by Calculated Risk on 9/30/2015 05:27:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in August to 1.62% from 1.63% in July. The serious delinquency rate is down from 1.99% in August 2014, and this is the lowest level since August 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

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

Click on graph for larger image

The Fannie Mae serious delinquency rate has only fallen 0.37 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017.

The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

by Calculated Risk on 9/30/2015 12:51:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Declined in August

As a result of softer same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) declined in August. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.5 in August, down 1.2 percent from July and the lowest level in 11 months. Despite the decline, August represented the 30th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.
...
“The RPI's August decline was the result of broad-based declines in the current situation indicators,” said Hudson Riehle, Senior Vice President, Research and Knowledge Group, National Restaurant Association. “Same-store sales and customer traffic softened from July’s strong levels, while the labor and capital spending indicators also dipped.

“Despite the declines, each of the current situation indicators were in expansion territory above 100, which indicates the restaurant industry remains on a positive growth trajectory,” Riehle added.
emphasis added

Click on graph for larger image.

The index decreased to 101.5 in August, up from 102.7 in July. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. Even with the decline in the index, this is a solid reading.

Even with this decline, the index is indicating expansion, and it appears restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 9/30/2015 09:58:00 AM

Chicago PMI: Sep Chicago Business Barometer Down 5.7 Points to 48.7

The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply.

The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern.
...
Chief Economist of MNI Indicators Philip Uglow said, “While activity between Q2 and Q3 actually picked up, the scale of the downturn in September following the recent global financial fallout is concerning. Disinflationary pressures intensified and output was down very sharply. We await the October data to better judge whether this was a knee jerk reaction and there is a bounceback, or whether it represents a more fundamental slowdown.“
emphasis added

This was well below the consensus forecast of 53.6.

by Calculated Risk on 9/30/2015 08:19:00 AM

From ADP:

Private sector employment increased by 200,000 jobs from August to September according to the September ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment rose by 12,000 jobs in September, off from 15,000 the previous month. The construction industry added 35,000 jobs in September, almost double the 18,000 gained in August. Meanwhile, manufacturing dropped into negative territory losing 15,000 jobs in September, the worst showing since December 2010.

Service-providing employment rose by 188,000 jobs in September, up from 172,000 in August. ...

Mark Zandi, chief economist of Moody’s Analytics, said, “The U.S. job machine continues to produce jobs at a strong and consistent pace. Despite job losses in the energy and manufacturing industries, the economy is creating close to 200,000 jobs per month. At this pace full employment is fast approaching.”

This was above the consensus forecast for 190,000 private sector jobs added in the ADP report. 

The BLS report for September will be released Friday, and the consensus is for 203,000 non-farm payroll jobs added in September.

by Calculated Risk on 9/30/2015 07:03:00 AM

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

Mortgage applications decreased 6.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 25, 2015. ...

The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 20 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.08 percent from 4.09 percent, with points remaining unchanged from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

Refinance activity remains low.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year).


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 20% higher than a year ago.

by Calculated Risk on 9/29/2015 07:54:00 PM

It seems likely a shutdown tomorrow will be avoided, but the votes will be at the last minute. Of course there might be a shutdown later this year.

From the WSJ: GOP leaders are negotiating with Obama on two-year budget deal; a stopgap measure is expected to be passed this week

Republican leaders, seeking to avoid repeated fiscal crises, have opened discussions with President Barack Obama about a two-year budget deal, aiming to avoid a spending fight in the middle of an election year.
...
The House and Senate are expected Wednesday to pass a stopgap spending measure to keep the government running through Dec. 11.

A shutdown in October 2016 would be a disaster for the GOP - one month before the election - so naturally they want a two year deal.

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

• At 8:15 AM, The ADP Employment Report for September. This report is for private payrolls only (no government). The consensus is for 190,000 payroll jobs added in September, the same as in August.

• At 9:45 AM, Chicago Purchasing Managers Index for September. The consensus is for a reading of 53.6, down from 54.4 in August.

by Calculated Risk on 9/29/2015 05:14:00 PM

The Case-Shiller house price indexes for July 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 Zillow: Case-Shiller Forecast: Expect August's Data to Look a Lot Like July's

The July S&P/Case-Shiller (SPCS) data published today showed home prices dipping on a seasonally-adjusted monthly basis, with both the 10- and 20-city indices falling 0.2 percent from June to July.

