robust growth in May, according to survey results from the Federal Reserve Bank of Richmond. The composite index swung from −3 in April to 16 in May, boosted by growth in the indexes for shipments, new orders, and employment. Local business conditions also moved back into expansionary territory, after weakening in April, and firms remained optimistic that growth would continue in coming months.

Survey results indicate that both employment and wages rose among manufacturing firms in May [Index for number of employees increased from 12 to 18], however, firms still struggled to find the skills they needed. They expect this struggle to continue in the next six months and also expect employment and wages to increase further.

Many manufacturing firms continued to increase spending in May. The growth rate of prices paid continued to rise, on average, but firms seemed able to pass some of change through to customers, as prices received also grew at a faster rate.
emphasis added
All of the regional manufacturing reports for May have been solid so far.

The Changing Mix of Light Vehicle Sales

by Bill McBride on 5/22/2018 09:18:00 AM

Whenever I'm driving, it seems like I'm surrounded by more and more SUVs and trucks. So I thought I'd look at the changing mix of vehicle sales over time (between passenger cars and light trucks / SUVs).

The first graph below shows the mix of sales since 1976 (Blue is cars, Red is light trucks and SUVs).

Vehicle Sales
Click on graph for larger image.

The mix has changed significantly. Back in 1976, most light vehicles were passenger cars - however car sales have trended down over time.

Note that the big dips in sales are related to economic recessions (early '80s, early '90s, and the Great Recession of 2007 through mid-2009).

Vehicle Sales The second graph shows the percent of light vehicle sales between passenger cars and trucks / SUVs.

Over time the mix has changed toward more and more light trucks and SUVs.

Only when oil prices are high, does the trend slow or reverse.

Recently oil prices have been fairly low (now increasing), and the percent of light trucks and SUVs is almost up to 70%.

Monday, May 21, 2018

"Mortgage Rates Unchanged to Begin Week", Near 7 Year High

by Bill McBride on 5/21/2018 05:14:00 PM

Tuesday:
• At 10:00 AM ET, Richmond Fed Survey of Manufacturing Activity for May.

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

Mortgage rates held steady today, which is better than what could be said for most of last week when rates shot up to the highest levels in 7 years. Friday was the only day of improvement, but it was scarcely enough to undo the damage from the previous 4 days. [30YR FIXED - 4.75-4.875%]
emphasis added
Here is a table from Mortgage News Daily:

Ten Years Ago: Looking back at a Foreclosure

by Bill McBride on 5/21/2018 02:55:00 PM

Ten years ago today, I wrote House Price Mosaic. This was a discussion of how areas with significant foreclosure activity were seeing larger price declines (as expected).

In the post, I mentioned a foreclosure that Jim the Realtor had listed for sale at 260 Securidad St in Oceanside, CA.

For fun, I took a look at that house.

The house had sold for $318,000 in July 2004, and according to Jim, the owner refinanced a year later for a total of $375,000 in loans.

The house sold for $140,000 in June 2008 at foreclosure.

Now the house would probably sell for double the foreclosure price.    That is a crazy ride.

Oil Prices Up almost 50% Year-over-year

by Bill McBride on 5/21/2018 11:08:00 AM

First, an excerpt from a research note by Merrill Lynch economists today:

If bad luck intersects with bad policy, a recession becomes a real risk. We would keep a particularly close eye on two traditional business-cycle killers-the Fed response to stronger-than-expected inflation in the US and a growing shortage of oil, pushing prices to new heights.
So far the increase in oil prices isn't a concern for the economy, but it is something to watch.

Oil PricesClick on graph for larger image

The first graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $71.40 per barrel today, and Brent is at $78.30.

Prices collapsed in 2008 due to the financial crisis, and then increased as the economy recovered.   Oil prices collapsed again in 2014 and 2015, mostly due to oversupply.

Now oil prices are rising sharply again.

Oil Prices The second graph shows the year-over-year change in WTI based on data from the EIA.

Six times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.   Oil prices are volatile!

Currently WTI is up about 50% year-over-year.

Chicago Fed "Index Points to Little Change in Economic Growth in April"

by Bill McBride on 5/21/2018 08:36:00 AM

From the Chicago Fed: Index Points to Little Change in Economic Growth in April

The Chicago Fed National Activity Index (CFNAI) ticked up to +0.34 in April from +0.32 in March. Two of the four broad categories of indicators that make up the index increased from March, and three of the four categories made positive contributions to the index in April. The index’s three-month moving average, CFNAI-MA3, increased to +0.46 in April from +0.23 in March.
emphasis added
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 April (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.
...
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.

Sunday, May 20, 2018

Sunday Night Futures

by Bill McBride on 5/20/2018 07:19:00 PM

Weekend:
Schedule for Week of May 20, 2018

Monday:
• 8:30 AM ET, Chicago Fed National Activity Index for April. This is a composite index of other data.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 16, and DOW futures are up 193 (fair value).

Oil prices were up over the last week with WTI futures at $71.64 per barrel and Brent at $78.91 per barrel.  A year ago, WTI was at $50, and Brent was at $53 - so oil prices are up about 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.92 per gallon. A year ago prices were at $2.35 per gallon - so gasoline prices are up 57 cents per gallon year-over-year.