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Thursday, September 21, 2017

Earlier: Philly Fed Manufacturing Survey "Showed Improvement" in September

by Calculated Risk on 9/21/2017 03:00:00 PM

Earlier from the Philly Fed: September 2017 Manufacturing Business Outlook Survey

Manufacturing firms reported an improvement in regional manufacturing conditions in September. The survey’s current indicators for general activity, new orders, and shipments increased this month and suggest a broadening of growth. Price pressures also picked up, according to the reporting firms. The survey’s future indicators suggest that manufacturers have generally grown more optimistic over the past three months.
...
The indexes for general activity [increased to 23.8 from 18.9 in August], new orders, and shipments increased this month, and employment remained positive.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through September), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

This suggests the ISM manufacturing index will show solid expansion in September.

Fed's Flow of Funds: Household Net Worth increased in Q2

by Calculated Risk on 9/21/2017 01:10:00 PM

The Federal Reserve released the Q2 2017 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q2 2017 compared to Q1 2017:

The net worth of households and nonprofits rose to $96.2 trillion during the second quarter of 2017. The value of directly and indirectly held corporate equities increased $1.1 trillion and the value of real estate increased $0.6 trillion.
The Fed estimated that the value of household real estate increased to $23.8 trillion in Q2. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction.

Household Net Worth as Percent of GDP Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Household Percent EquityThis graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2017, household percent equity (of household real estate) was at 58.4% - up from Q2, and the highest since Q1 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 58.4% equity - and about 2.8 million homeowners still have negative equity.

Household Real Estate Assets Percent GDP The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $64 billion in Q2.

Mortgage debt has declined by $1.23 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q2, and  is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

Black Knight: Mortgage Delinquencies increase in Hurricane Affected Areas

by Calculated Risk on 9/21/2017 09:58:00 AM

From Black Knight: Black Knight’s First Look at August 2017 Mortgage Data: Hurricane Harvey Impact Already Being Felt in the Mortgage Market as Delinquencies Jump 16 Percent in Affected Areas

• Nationally, delinquencies remained relatively flat from July, while delinquencies in Hurricane Harvey- impacted areas rose by 16 percent month over month

• Despite most payments being due August 1, and the storm making landfall near the end of the month, its effect on mortgage delinquencies is already being felt

• Over 6,700 new 30-day delinquencies can be attributed to Harvey, while an additional 1,000 borrowers who were already 30-days past due missed an additional mortgage payment in August as a result of the storm

• Based on observations from previous hurricanes, the heaviest impact on mortgage delinquency rates will come in September
According to Black Knight's First Look report for August, the percent of loans delinquent increased 0.7% in August compared to July, and declined 7.3% year-over-year.

The percent of loans in the foreclosure process declined 3.3% in August and were down 27.2% 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 3.93% in August, up from 3.90% in July.

The percent of loans in the foreclosure process declined in August to 0.76%.

The number of delinquent properties, but not in foreclosure, is down 148,000 properties year-over-year, and the number of properties in the foreclosure process is down 142,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Aug
2017
July
2017
Aug
2016
Aug
2015
Delinquent3.93%3.90%4.24%4.87%
In Foreclosure0.76%0.78%1.04%1.48%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,003,0001,986,0002,151,0002,413,000
Number of properties in foreclosure pre-sale inventory:385,000398,000527,000748,000
Total Properties2,388,0002,384,0002,678,0003,161,000

CoreLogic: "2.8 million Homes still in negative equity" at end of Q2 2017

by Calculated Risk on 9/21/2017 08:46:00 AM

From CoreLogic: CoreLogic Reports 2.8 Million Residential Properties with a Mortgage Still in Negative Equity

CoreLogic® ... today released its Q2 2017 home equity analysis which shows U.S. homeowners with mortgages (roughly 63 percent of all homeowners) have seen their equity increase by a total of 10.6 percent year over year, representing a gain of $766 billion since Q2 2016.

Additionally, homeowners gained an average of $12,987 in equity between Q2 2016 and Q2 2017. Western states led the equity increase with Washington homeowners gaining an average of approximately $40,000 in home equity and California homeowners gaining an average of approximately $30,000 in home equity. Home price increases in these states drove the equity gains.

From Q1 2017 to Q2 2017, the total number of mortgaged residential properties with negative equity decreased 10 percent to 2.8 million homes, or 5.4 percent of all mortgaged properties. Year over year, negative equity decreased 21.9 percent from 3.6 million homes, or 7.1 percent of all mortgaged properties, from Q2 2016 to Q2 2017.

Over the last 12 months, approximately 750,000 borrowers achieved positive equity,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”
emphasis added
CoreLogic, LTVClick on graph for larger image.

This graph shows the distribution of home equity in Q2 2017 compared to Q1 2017.

For reference, about five years ago, in Q3 2012, almost 10% of residential properties had 25% or more negative equity.

A year ago, in Q2 2016, there were 3.6 million properties with negative equity - now there are 2.8 million.  A significant change.