On an annual basis, the 10-city index was up 4.5 percent from July 2014, while the 20-city index increased 5 percent over the past year. The U.S. National Index was up 4.7 percent year-over-year. We expect the August SPCS to show a second consecutive monthly decline in the 10-city index, down 0.1 percent from July to August, and the 20-city index to be flat over the same period (seasonally adjusted). The National Index is expected to grow 0.4 percent (seasonally adjusted) in August from July. We expect all three indices to show annual appreciation of less than 5 percent when August data is released next month.

All SPCS forecasts are shown in the table below. These forecasts are based on today’s July SPCS data release and the August 2015 Zillow Home Value Index (ZHVI), released September 21. The SPCS Composite Home Price Indices for July will not be officially released until Tuesday, October 27.

This suggests the year-over-year change for the August Case-Shiller National index will be about the same as in the July report.

Zillow Case-Shiller Forecast
	Case-Shiller Composite 10		Case-Shiller Composite 20		Case-Shiller National
	NSA	SA	NSA	SA	NSA	SA
July Actual YoY	4.5%	4.5%	5.0%	5.0%	4.7%	4.7%
August Forecast YoY	4.5%	4.5%	4.9%	4.9%	4.8%	4.8%
August Forecast MoM	0.1%	-0.1%	0.1%	0.0%	0.3%	0.4%

by Calculated Risk on 9/29/2015 02:14:00 PM

From the LA Times: Congress moves closer to averting government shutdown with Senate vote

With Wednesday's funding deadline looming, the Senate overwhelmingly advanced the government funding bill by a 77-19 vote. More than half the Republicans in the Senate joined Democrats to break the filibuster by conservative Republicans, led by Sen. Ted Cruz of Texas ...

Final passage in the Senate is likely to come Tuesday. The House is expected to vote Wednesday.

If it doesn't pass the House by Wednesday night, the Government will shutdown.  It seems likely this will pass.

However, there is growing concern about a shutdown later this year - that might include Congress threatening (once again) to not pay the bills.

From Dara Lind at Vox: The next government shutdown fight, explained

The next funding bill is currently working its way through the Senate, and will come to the House sometime Wednesday. Congress was supposed to fund the government for the entire 2016 fiscal year, which begins on October 1. But instead, the Senate bill only funds the government through December 11.

The so-called "debt ceiling" will probably be reached in November, so both of these issues will be tied together (the "debt ceiling" is misleading - it sounds fiscally responsible, but it is actually about paying the bills - and not paying the bills would be irresponsible).

John Schoen at CNBC discusses this: How the government shutdown may be averted, for now

The debt issued by the Treasury is used to pay for spending that Congress has already authorized for goods and services the government has already provided. It would be like trying to control your household spending by not paying a credit card charge for a meal you've already eaten.

Freezing the debt ceiling does nothing to better manage future spending or make government do more with less money.

If anything, forcing the Treasury to default on its debt would only increase government spending because it would raise future borrowing costs. Just as a deadbeat consumer who doesn't pay legitimate credit card charges has to pay higher interest rates, investors in U.S. Treasurys would demand higher returns to offset the risk of Congress pulling this stunt again.

Right now it looks like there won't be a shutdown this week.

by Calculated Risk on 9/29/2015 11:42:00 AM

Yesterday, San Francisco Fed President John Williams said:

I am starting to see signs of imbalances emerge in the form of high asset prices, especially in real estate, and that trips the alert system. One lesson I have taken from past episodes is that, once the imbalances have grown large, the options to deal with them are limited. I think back to the mid-2000s, when we faced the question of whether the Fed should raise rates and risk pricking the bubble or let things run full steam ahead and deal with the consequences later. What stayed with me were not the relative merits of either case, but the fact that by then, with the housing boom in full swing, it was already too late to avoid bad outcomes. Stopping the fallout would’ve required acting much earlier, when the problems were still manageable. I’m not assigning blame by any means, and economic hindsight is always 20/20. But I am conscious that today, the house price-to-rent ratio is where it was in 2003, and house prices are rapidly rising. I don’t think we’re at a tipping point yet—but I am looking at the path we’re on and looking out for potential potholes.
emphasis added

Williams is looking at something like the third graph below. This shows the price-to-rent ratio is elevated, but nothing like during the housing bubble (and there are few signs of speculations).

