by Calculated Risk on 7/31/2013 08:29:00 PM

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

From the National Restaurant Association: Despite June Decline, Restaurant Performance Index Remains Steadily Positive

As a result of positive sales and traffic and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in expansion territory in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.3 in June, down 0.5 percent from May’s level of 101.8. Despite the decline, June represented the fourth consecutive month that the RPI exceeded the 100 level, which signifies expansion in the index of key industry indicators.

“Although the overall RPI dipped somewhat in June, it remained in positive territory as restaurant operators continued to report gains in both sales and customer traffic,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Looking forward, restaurant operators remain generally optimistic about the business environment in the months ahead, with the Expectations Index holding steady at a 12-month high.”

Click on graph for larger image.

The index decreased to 101.3 in June from 101.8 in May. (above 100 indicates expansion).

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for an increase to 345 thousand from 343 thousand last week.

• All day: Light vehicle sales for July. The consensus is for light vehicle sales to decrease to 15.8 million SAAR in July (Seasonally Adjusted Annual Rate) from 15.9 million SAAR in June.

• At 9:00 AM, The Markit US PMI Manufacturing Index for July. The consensus is for the index to increase to 53.1 from 51.9 in June.

• At 10:00 AM, the ISM Manufacturing Index for July. The consensus is for an increase to 53.1 from 50.9 in June. Based on the regional surveys, an increase in July seems likely. The ISM manufacturing index indicated expansion in June at 50.9%. The employment index was at 48.7%, and the new orders index was at 51.9%.

• Also at 10:00 AM, Construction Spending for June. The consensus is for a 0.4% increase in construction spending.

Weekly Schedule

by Calculated Risk on 7/31/2013 04:11:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in June to 2.77% from 2.83% in May. The serious delinquency rate is down from 3.53% in June 2012, and this is the lowest level since December 2008.

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

Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.79% from 2.85% in May. Freddie's rate is down from 3.45% in June 2012, and is at the lowest level since May 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Click on graph for larger image

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

At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2016 or so.

by Calculated Risk on 7/31/2013 02:00:00 PM

Economic activity downgraded and more concern about inflation too low (update: added "too low).

FOMC Statement:

Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but 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 growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per 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. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. 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.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
emphasis added

by Calculated Risk on 7/31/2013 11:36:00 AM

Overall this was another weak GDP report although slightly above expectations.

It appears that the drag from state and local governments might be ending, although the drag from Federal government spending is ongoing.

Residential investment (RI) remains a bright spot (increasing at a 13.4% annualized rate), and RI as a percent of GDP is still very low - and I expect RI to continue to increase over the next few years.

For the FOMC meeting today, the data showed all indicators are still below the June projections (see bottom three graphs).

The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005.

Click on graph for larger image.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 11 quarters (through Q2 2013).

And the drag from state and local governments may be ending.  

At the least the drag has diminished, and based on recent news reports, I expect state and local governments to make small positive contributions to GDP going forward.  

Residential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.   Clearly RI has bottomed, but it still below the levels of previous recessions.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and the new category "intellectual property products".

I'll add details for investment in offices, malls and hotels next week.

The key story is that residential investment is continuing to increase, and I expect this to continue. Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2014 (with the usual caveats about Europe and policy errors in the US).

The following charts are relevant for the FOMC meeting today.  At the June FOMC press conference, Fed Chairman Ben Bernanke said:

"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program."

This graph is for GDP.

The current forecast is for GDP to increase between 2.3% and 2.6% from Q4 2012 to Q4 2013.

The first and second quarters were below the FOMC projections (red), and GDP will have to pickup in the 2nd half of 2013 for the Fed to start tapering QE3 purchases in December.

GDP would have to increase at a 3.2% annual rate in the 2nd half to reach the FOMC lower projection, and at a 3.8% rate to reach the higher projection.


This graph is for PCE prices.

The current forecast is for prices to increase 0.8% to 1.2% from Q4 2012 to Q4 2013.

So far PCE prices are below this projection - and this projection is significantly below the FOMC target of 2%. Clearly the FOMC expects inflation to pickup, and a key is if the recent decline in inflation is "transitory".

PCE prices would have to increase at a 1.8% annual rate in the 2nd half to reach the upper FOMC projection.

This graph is for core PCE prices.

The current forecast is for core prices to increase 1.2% to 1.3% from Q4 2012 to Q4 2013.

So far core PCE prices are below this projection - and, once again, this projection is significantly below the FOMC target of 2%.

by Calculated Risk on 7/31/2013 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.7 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent (revised).

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the second quarter primarily reflected upturns in nonresidential fixed investment and in exports, a smaller decrease in federal government spending, and an upturn in state and local government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.

