by Calculated Risk on 2/10/2016 09:07:00 AM

From Fed Chair Janet Yellen: Semiannual Monetary Policy Report to the Congress. Excerpt:

Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.

As is always the case, the economic outlook is uncertain. Foreign economic developments, in particular, pose risks to U.S. economic growth. Most notably, although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China's exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.

Of course, economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth more than we expect. At present, the Committee is closely monitoring global economic and financial developments, as well as assessing their implications for the labor market and inflation and the balance of risks to the outlook.

by Calculated Risk on 2/10/2016 07:00:00 AM

From the MBA: Rates Drop, Refi Applications Surge in Latest MBA Weekly Surve

Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 5, 2016.
...
The Refinance Index increased 16 percent from the previous week. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 25 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 its lowest level since April 2015, 3.91 percent, from 3.97 percent, with points unchanged at 0.41 (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 since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity has picked up recently as rates have declined.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 25% higher than a year ago.

by Calculated Risk on 2/09/2016 05:47:00 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, Testimony by Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

• At 2:00 PM, the Monthly Treasury Budget Statement for January.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Well Into Mid 3's

Mortgage rates kept moving lower today as global financial markets remain in distress. This time around, the improvement wasn't as much about the bond market gains as it was about lenders getting caught up with yesterday's gains. ...

Given the timing, it would seem that financial markets are eager to hear from Fed Chair Janet Yellen, who delivers her semi-annual congressional testimony over the next 2 days. ...  The average lender is currently quoting conventional 30yr fixed rates of 3.625% on top tier scenarios, with the 'runner-up' slot quickly shifting toward 3.5% from 3.75% yesterday.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 2/09/2016 02:00:00 PM

Oil prices are down today, with Brent at $30.51 per barrel, and WTI at $28.08.

Here is an excerpt from the EIA Short-Term Energy Outlook (STEO) released today.

Brent crude oil prices are forecast to average $38/b in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices are expected to average the same as Brent in both years. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook. ...

The U.S. retail regular gasoline price is forecast to average $1.98/gallon (gal) in 2016 and $2.21/gal in 2017, compared with $2.43/gal in 2015. In January, the average retail regular gasoline price was $1.95/gal, a decrease of 9 cents/gal from December and the first time monthly gasoline prices averaged below $2/gal since March 2009. EIA expects the monthly average retail price of U.S. regular gasoline to reach a seven-year low of $1.82/gal in February 2016, before rising during the spring. ...

U.S. crude oil production averaged an estimated 9.4 million b/d in 2015, and it is forecast to average 8.7 million b/d in 2016 and 8.5 million b/d in 2017. EIA estimates that crude oil production in January was 70,000 b/d below the December level, which was 9.2 million b/d.

A few more comments from the EIA:

“Continuing increases in global oil inventories are expected to keep oil prices under $40 a barrel through August.”

“U.S. commercial inventories of crude oil reached nearly 503 million barrels at the end of January, marking the first time that oil stocks topped 500 million barrels since 1930.”

“Builds in oil inventories will continue, with U.S. crude stocks expected to peak this year at 517 million barrels in April.”
emphasis added

Right now gasoline prices are down to around $1.72 per gallon nationally according to the Gasbuddy.com.

by Calculated Risk on 2/09/2016 10:09:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings increased to 5.6 million on the last business day of December, the U.S. Bureau of Labor Statistics reported today. Hires and separations were little changed at 5.4 million and 5.1 million, respectively. Within separations, the quits rate was 2.1 percent, and the layoffs and discharges rate was 1.1 percent. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 3.1 million quits in December, up from November. The number of quits is now higher than in December 2007 (2.8 million), the first month of the recession.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for December, the most recent employment report was for January.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in December to 5.607 million from 5.346 million in November.

The number of job openings (yellow) are up 15% year-over-year compared to December 2014.

Quits are up 13% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is a solid report.  Job openings are just below the record high set in July 2015, and Quits are up 13% year-over-year.

by Calculated Risk on 2/09/2016 08:50:00 AM

From the National Federation of Independent Business (NFIB): After Modest Gain Last Month, Small Business Optimism Takes a Stumble

The Index of Small Business Optimism fell 1.3 points from December, falling to 93.9. ...

Reported job creation improved in January, with the average employment gain per firm rising to 0.11 workers per firm from -0.07 workers in December. ... Fifty-two percent reported hiring or trying to hire (down 3 points), but 45 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent reported using temporary workers, down 1 point.

The percent of owners citing the difficulty of finding qualifed workers as their Single Most Important Business Problem was unchanged at 15 percent, number 3 on the list of problems behind taxes and regulations and red tape, the highest reading since 2007. This suggests that employers will face continued wage and benefit cost pressure in order to attract and keep good employees.

Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 1 point and at the highest level for this expansion. This is a solid reading historically and is suggestive of a reduction in the unemployment rate.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index decreased to 93.9 in January.

The responses on the labor market are encouraging and suggest further reductions in the unemployment rate and higher wages.

by Calculated Risk on 2/08/2016 05:54:00 PM

From the Boston Globe: Gasoline prices slide even lower in Mass.

Gasoline prices fell for the ninth consecutive week in Massachusetts, tumbling to an average of $1.77 a gallon on Monday, according to AAA Northeast.
...
It remains unclear whether prices have hit rock-bottom, as crude oil and gasoline inventories remain high. Last year around mid-February, prices climbed as oil refineries slowed their productions, said Mary Maguire, AAA Northeast’s director of public and legislative affairs.

Tuesday:
• At 9:00 AM ET, NFIB Small Business Optimism Index for January.

• At 10:00 AM, Job Openings and Labor Turnover Survey for December from the BLS. Jobs openings increased in November to 5.431 million from 5.349 million in October. The number of job openings (yellow) were up 11% year-over-year, and Quits were up 6% year-over-year.

by Calculated Risk on 2/08/2016 02:49:00 PM

Way back in 2006 I disagreed with some analysts on the outlook for the Inland Empire in California. I wrote:

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

And sure enough, the economies of housing dependent areas like the Inland Empire were devastated during the housing bust. The good news is the Inland Empire is now recovering.

Click on graph for larger image.

This graph shows the unemployment rate for the Inland Empire (using MSA: Riverside, San Bernardino, Ontario), and also the number of construction jobs as a percent of total employment.

The unemployment rate is falling, and is down to 5.9% (down from 15.0% in 2010). And construction employment is up from the lows (as a percent of total employment), but still fairly low.

Overall the outlook for the Inland Empire is much better today.

by Calculated Risk on 2/08/2016 11:59:00 AM

Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand).

In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.

Overall the decline in prices is probably due to more supply, and less demand from China.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through January 2016 (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are down about 17% from a year ago, and CME futures are down around 22% year-over-year.

by Calculated Risk on 2/08/2016 09:11:00 AM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Local Housing Market Starts 2016 With Steadily Rising Home Prices

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in January was 2,348, up from 2,239 in January of 2015. Compared to the same month one year ago, 4.7 percent more homes and 5.4 percent more condos and townhomes sold in January.
...
By the end of January, GLVAR reported 7,428 single-family homes listed without any sort of offer. That’s up 0.6 percent from one year ago. For condos and townhomes, the 2,216 properties listed without offers in January represented a 4.8 percent decrease from one year ago.

As it has for the past few years, GLVAR reported fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. In January, 7.0 percent of all local sales were short sales – which occur when lenders allow borrowers to sell a home for less than what they owe on the mortgage. That’s down from 9.7 percent of all sales one year ago. Another 7.9 percent of all January sales were bank-owned, down from 9.4 percent one year ago.
emphasis added

1) Overall sales were up 5% year-over-year.

2) The percent of cash sales decreased year-over-year from 36% in Jan 2015 to 31.1% in Jan 2016. This has been trending down.

3) Non-contingent inventory for single-family homes was up 0.6% year-over-year. This followed several months with a year-over-year decline.  The table below shows the year-over-year change for non-contingent inventory in Las Vegas.  Inventory is important to watch - if inventory starts increasing again, then price increases will slow.

Las Vegas: Year-over-year Change in Non-contingent Single-Family Inventory
Month	YoY
Jan-13	-58.3%
Feb-13	-53.4%
Mar-13	-42.1%
Apr-13	-24.1%
May-13	-13.2%
Jun-13	3.7%
Jul-13	9.0%
Aug-13	41.1%
Sep-13	60.5%
Oct-13	73.4%
Nov-13	77.4%
Dec-13	78.6%
Jan-14	96.2%
Feb-14	107.3%
Mar-14	127.9%
Apr-14	103.1%
May-14	100.6%
Jun-14	86.2%
Jul-14	55.2%
Aug-14	38.8%
Sep-14	29.5%
Oct-14	25.6%
Nov-14	20.0%
Dec-14	18.0%
Jan-15	12.9%
Feb-15	15.8%
Mar-15	12.2%
Apr-15	7.6%
May-15	7.8%
Jun-15	4.3%
Jul-15	5.1%
Aug-15	3.5%
Sep-15	-0.8%
Oct-15	-7.1%
Nov-15	-5.2%
Dec-15	-11.2%
Jan-16	0.6%