Here is the earlier post: Case-Shiller: National House Price Index increased 4.7% year-over-year in July

The year-over-year increase in prices is mostly moving sideways now at between 4% and 5%.. In October 2013, the National index was up 10.9% year-over-year (YoY). In July 2015, the index was up 4.7% YoY.

Here is the YoY change since January 2014 for the National Index:

Month	YoY Change
Jan-14	10.5%
Feb-14	10.2%
Mar-14	8.9%
Apr-14	7.9%
May-14	7.0%
Jun-14	6.3%
Jul-14	5.6%
Aug-14	5.1%
Sep-14	4.8%
Oct-14	4.6%
Nov-14	4.6%
Dec-14	4.6%
Jan-15	4.4%
Feb-15	4.3%
Mar-15	4.3%
Apr-15	4.4%
May-15	4.5%
Jun-15	4.5%
Jul-15	4.7%

Most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it is good news for housing and the economy.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic 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 $276,000 today adjusted for inflation (38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 7.0% below the bubble peak.   However, in real terms, the National index is still about 21% below the bubble peak.

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to June 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to February 2005 levels, and the CoreLogic index (NSA) is back to June 2005.

Real House Prices

The second graph shows the same three 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 June 2003 levels, the Composite 20 index is back to April 2003, and the CoreLogic index back to December 2003.

In real terms, house prices are back to 2003 levels.

Note: CPI less Shelter is down 1.2% year-over-year, so this is pushing up real prices.

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.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic 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 April 2003 levels, the Composite 20 index is back to December 2002 levels, and the CoreLogic index is back to November 2003.

This is the graph SF President John Williams mentioned yesterday.

In real terms, and as a price-to-rent ratio, prices are back to 2003 levels - and the price-to-rent ratio maybe moving a little sideways now.

by Calculated Risk on 9/29/2015 09:15:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for July ("July" is a 3 month average of May, June and July 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: July Home Price Gains Concentrated in the West According to the S&P/Case-Shiller Home Price Indices

The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 4.7% annual increase in July 2015 versus a 4.5% increase in June 2015. The 10-City Composite was virtually unchanged from last month, rising 4.5% year-over-year. The 20-City Composite had higher year-over-year gains, with an increase of 5.0%.
...
Before seasonal adjustment, the National Index posted a gain of 0.7% month-over-month in July. The 10-City Composite and 20-City Composite both reported gains of 0.6% month-over-month. After seasonal adjustment, the National index posted a gain of 0.4%, while the 10-City and 20-City Composites were both down 0.2% month-over-month. All 20 cities reported increases in July before seasonal adjustment; after seasonal adjustment, 10 were down, nine were up, and one was unchanged.
...
“The S&P/Case Shiller National Home Price Index has risen at a 4% or higher annual rate since September 2012, well ahead of inflation. Most of the strength is focused on states west of the Mississippi. The three cities with the largest cumulative price increases since January 2000 are all in California: Los Angeles (138%), San Francisco (116%) and San Diego (115%). The two smallest gains since January 2000 are Detroit (3%) and Cleveland (10%). The Sunbelt cities – Miami, Tampa, Phoenix and Las Vegas – which were the poster children of the housing boom have yet to make new all-time highs. [says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.]
emphasis added

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 14.9% from the peak, and down 0.3% in July (SA).

The Composite 20 index is off 13.7% from the peak, and down 0.2% (SA) in July.

The National index is off 7.0% from the peak, and up 0.4% (SA) in July.  The National index is up 25.6% from the post-bubble low set in December 2011 (SA).

The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.6% compared to July 2014.

The Composite 20 SA is up 5.0% year-over-year..

The National index SA is up 4.7% year-over-year.

Prices increased (SA) in 9 of the 20 Case-Shiller cities in July seasonally adjusted.  (Prices increased in 20 of the 20 cities NSA)  Prices in Las Vegas are off 39.5% from the peak, and prices in Denver and Dallas are at new highs (SA).

The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 52% above January 2000 (52% nominal gain in almost 16 years).

These are nominal prices, and real prices (adjusted for inflation) are up about 40% since January 2000 - so the increase in Phoenix from January 2000 until now is about 12% above the change in overall prices due to inflation.

Two cities - Denver (up 67% since Jan 2000) and Dallas (up 48% since Jan 2000) - are above the bubble highs (a few other Case-Shiller Comp 20 city are close - Boston, Charlotte, San Francisco, Portland).    Detroit prices are barely above the January 2000 level.

I'll have more on house prices later.