Personal consumption expenditures (PCE) increased at a 1.8% annualized rate, and residential investment increased 13.4%.  Equipment increased 4.1%, Intellectual property products 3.8%, and non-residential investment 4.6%.

"Change in private inventories" added 0.41 percentage points to GDP in Q2, and the Federal government subtracted 0.12 percentage points (mostly a decrease in non-defense spending).  State and local governments turned slightly positive.

This was above expectations of a 1.1% growth rate. I'll have much more on GDP later including all the revisions ...

by Calculated Risk on 7/31/2013 08:19:00 AM

From ADP:

Private-sector employment increased by 200,000 jobs from June to July, according to the June ADP National Employment Report®. ... June’s job gain was revised upward from 188,000 to 198,000.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "Job growth remains remarkably stable. Businesses are adding to payrolls in most industries and across all company sizes. The job market has admirably weathered the fiscal headwinds, tax increases and government spending cuts. This bodes well for the next year when those headwinds are set to fade.”

This was above the consensus forecast for 179,000 private sector jobs added in the ADP report. Note:  The BLS reports on Friday, and the consensus is for an increase of 175,000 payroll jobs in July, on a seasonally adjusted (SA) basis.

Note: ADP hasn't been very useful in predicting the BLS report.

by Calculated Risk on 7/31/2013 07:01:00 AM

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

Mortgage applications decreased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 26, 2013. ...

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier.
...
“Mortgage rates were little changed last week, but remain roughly one percentage point higher than they were three months ago,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Refinance application volume continues to decline, with the refinance index now more than 55 percent lower than its recent peak, reaching the lowest level in over two years. Applications for home purchases dropped for the fourth time in five weeks, but purchase volume is running about 5 percent higher than last year at this time.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) was unchanged at 4.58 percent, with points decreasing to 0.38 from 0.40 (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.

With 30 year mortgage rates up over the last 3 months, refinance activity has fallen sharply, decreasing in 11 of the last 12 weeks.

This index is down 57% over the last twelve weeks.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year (but down over the last several weeks), and the 4-week average of the purchase index is up about 5% from a year ago.

by Calculated Risk on 7/30/2013 09:06:00 PM

Here are two excellent articles. Really long term readers (back in 2005 and 2006) will remember my posts about contacting regulators about housing, and discussions of the Non-traditional Mortgage Guidance (when it was finally released). The first article mentions Janet Yellen's reaction to the guidance.  Yellen had the same reaction as Tanta to the guidance (my former co-blogger). The second article discusses when Yellen was more hawkish than Greenspan in the '90s.

From Cardiff Garica at FT Alphaville: Already-strong case for Yellen strengthens further, and a word about the inanity of “market” preferences

Alan Blinder:

Fast forward to her days leading the San Francisco Fed, where she warned, as early as 2005, that the titanic real-estate market was heading for an iceberg. Ms. Yellen was frustrated that the Fed’s Board of Governors would not even issue regulatory guidance to curb disgraceful lending practices like piggyback loans that exceeded 100% of the house’s value, or loans with little or no documentation. When the board finally did so, she was dismayed at how weak the guidance was. She later told the Financial Crisis Inquiry Committee: “You could take it out and rip it up and throw it in the garbage can.” The guidance, she added, “wasn’t of any use” to the San Francisco Fed.

And from Neil Irwin at the WaPo: Why we shouldn’t think of central bankers as hawks and doves

For example, Janet Yellen, the current Fed vice-chair, is viewed in markets as an uber-dove because she has been a strong advocate of the Fed’s unconventional monetary easing to try to help the job market. But it wasn’t always so. Larry Meyer served as a Fed governor with Yellen in the 1990s. In 1996, the two of them had concluded that the Fed needed to raise interest rates to fight the threat of inflation. They went to Alan Greenspan and told him of their concerns, threatening to dissent at a future meeting unless there was a rate increase. They lost the argument, but it is a sign that while Yellen may be a dove right now, the same would not be true in all states of the world.

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 July. This report is for private payrolls only (no government). The consensus is for 179,000 payroll jobs added in July, down from 188,000 in June.

• At 8:30 AM, the BEA will release the advance estimate of Q2 GDP. The consensus is that real GDP increased 1.1% annualized in Q2. This report will includes a Comprehensive Revision from 1929 through 1st quarter 2013.

• At 9:45 AM, the Chicago Purchasing Managers Index (PMI) for July. The consensus is for an increase to 54.0, up from 51.6 in June.

• Ar 2:00 PM, the FOMC Meeting Announcement will be released. No change to interest rates or QE purchases is expected at this meeting.

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 12.2% year-over-year in May
• Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities

by Calculated Risk on 7/30/2013 06:06:00 PM

The Case-Shiller house price indexes for May were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Zillow makes a strong argument that the Case-Shiller index is currently overstating national house price appreciation.

Zillow Predicts Another 12% Annual Increase in Case-Shiller Indices for June

The Case-Shiller data for May came out this morning and, based on this information and the June 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (June 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 12.1 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 12 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be 1.1 percent for the 20-City Composite and 1.2 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, Aug. 27.
...
The Case-Shiller indices are giving an inflated sense of national home value appreciation because they are biased toward the large, coastal metros currently seeing such enormous home value gains, and because they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. We are seeing this issue especially in regions where home graphvalues fell drastically, producing a large number of foreclosures, which are now selling as normal sales after REOs (foreclosure resales) amidst extremely high home value appreciation. These areas include parts of California, Phoenix and Las Vegas. In contrast, the ZHVI does not include foreclosure resales and shows home values for June 2013 up 5.8 percent from year-ago levels. We expect home value appreciation to continue to moderate a bit in 2013, rising 5 percent between June 2013 and June 2014. Further details on our forecast of home values can be found here, and more on Zillow’s full June 2013 report can be found here.
...
To forecast the Case-Shiller indices, we use the May Case-Shiller index level, as well as the June Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with June foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

The following table shows the Zillow forecast for the June Case-Shiller index.

Zillow June Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	June 2012	154.94	154.07	142.37	141.37
Case-Shiller (last month)	May 2013	169.69	170.62	156.14	157.01
Zillow Forecast	YoY	12.0%	12.0%	12.1%	12.1%
	MoM	2.2%	1.2%	2.3%	1.1%
Zillow Forecasts1		173.5	172.6	159.7	158.6
Current Post Bubble Low		146.46	149.61	134.07	136.85
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		18.4%	15.4%	19.1%	15.9%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 7/30/2013 03:40:00 PM

Some interesting comments on inventory in an article by Nick Timiraos at the WSJ: Home Prices Jump, but Headwinds Build

For now, inventories remain extremely tight in a majority of the nation's major housing markets. The Wall Street Journal's survey of quarterly housing-market conditions in 28 metro areas found that Phoenix, Seattle, Denver, and Sacramento, Calif., had less than a 2.5-month supply of homes for sale at the current sales pace. Dallas, Los Angeles, San Diego, Washington, D.C., and Orlando, Fla., had less than three months of supply, according to data compiled by John Burns Real Estate Consulting in Irvine, Calif.
...
There are signs inventory declines will ease as price gains increase. In Sacramento, Calif., the number of homes for sale in June stood 7.5% above the level of a year ago, while inventories in Atlanta rose 9.7%. ...

In Orange County, Calif., inventories have increased 68% since March, standing roughly unchanged from year-ago levels at the end of June and reversing what had been a large year-over-year drop. Steven Thomas, a local housing analyst, says buyers are growing frustrated because sellers are getting greedy. "There is a drought of properly priced homes," he wrote in a recent report. Reports of rising home prices "have enticed a herd of homeowners to come on the market who all have thrown discretion out the door."

Angela Creech, a real-estate agent with Redfin in Irvine, Calif., says she's refused more listings in the past month because sellers are asking for too much money. "There are more really unrealistic sellers," she said.

I think we've seen the bottom for inventories in many areas, but many of the new listings are overpriced (no offer in the first 30 to 60 days suggests the property is overpriced).

by Calculated Risk on 7/30/2013 12:45:00 PM

The Census Bureau released the Housing Vacancies and Homeownership report for Q2 2013 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate was unchanged at 65.0% in Q2.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy rate decreased to 1.9% in Q2 from 2.1% in Q1. 

It isn't really clear what this means. Are these homes becoming rentals?

Once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

The rental vacancy rate declined in Q2 to 8.2%, from 8.6% in Q1.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate is at the lowest level since 2001.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that most of the bubble excess is behind us.

Earlier on House Prices:
• Case-Shiller: Comp 20 House Prices increased 12.2% year-over-year in May
• Comment on House Prices: Real Prices, Price-to-Rent Ratio, Cities

by Calculated Risk on 7/30/2013 10:59:00 AM

First a comment from Zillow Economist Dr. Svenja Gudell:

“Three straight months of national home value appreciation above 10 percent is not normal, not sustainable and, frankly, not very believable. As the overall housing market continues to improve, the impact of foreclosure re-sales on the Case-Shiller indices continues to be pronounced, as homes previously sold under duress trade again under more normal circumstances, leading to inflated and misleading markups in price,” said Zillow Senior Economist Svenja Gudell. “It’s increasingly critical that the average American homeowner not read numbers like today’s Case-Shiller results and assume their homes must also have appreciated at these levels over the past year, or will continue to appreciate at these levels going forward. In reality, typical home values have appreciated at roughly half this pace for the past several months, which is still very robust. Looking ahead, a combination of rising mortgage interest rates, flagging investor demand and more inventory entering the market will all help to moderate the pace of home value appreciation and stabilize the market.”
emphasis added

I agree with Gudell on these two key points: 1) I also think right now the Case-Shiller index is overstating price increases for most homeowners (both because of the handling of distressed sales and weighting of some coastal areas), and 2) I also think price appreciation will slow going forward.

