by Calculated Risk on 10/29/2014 08:34:00 PM

From the Atlanta Fed GDPNow:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2014 was 2.7 percent on October 28

From Chico Harlan at the WaPo: Tomorrow’s GDP numbers will give a better read on the U.S. economy

Many economists now say that the first quarter slide stemmed from a horrid East Coast winter that kept consumers indoors. They say that the second quarter was buoyed by a bounce-back effect, a release of all that pent-up demand for cars and homes. But this quarter? We’ll probably get something in between, confirmation of a recovery that’s yielding more jobs but little wage growth.

According to economists surveyed by Bloomberg, the GDP probably rose around 3 percent in the latest quarter. ... Three percent growth is hardly dazzling, but the number shines relative to other advanced economies.

And from Nick Timiraos at the WSJ: 5 Things To Watch in Thursday’s U.S. GDP Report

Thursday:
• At 8:30 AM ET, Gross Domestic Product, 3rd quarter 2014 (advance estimate). The consensus is that real GDP increased 2.8% annualized in Q3.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 280 thousand from 283 thousand.

by Calculated Risk on 10/29/2014 05:28:00 PM

From housing economist Tom Lawler:

Yesterday the Census Bureau released the “Residential Vacancies and Homeownership” Report (commonly referred to as the Housing Vacancy Survey, or HVS) for the third quarter of 2014. The HVS is based on a relatively small sample of housing units, still uses an outdated “sampling frame,” and does not perform adequate follow-ups to surveyed units, and for well over a decade the HVS has overstated the housing vacancy rate and overstated the US homeownership rates. The HVS is a supplement to the monthly Current Population Survey, which also suffers from sampling “issues.”

Here are a few summary statistics from yesterday’s report.

Housing Vacancy Survey "Results"
	Q3/14	Q2/14	Q3/13
Gross Vacancy Rate	13.5%	13.6%	13.6%
Rental Vacancy Rate	7.4%	7.5%	8.3%
Homeowner Vacancy Rate	1.8%	1.9%	1.9%
Homeownership Rate NSA	64.4%	64.7%	65.3%
Homeownership Rate SA	64.3%	64.7%	65.2%

The report also shows “estimates” of the US housing inventory, which are “controlled” to independent estimates of the housing stock by the Population Division using a questionable methodology. Here are some summary stats on the housing stock from the report.

HVS "Estimates" of US Housing Inventory (000's)
	Q3/14	Q3/13	Change
All Housing Units	133,331	132,843	488
Vacant	18,021	18,075	-54
Year-Round	13,447	13,603	-156
Seasonal	4,575	4,475	100
Occupied	115,310	114,769	541
Owner	74,240	74,897	-657
Renter	41,070	39,872	1,198

If one were to believe these estimates, US households grew by just 541,000 over the last year, and just 1.012 million over the last two years. Given Census’ estimate of housing completions and manufactured housing placements (which strangely are not used by the Population Division in estimating the housing stock), the change in the housing stock shown in the HVS over the last year looks too low, possibly by around 160,000 or so. Even if one assumed the housing stock grew by 160,000 more, however, the HVS-based household estimate would have increased by only 679,000.

With respect to the homeownership rate, below is a table comparing homeownership rates from the Decennial Census for April 1 to the homeownership rates from the HVS for the first-half of the year for 1990, 2000, and 2010.

Different Homeownership Rate Estimates
	1990	2000	2010
Decennial Census (April 1)	64.2%	66.2%	65.1%
HVS (first half average)	63.9%	67.2%	67.0%

The HVS homeownership rate for the third quarter of 2014 was 2.6 percentage points lower than the HVS homeownership rate in the first half of 2010. If the “true” homeownership rate in the US fell by a similar amount over this period, then the “true” homeownership rate would have been about 62.5% last quarter, the lowest homeownership rates since the 1960’s.

by Calculated Risk on 10/29/2014 02:00:00 PM

QE3 ends.  Considerable time until first rate hike.  Labor market upgraded from "significant underutilization" to "underutilization".

FOMC Statement:

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.
emphasis added

Word count declined from 895 in September to 707 in October.

by Calculated Risk on 10/29/2014 11:35:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 1.96% from 1.98% in August. Freddie's rate is down from 2.58% in September 2013, and this is the lowest level since December 2008. 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 is expected to report their Single-Family Serious Delinquency rate for September on Friday.

Click on graph for larger image

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

The serious delinquency rate has fallen 0.62 percentage points over the last year - and the rate of improvement has slowed recently.  However, at that rate of improvement, the serious delinquency rate will not be below 1% until some time in 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 Fannie and Freddie distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).

by Calculated Risk on 10/29/2014 09:25:00 AM

The Case-Shiller house price indexes for August were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Hopefully Zillow will start estimating the National Index.

From Zillow: Find Out Next Month’s Case-Shiller Numbers Today

The August S&P/Case-Shiller (SPCS) data out [yesterday] showed more slowing in the housing market with the annual change in the 20-city index falling 1.1 percentage points to 5.6 percent. The national index was up 5.1 percent on an annual basis in August. Our current forecast for SPCS next month indicates further slowing with the annual increase in the 20-City Composite Home Price Index falling to 4.7 percent in September. The last time the SPCS 20-City index grew less than 5 percent annually was in October 2012, when the index grew 4.3 percent year-over-year.

The non-seasonally adjusted (NSA) monthly increase in August for the 20-City index was 0.2 percent, and we expect it to fall 0.2 percent in September. We expect a monthly decline for the 10-City Composite Index, which is projected to drop 0.3 percent from August to September.

All forecasts are shown in the table below. These forecasts are based on the August SPCS data release this morning and the September 2014 Zillow Home Value Index (ZHVI), released October 22. Officially, the SPCS Composite Home Price Indices for August will not be released until Tuesday, November 25.

So the Case-Shiller index will probably show a lower year-over-year gain in September than in August (5.6% year-over-year for the Composite 20 in August, 5.1% year-over-year for the National Index).

Zillow September 2014 Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	September 2013	179.97	176.28	165.60	162.23
Case-Shiller (last month)	August 2014	188.58	184.12	173.66	169.43
Zillow Forecast	YoY	4.5%	4.5%	4.7%	47%
	MoM	-0.3%	0.0%	-0.2%	0.1%
Zillow Forecasts1		188.0	184.2	173.3	169.7
Current Post Bubble Low		146.45	149.88	134.07	137.06
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		28.4%	22.9%	29.3%	23.8%
Bubble Peak		226.29	226.87	206.52	206.61
Date of Bubble Peak		Jun-06	Apr-06	Jul-06	Apr-06
Below Bubble Peak		16.9%	18.8%	16.1%	17.9%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts