Sunday, June 25, 2017

Goldman on the Next Recession

by Bill McBride on 6/25/2017 12:13:00 PM

A few brief excerpts from a note by Goldman Sachs economists: The Next Recession: Lessons from History

With the current expansion already the third longest in US history, investors have begun to look ahead to the next recession. ... we find that many pre-WW2 recessions originated in the financial sector, many post-WW2 recessions were caused by oil shocks and monetary policy tightening, and sentiment-driven swings in borrowing and investment led to recessions in both eras. ...

Some common contributors to past recessions look less worrisome today. ... the dominant cause of postwar US recessions—rapid rate hikes in response to high inflation, often boosted by oil shocks—is less threatening today due to the anchoring of inflation expectations and the rise of shale.
[Our model] now estimates a 1/4 chance of recession over the next two years, somewhat below the unconditional probability over two years of 1/3 since 1980.
CR note: Some day there will be another recession, but I don't see signs of a recession in the next year or more.

Saturday, June 24, 2017

Schedule for Week of June 25, 2017

by Bill McBride on 6/24/2017 08:11:00 AM

The key economic reports this week are Personal Income and Outlays for May, Case-Shiller house prices, and the third estimate of Q1 GDP.

----- Monday, June 26th -----

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

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

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

----- Tuesday, June 27th -----

Early: Reis Q2 2017 Apartment Survey of rents and vacancy rates.

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

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

The consensus is for a 5.9% year-over-year increase in the Comp 20 index for April.

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

----- Wednesday, June 28th -----

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

Early: Reis Q2 2017 Mall Survey of rents and vacancy rates.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.5% increase in the index.

----- Thursday, June 29th -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, down from 241 thousand the previous week.

8:30 AM: Gross Domestic Product, 1st quarter 2017 (Third estimate). The consensus is that real GDP increased 1.2% annualized in Q1, unchanged from the second estimate of 1.2%.

Early: Reis Q2 2017 Office Survey of rents and vacancy rates.

----- Friday, June 30th -----

8:30 AM: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 58.2, down from 59.4 in May.

10:00 AM: University of Michigan's Consumer sentiment index (final for June). The consensus is for a reading of 94.5, from the preliminary reading 94.5.

Friday, June 23, 2017

Oil Rigs: "Not dead yet!"

by Bill McBride on 6/23/2017 03:55:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on June 23, 2017:

• Total US oil rigs were up 11 to 756

• Horizontal oil rigs were up a whopping 12 to 648

• Goodness knows the underlying dynamics, but apparently the rig operators have not received the oil price crash memo.
Oil Rig CountClick on graph for larger image.

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

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

A few Comments on May New Home Sales

by Bill McBride on 6/23/2017 11:59:00 AM

New home sales for May were reported at 610,000 on a seasonally adjusted annual rate basis (SAAR). This was above the consensus forecast, and the three previous months combined were revised up. Overall this was a solid report.

Sales were up 8.9% year-over-year in May.

Earlier: New Home Sales increase to 610,000 Annual Rate in May.

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

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

For the first five months of 2017, new home sales are up 12.2% compared to the same period in 2016.

This was a strong year-over-year increase through May, however sales were weak in Q1 last year, so this was a somewhat easy comparison.

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 May 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 610,000 Annual Rate in May

by Bill McBride on 6/23/2017 10:15:00 AM

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 610 thousand.

The previous three months combined were revised up.

"Sales of new single-family houses in May 2017 were at a seasonally adjusted annual rate of 610,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.9 percent above the revised April rate of 593,000 and is 8.9 percent above the May 2016 estimate of 560,000."
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 was unchanged in May at 5.3 months.

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 May was 268,000. This represents a supply of 5.3 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 May 2017 (red column), 58 thousand new homes were sold (NSA). Last year, 53 thousand homes were sold in May.

The all time high for May was 120 thousand in 2005, and the all time low for May was 26 thousand in 2010.

This was above expectations of 590,000 sales SAAR, and the previous months were revised up.   A solid report.  I'll have more later today.