I also think it is 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 $275,000 today adjusted for inflation. 

Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 12.2% year-over-year in May

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through May) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q3 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to March 2004 levels, and the CoreLogic index (NSA) is back to May 2004.

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 Q2 2000 levels, the Composite 20 index is back to October 2001, and the CoreLogic index back to February 2002.

In real terms, house prices are back to early '00s levels.

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 Q2 2000 levels, the Composite 20 index is back to April 2002 levels, and the CoreLogic index is back to June 2002.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


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 35% above January 2000.  Two cities - Denver and Dallas - are at new highs (no other Case-Shiller Comp 20 city is close).  Detroit prices are still below the January 2000 level.

by Calculated Risk on 7/30/2013 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for May ("May" is a 3 month average of March, April and May prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Prices Continue to Increase in May 2013 According to the S&P/Case-Shiller Home Price Indices

Data through May 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed increases of 2.5% and 2.4% for the 10- and 20-City Composites in May versus April. Dallas and Denver reached record levels surpassing their pre-financial crisis peaks set in June 2007 and August 2006. ...

The 10- and 20-City Composites annual returns rose slightly from April to May as they posted the best year-over-year gains since March 2006. All 20 cities increased from May 2012 to May 2013 and from April 2013 to May 2013. ...

“Home prices continue to strengthen,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Two cities set new highs, surpassing their pre-crisis levels and five cities – Atlanta, Chicago, San Diego, San Francisco and Seattle – posted monthly gains of over three percent, also a first time event. ... “The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts.”

All 20 cities showed positive monthly returns for May. Ten cities – Chicago, Denver, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa – showed acceleration. Chicago posted an impressive monthly rate of 3.7% in May; it was higher than in April by one percentage point. Miami and Seattle had their largest monthly gains since August 2005 and April 1990, respectively.

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 24.8% from the peak, and up 1.1% in May (SA). The Composite 10 is up 14.0% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 24.0% from the peak, and up 1.0% (SA) in May. The Composite 20 is up 14.7% from the post-bubble low set in Jan 2012 (SA).

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

The Composite 10 SA is up 11.8% compared to May 2012.

The Composite 20 SA is up 12.2% compared to May 2012. This was the twelfth consecutive month with a year-over-year gain and this was the largest year-over-year gain for the Composite 20 index since 2006. 

Prices increased (SA) in 18 of the 20 Case-Shiller cities in May seasonally adjusted. Prices in Las Vegas are off 51.4% from the peak, and prices in Denver and Dallas are at new highs.

This was close to the consensus forecast for a 12.3% YoY increase. I'll have more on prices later.

by Calculated Risk on 7/29/2013 09:48:00 PM

Some horrible reporting on the next Fed Chair decision, first from he usually excellent Binyamin Appelbaum and Annie Lowrey at the NY Times who wrote:

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said this year that if the president chose Ms. Yellen, the decision would be “driven by gender.”

What Fisher actually said (NY Times correction):

“It’s a presidential decision, and we’ll see if it is driven by gender or other considerations and so on. Janet is extremely capable. There are other capable people.”

And from the WSJ:

Nancy Pelosi has bellowed her support [for Yellen]

What Pelosi actually said:

I want to see whomever the President appoints.  Let me say that I think it would be great to have a woman, first woman chairman of the Fed. No question about it. Yellen would be, is extremely talented, it is not just that she is a woman. Larry Summers has been a patriotic leader in our country, working hard. ... Either one would make an excellent Chairman I'm sure.

Pretty poor reporting ...

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May. The consensus is for a 12.3% year-over-year increase in the Composite 20 index (NSA) for May. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.3% month-to-month seasonally adjusted.

• At 10:00 AM, the Conference Board's consumer confidence index for July. The consensus is for the index to decrease to 81.0 from 81.4.

• Also at 10:00 AM, the Q2 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

by Calculated Risk on 7/29/2013 04:50:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly in 2013. 

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for June).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory increased more than the normal seasonal pattern, and finished the year up 7%. However in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

So far in 2013, inventory is up 17.6%, and I expect some further increases over the next month or two.

It now seems likely that inventory bottomed early this year. 

It is important to remember that inventory is still very low, and is down 11% from the same week last year according to Housing Tracker.  Once inventory starts to increase (more than seasonal), I expect price increases to slow.

by Calculated Risk on 7/29/2013 02:41:00 PM

Jon Hilsenrath and Kristina Peterson write about a "WSJ analysis of more than 700 economic predictions between 2009 and 2012 by Fed policymakers shows ... Janet Yellen ... the most prescient": Federal Reserve 'Doves' Beat 'Hawks' in Economic Prognosticating

As the U.S. emerged from recession in the summer of 2009, Janet Yellen, then president of the Federal Reserve Bank of San Francisco, took a grim view of the economy's prospects.

"I expect the pace of the recovery will be frustratingly slow," she said in a San Francisco speech. A month later, addressing fears that money flooding into the economy from the Federal Reserve would stoke inflation, Ms. Yellen said not to worry in a speech to Idaho bankers: High unemployment and the weak economy would tamp wages and prices.

Others at the Fed spoke forcefully in the other direction. Unless the central bank reversed the easy money course, Philadelphia Fed President Charles Plosser warned in December 2009, "the inflation rate is likely to rise to levels that most would consider unacceptable."

Ms. Yellen was proved right.

A few comments:

1) The title of the article is about 'Doves' beating 'Hawks'. A good Fed Chair would be hawkish (raise rates) or dovish (lower rates) at the correct times. Over the period in question, 'dove' was synonymous with 'correct'. But no one should think Yellen is a perma-dove. As Professor Hamilton noted this weekend (He knows Yellen), she will certainly change her mind as circumstances change.

2)  It is important to remember that Yellen was ahead of most other Fed presidents in the period between 2005 and 2008 (before this WSJ analysis).  In 2005 Yellen was expressing concerns about housing, "analyses do indicate that house prices are abnormally high—that there is a "bubble" element, even accounting for factors that would support high house prices", and 'ghost towns' of the West in 2006. In 2007 she gave a speech correctly identifying some of the spillover effects from subprime.

3) This doesn't mean Yellen has a "crystal ball".  She doesn't.  Instead this means she has a strong understanding of macroeconomics and paid close attention to the data. A key for any successful manager is to be able to use a wide-angle lens (see the big picture) and also to be able to zoom in on the details (data driven) when necessary. Yellen's track record suggests to me that she excels at both.

by Calculated Risk on 7/29/2013 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Increases but at a Slower Pace

Texas factory activity continued to expand in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 17.1 to 11.4, suggesting output growth continued but at a slower pace than in June. ...

The new orders index was positive for the third month in a row, although it edged down from 13 to 10.8. ...Perceptions of broader business conditions improved again in July. The general business activity index posted a second consecutive positive reading, although it edged down from 6.5 to 4.4.

Labor market indicators reflected a pickup in labor demand. The employment index rose to 9.3, its highest reading in nearly a year. ...

Expectations regarding future business conditions remained optimistic in July. The indexes of future general business activity and future company outlook fell five points but remained in strongly positive territory. Indexes for future manufacturing activity also remained solidly positive.
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

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

All of the regional surveys - except Richmond - showed expansion in July.  The ISM index for July will be released Thursday August 1st, and the consensus is for an increase to 53.1 from 50.9 in June (above is expansion). 

by Calculated Risk on 7/29/2013 10:04:00 AM

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged down 0.4 percent to 110.9 in June from a downwardly revised 111.3 in May, but is 10.9 percent higher than June 2012 when it was 100.0; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 26 months, and the pace in May was the highest since December 2006 when it reached 112.8.
...
The PHSI in the Northeast was unchanged at 87.2 in June but is 12.2 percent higher than a year ago. In the Midwest the index slipped 1.0 percent to 114.3 in June but is 19.5 percent above June 2012. Pending home sales in the South fell 2.1 percent to an index of 118.3 in June but are 9.5 percent higher than a year ago. The index in the West rose 3.3 percent in June to 114.2, and is 4.4 percent above June 2012.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

With limited inventory at the low end and fewer foreclosures, we might see flat existing home sales going forward.

by Calculated Risk on 7/29/2013 09:27:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses April closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: LPS Home Price Index Report: May Transactions Show U.S. Home Prices Up 1.3 Percent for the Month; Up 7.9 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on May 2013 residential real estate transactions. Beginning with this month's release, the LPS HPI has significantly expanded its property data tracking and now covers approximately 25 percent more U.S. counties - nearly 1,900 in total - and more than 18,500 ZIP codes. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of the ZIP codes covered. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The LPS HPI is off 16.3% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 47.9% from the peak in Las Vegas, 39.0% off from the peak in Riverside-San Bernardino, CA (Inland Empire), and at a new peak in Austin, Dallas, Denver and Houston!