Weekly Initial Unemployment Claims decrease to 259,000

by Calculated Risk on 9/21/2017 08:34:00 AM

The DOL reported:

In the week ending September 16, the advance figure for seasonally adjusted initial claims was 259,000, a decrease of 23,000 from the previous week's revised level. The previous week's level was revised down by 2,000 from 284,000 to 282,000. The 4-week moving average was 268,750, an increase of 6,000 from the previous week's revised average. This is the highest level for this average since June 4, 2016 when it was 269,500. The previous week's average was revised down by 500 from 263,250 to 262,750.

Hurricanes Harvey and Irma impacted this week's claims.
emphasis added
The previous week was revised down.

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 268,750.

This was below the consensus forecast.

The report includes the reference period (includes the 12th of the month) for the September employment report - and suggests there was some impact of the hurricanes on employment in September.

Wednesday, September 20, 2017

Thursday: Unemployment Claims, Flow of Funds

by Calculated Risk on 9/20/2017 08:32:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Highest in More Than a Month After Fed

Mortgage rates rose today following the announcement and--more importantly--the Fed's updated economic projections. ... Investors weren't sure how the past few months of economic data and events would affect the rate hike outlook.  As it turned out, the Fed is more optimistic than investors anticipated.  That means they're more willing stick with the previous rate hike outlook for 2017 and 2018, and those rate hike expectations have a direct bearing on today's interest rates.

Conventional 30yr fixed rates didn't spike in any brutal sort of way, but given that the past 2 weeks have already seen a somewhat abrupt increase in rates, today still managed to be unpleasant.  4.0% is now the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios.  It had shared the stage with 3.875% roughly equally until today.  That leaves today's rates at the highest levels in nearly 2 months.
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 303 thousand initial claims, up from 284 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for September. The consensus is for a reading of 18.0, down from 18.9.

• At 9:00 AM, FHFA House Price Index for June 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 12:00 PM, Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

FOMC Projections and Press Conference Link

by Calculated Risk on 9/20/2017 02:10:00 PM

Statement here. "In October, the Committee will initiate the balance sheet normalization program".

Yellen press conference video here.

On the projections, projections for GDP in 2017 were increased.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
2017201820192020
Sept 2017 2.2 to 2.52.0 to 2.3 1.7 to 2.11.6 to 2.0
June 2017 2.1 to 2.21.8 to 2.21.8 to 2.0---
Mar 20172.0 to 2.21.8 to 2.31.8 to 2.0---
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.4% in August, so unemployment rate projections were unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
2017201820192020
Sept 2017 4.2 to 4.34.0 to 4.23.9 to 4.44.0 to 4.5
June 2017 4.2 to 4.34.0 to 4.34.1 to 4.4---
Mar 2017 4.5 to 4.64.3 to 4.64.3 to 4.7---
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up 1.4% from July 2016. Inflation was revised down for 2017.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
2017201820192020
Sept 2017 1.5 to 1.61.8 to 2.02.0 2.0 to 2.1
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---
Mar 2017 1.8 to 2.01.9 to 2.02.0 to 2.1---

PCE core inflation was up 1.4% in July year-over-year.  Core PCE inflation was revised down for 2017.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
2017201820192020
Sept 2017 1.5 to 1.61.8 to 2.02.02.0 to 2.1
June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---
Mar 2017 1.8 to 1.91.9 to 2.02.0 to 2.1---

FOMC Statement: "In October, the Committee will initiate the balance sheet normalization program"

by Calculated Risk on 9/20/2017 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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 and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans. Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.
emphasis added

A Few Comments on August Existing Home Sales

by Calculated Risk on 9/20/2017 11:26:00 AM

Earlier: NAR: "Existing-Home Sales Subside 1.7 Percent in August"

First, as usual, housing economist Tom Lawler's estimate was much closer to the NAR report than the consensus. So the decline in sales in August was no surprise for CR readers.

Inventory is still very low and falling year-over-year (down 6.5% year-over-year in August). Inventory has declined year-over-year for 27 consecutive months.  I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely (but not impossible).

Inventory is a key metric to watch.  More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in August (535,000, red column) were below sales in  August 2016 (539,000, NSA).

Sales NSA are now in the seasonally strong period (March through September).

Note: Existing home sales will be weak in the hurricane damaged areas in September.

NAR: "Existing-Home Sales Subside 1.7 Percent in August "

by Calculated Risk on 9/20/2017 10:14:00 AM

From the NAR: Existing-Home Sales Subside 1.7 Percent in August

Existing-home sales stumbled in August for the fourth time in five months as strained supply levels continue to subdue overall activity, according to the National Association of Realtors®. Sales gains in the Northeast and Midwest were outpaced by declines in the South and West.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, retreated 1.7 percent to a seasonally adjusted annual rate of 5.35 million in August from 5.44 million in July. Last month's sales pace is 0.2 percent above last August, and is the lowest since then.
...
Total housing inventory at the end of August declined 2.1 percent to 1.88 million existing homes available for sale, and is now 6.5 percent lower than a year ago (2.01 million) and has fallen year-over-year for 27 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.5 months a year ago.
emphasis added
Existing Home SalesClick on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in August (5.35 million SAAR) were 1.7% lower than last month, and were 0.2% above the August 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.88 million in August from 1.92 million in July.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Year-over-year Inventory Inventory decreased 6.5% year-over-year in August compared to August 2016.  

Months of supply was at 4.2 months in August.

As expected, sales were below the consensus view. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...