Thursday, June 22, 2017

Friday: New Home Sales

by Bill McBride on 6/22/2017 06:50:00 PM

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

Mortgage rates have been so little-changed in recent days that yesterday's coverage wouldn't need to be changed in order to apply perfectly today.
The absence of change continues to be a good thing given that rates remain very close to their lowest levels in more than 8 months.  Only a handful of recent days have been any better.  4.0% is the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios, though a few of the aggressive lenders remain at 3.875%.  
• At 8:30 AM ET: New Home Sales for May from the Census Bureau. The consensus is for an increase in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 569 thousand in April.

U.S. Demographics: The Millennials Take Over

by Bill McBride on 6/22/2017 02:29:00 PM

From the Census Bureau The Nation’s Older Population Is Still Growing, Census Bureau Reports

New detailed estimates show the nation’s median age — the age where half of the population is younger and the other half older — rose from 35.3 years on April 1, 2000, to 37.9 years on July 1, 2016.

“The baby-boom generation is largely responsible for this trend,” said Peter Borsella, a demographer in the Population Division. “Baby boomers began turning 65 in 2011 and will continue to do so for many years to come.”

Residents age 65 and over grew from 35.0 million in 2000, to 49.2 million in 2016, accounting for 12.4 percent and 15.2 percent of the total population, respectively.
U.S. Population by Age Click on graph for larger image.

This graph uses the data in the July 1, 2016 estimate released today.

Using the Census data, here is a table showing the ten most common ages in 2010 and 2016.

Note the younger baby boom generation dominated in 2010.  By 2016 the millennials have taken over.  The six largest groups, by age, are in their 20s - and eight of the top ten are in their 20s. 

My view is this is positive for both housing and the economy.

Population: Most Common Ages by Year

Kansas City Fed: Regional Manufacturing Activity "Expanded Further" in June

by Bill McBride on 6/22/2017 11:00:00 AM

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

The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity expanded further with strong expectations for future activity.

“Firms reported faster growth in June than earlier in the second quarter,” said Wilkerson.  “The share of factories planning to add workers over the next six months also rose solidly.”
The month-over-month composite index was 11 in June, up from 8 in May and 7 in April. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ...
emphasis added
The Kansas City region was hit hard by the sharp decline in oil prices, but activity has been expanding as oil prices increased. It is too early to tell if the recent decline in oil prices will impact the Kansas City region again.

Black Knight: Mortgage Delinquencies Decreased in May, Foreclosures at 10-Year Lows

by Bill McBride on 6/22/2017 09:30:00 AM

From Black Knight: Prepayments (historically a good indicator of refinance activity) jumped 23 percent month-over-month, reaching their highest point so far in 2017

• Prepayments (historically a good indicator of refinance activity) jumped 23 percent month-over-month, reaching their highest point so far in 2017

• Delinquencies reversed course after calendar driven increase in April, falling 7.13 percent month-over-month

• April’s delinquency rate increase was primarily calendar-driven (due to both the month ending on a Sunday and March being the typical calendar-year low) and largely isolated to early-stage delinquencies

• Inventory of loans either seriously delinquent (90 or more days past due) or in active foreclosure continues to improve, with both hitting 10-year lows in May
According to Black Knight's First Look report for May, the percent of loans delinquent decreased 7.1% in May compared to April, and declined 10.8% year-over-year.

The percent of loans in the foreclosure process declined 3.0% in May and were down 26.9% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.79% in May, down from 4.08% in April.

The percent of loans in the foreclosure process declined in May to 0.83%.

The number of delinquent properties, but not in foreclosure, is down 226,000 properties year-over-year, and the number of properties in the foreclosure process is down 153,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
In Foreclosure0.83%0.85%1.13%1.59%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,927,0002,072,0002,153,0002,478,000
Number of properties in foreclosure pre-sale inventory:421,000433,000574,000803,000
Total Properties2,348,0002,505,0002,727,0003,280,000

Weekly Initial Unemployment Claims increase to 241,000

by Bill McBride on 6/22/2017 08:34:00 AM

The DOL reported:

In the week ending June 17, the advance figure for seasonally adjusted initial claims was 241,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 237,000 to 238,000. The 4-week moving average was 244,750, an increase of 1,500 from the previous week's revised average. The previous week's average was revised up by 250 from 243,000 to 243,250.
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 244,750.

This was close to the consensus forecast.

The low level of claims suggests relatively few layoffs.