Note: Case-Shiller for May will be released tomorrow.

by Calculated Risk on 7/28/2013 09:13:00 PM

Monday:
• 10:00 AM ET, the NAR will release the Pending Home Sales Index for June. The consensus is for a 1.4% decrease in the index.

• At 10:30 AM, Dallas Fed Manufacturing Survey for July. This is the last of the regional manufacturing surveys for July. The consensus is a reading of 6.4, mostly unchanged from the reading of 6.5 in June (above zero is expansion).

Weekend:
• Schedule for Week of July 28th

• FOMC Preview: Economic Slowdown

More support for Dr. Janet Yellen from Professor Hamilton at Econbrowser: The case for Janet Yellen as Federal Reserve chair

I have known Governor Yellen for many years, from the days when she was a professor at Berkeley to her distinguished service within the Federal Reserve. I have had an opportunity to interact with her in a variety of settings.

Yellen is brilliant ... Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation. ...

If you examine her speeches and public statements, you will find that she has been one of the most accurate economic forecasters within the Federal Reserve, or for that matter compared with any private-sector economic analysts.

The Nikkei is down about 1.8%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 3 (fair value).

Oil prices have declined slightly with WTI futures at $104.71 per barrel and Brent at $107.35 per barrel. The spread between WTI and Brent is back (but still small).

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are starting to decline again.  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Quick charts:   1 Month | 3 Month | 6 Month | 9 Month | 1 Year | 18 month | 2 Years | 3 Years | 4 Years | 5 Years | 6 Years Customize price charts Area 1:USA AverageCanada AverageAkron, OHAlabama, ALAlaska, AKAlbany, NYAlberta, ABAlbuquerque, NMAllentown, PAAnchorage, AKArizona, AZArkansas, ARAtlanta, GAAustin, TXBakersfield, CABaltimore, MDBritish Columbia, BCBirmingham, ALBoise, IDBoston, MABridgeport, CTBuffalo, NYCalgary, ABCalifornia, CACharleston, WVCharlotte, NCChicago, ILCincinnati, OHCleveland, OHColorado, COColorado Springs, COColumbia, SCColumbus, OHConnecticut, CTCorpus Christi, TXDallas, TXDayton, OHDelaware, DEDenver, CODes Moines, IADetroit, MIDurham, NCEdmonton, ABEl Paso, TXFlorida, FLFort Worth, TXFresno, CAGary, INGeorgia, GAGrand Rapids, MIGreensboro, NCHalifax, NSHamilton, ONHartford, CTHawaii, HIHonolulu, HIHouston, TXIdaho, IDIllinois, ILIndiana, INIndianapolis, INIowa, IAJackson, MSJacksonville, FLKansas, KSKansas City, MOKentucky, KYKnoxville, TNLansing, MILexington, KYLincoln, NELittle Rock, ARLondon, ONLong Island, NYLos Angeles, CALouisiana, LALouisville, KYMadison, WIMaine, MEManitoba, MBMaryland, MDMassachusetts, MAMemphis, TNMiami, FLMichigan, MIMilwaukee, WIMinnesota, MNMississippi, MSMissouri, MOMobile, ALModesto, CAMontana, MTMontgomery, ALMontreal, QCNashville, TNNebraska, NENevada, NVNew Brunswick, NBNewfoundland, NFNew Hampshire, NHNew Haven, CTNew Jersey, NJNew Mexico, NMNew Orleans, LANew York, NYNew York, NYNorth Carolina, NCNorth Dakota, NDNova Scotia, NSOakland, CAOhio, OHOklahoma, OKOklahoma City, OKOmaha, NEOntario, ONOrange County, CAOregon, OROrlando, FLPEI, PEPennsylvania, PAPhiladelphia, PAPhoenix, AZPittsburgh, PAPortland, ORProvidence, RIQuad Cities, IAQuebec, QCQuebec City, QCRaleigh, NCRegina, SKRhode Island, RIRichmond, VARiverside, CARochester, NYSalt Lake City, UTSan Antonio, TXSan Bernardino, CASan Diego, CASan Francisco, CASan Jose, CA Saskatchewan, SKSaskatoon, SKScranton, PASeattle, WAShreveport, LASouth Carolina, SCSouth Dakota, SDSpokane, WASpringfield, MASt. Louis, MOStockton, CASyracuse, NYTacoma, WATallahassee, FLTampa, FLTennessee, TNTexas, TXToledo, OHToronto, ONTrenton, NJTucson, AZTulsa, OKTwin Cities, MNUtah, UTVancouver, BCLas Vegas, NVVentura, CAVermont, VTVictoria, BCVirginia, VAVirginia Beach, VAWashington, WAWashington DC, DCWaterbury, CTWest Virginia, WVWichita, KSWilmington, DEWinnipeg, MBWisconsin, WIWorcester, MAWyoming, WY Time Period:1 Month3 Month6 Month9 Month1 Year18 Month2 Year3 Year4 Year5 Year6 Year US $/G Area 2:USA AverageCanada AverageAkron, OHAlabama, ALAlaska, AKAlbany, NYAlberta, ABAlbuquerque, NMAllentown, PAAnchorage, AKArizona, AZArkansas, ARAtlanta, GAAustin, TXBakersfield, CABaltimore, MDBritish Columbia, BCBirmingham, ALBoise, IDBoston, MABridgeport, CTBuffalo, NYCalgary, ABCalifornia, CACharleston, WVCharlotte, NCChicago, ILCincinnati, OHCleveland, OHColorado, COColorado Springs, COColumbia, SCColumbus, OHConnecticut, CTCorpus Christi, TXDallas, TXDayton, OHDelaware, DEDenver, CODes Moines, IADetroit, MIDurham, NCEdmonton, ABEl Paso, TXFlorida, FLFort Worth, TXFresno, CAGary, INGeorgia, GAGrand Rapids, MIGreensboro, NCHalifax, NSHamilton, ONHartford, CTHawaii, HIHonolulu, HIHouston, TXIdaho, IDIllinois, ILIndiana, INIndianapolis, INIowa, IAJackson, MSJacksonville, FLKansas, KSKansas City, MOKentucky, KYKnoxville, TNLansing, MILexington, KYLincoln, NELittle Rock, ARLondon, ONLong Island, NYLos Angeles, CALouisiana, LALouisville, KYMadison, WIMaine, MEManitoba, MBMaryland, MDMassachusetts, MAMemphis, TNMiami, FLMichigan, MIMilwaukee, WIMinnesota, MNMississippi, MSMissouri, MOMobile, ALModesto, CAMontana, MTMontgomery, ALMontreal, QCNashville, TNNebraska, NENevada, NVNew Brunswick, NBNewfoundland, NFNew Hampshire, NHNew Haven, CTNew Jersey, NJNew Mexico, NMNew Orleans, LANew York, NYNew York, NYNorth Carolina, NCNorth Dakota, NDNova Scotia, NSOakland, CAOhio, OHOklahoma, OKOklahoma City, OKOmaha, NEOntario, ONOrange County, CAOregon, OROrlando, FLPEI, PEPennsylvania, PAPhiladelphia, PAPhoenix, AZPittsburgh, PAPortland, ORProvidence, RIQuad Cities, IAQuebec, QCQuebec City, QCRaleigh, NCRegina, SKRhode Island, RIRichmond, VARiverside, CARochester, NYSalt Lake City, UTSan Antonio, TXSan Bernardino, CASan Diego, CASan Francisco, CASan Jose, CA Saskatchewan, SKSaskatoon, SKScranton, PASeattle, WAShreveport, LASouth Carolina, SCSouth Dakota, SDSpokane, WASpringfield, MASt. Louis, MOStockton, CASyracuse, NYTacoma, WATallahassee, FLTampa, FLTennessee, TNTexas, TXToledo, OHToronto, ONTrenton, NJTucson, AZTulsa, OKTwin Cities, MNUtah, UTVancouver, BCLas Vegas, NVVentura, CAVermont, VTVictoria, BCVirginia, VAVirginia Beach, VAWashington, WAWashington DC, DCWaterbury, CTWest Virginia, WVWichita, KSWilmington, DEWinnipeg, MBWisconsin, WIWorcester, MAWyoming, WY Show Crude Oil Price Canadian c/L Area 3:USA AverageCanada AverageAkron, OHAlabama, ALAlaska, AKAlbany, NYAlberta, ABAlbuquerque, NMAllentown, PAAnchorage, AKArizona, AZArkansas, ARAtlanta, GAAustin, TXBakersfield, CABaltimore, MDBritish Columbia, BCBirmingham, ALBoise, IDBoston, MABridgeport, CTBuffalo, NYCalgary, ABCalifornia, CACharleston, WVCharlotte, NCChicago, ILCincinnati, OHCleveland, OHColorado, COColorado Springs, COColumbia, SCColumbus, OHConnecticut, CTCorpus Christi, TXDallas, TXDayton, OHDelaware, DEDenver, CODes Moines, IADetroit, MIDurham, NCEdmonton, ABEl Paso, TXFlorida, FLFort Worth, TXFresno, CAGary, INGeorgia, GAGrand Rapids, MIGreensboro, NCHalifax, NSHamilton, ONHartford, CTHawaii, HIHonolulu, HIHouston, TXIdaho, IDIllinois, ILIndiana, INIndianapolis, INIowa, IAJackson, MSJacksonville, FLKansas, KSKansas City, MOKentucky, KYKnoxville, TNLansing, MILexington, KYLincoln, NELittle Rock, ARLondon, ONLong Island, NYLos Angeles, CALouisiana, LALouisville, KYMadison, WIMaine, MEManitoba, MBMaryland, MDMassachusetts, MAMemphis, TNMiami, FLMichigan, MIMilwaukee, WIMinnesota, MNMississippi, MSMissouri, MOMobile, ALModesto, CAMontana, MTMontgomery, ALMontreal, QCNashville, TNNebraska, NENevada, NVNew Brunswick, NBNewfoundland, NFNew Hampshire, NHNew Haven, CTNew Jersey, NJNew Mexico, NMNew Orleans, LANew York, NYNew York, NYNorth Carolina, NCNorth Dakota, NDNova Scotia, NSOakland, CAOhio, OHOklahoma, OKOklahoma City, OKOmaha, NEOntario, ONOrange County, CAOregon, OROrlando, FLPEI, PEPennsylvania, PAPhiladelphia, PAPhoenix, AZPittsburgh, PAPortland, ORProvidence, RIQuad Cities, IAQuebec, QCQuebec City, QCRaleigh, NCRegina, SKRhode Island, RIRichmond, VARiverside, CARochester, NYSalt Lake City, UTSan Antonio, TXSan Bernardino, CASan Diego, CASan Francisco, CASan Jose, CA Saskatchewan, SKSaskatoon, SKScranton, PASeattle, WAShreveport, LASouth Carolina, SCSouth Dakota, SDSpokane, WASpringfield, MASt. Louis, MOStockton, CASyracuse, NYTacoma, WATallahassee, FLTampa, FLTennessee, TNTexas, TXToledo, OHToronto, ONTrenton, NJTucson, AZTulsa, OKTwin Cities, MNUtah, UTVancouver, BCLas Vegas, NVVentura, CAVermont, VTVictoria, BCVirginia, VAVirginia Beach, VAWashington, WAWashington DC, DCWaterbury, CTWest Virginia, WVWichita, KSWilmington, DEWinnipeg, MBWisconsin, WIWorcester, MAWyoming, WY

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 7/28/2013 05:12:00 PM

Treasury Secretary Jack Lew was on Meet the Press today (recorded Friday). Lew said:

"The fight over the debt limit in 2011 hurt the economy, even though, in the end, we saw an extension of the debt limit. We saw confidence fall, and it hurt the economy. Congress needs to do its job. It needs to finish its work on appropriation bills. It needs to pass a debt limit."

Click on graph for larger image.

Here is a graph of consumer sentiment.  Notice the huge spike down in 2011 - that was due when Congress threatened to "not pay the bills". 

As Jack Lew notes, there is no reason to do this again. 

The following excerpts are from a post I wrote the last time Congress threatened to not pay the bills: Default Ceiling: Bluffing into the Nuts. 

I wrote several posts about the "debt ceiling" debate in 2011.  The debate clearly scared many Americans and impacted the economy.  Hopefully this time the "debt ceiling" will be raised well in advance of the deadline.

I prefer "default ceiling" because "debt ceiling" sounds like some sort of virtuous limit, when, in reality, the vote is about whether or not to the pay the bills - and voting for default is reckless and irresponsible.

Note: Several financial articles recently have used poker terms - and the title of this post is my contribution to this sad trend.  "The Nuts" is the best possible poker hand in a given situation. Bluffing into the nuts is a losing play - and that is what the Congress is trying to do with the "debt ceiling".  The sooner they fold, the better for the economy and the Congress.

From the WaPo: GOP dissension over debt-ceiling strategy

House Speaker John A. Boehner (R-Ohio) likewise insisted that Republicans hold the line, telling his members they must demand that every dollar they raise the debt limit be paired with commensurate spending cuts.

But other Republicans counseled caution, warning that pressure from the business community and the public to raise the $16.4 trillion federal borrowing limit renders untenable any threats not to do so and will weaken the GOP’s hand if their stance is perceived to be a bluff.

It is a bluff. As Republican Senator Mitch McConnell noted in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

The bottom line is Congress is being silly (again), and they will raise the debt ceiling.  It is just a matter of when. Note: There is a reason Congress never threatens to default right before an election, they hope everyone will forget!

by Calculated Risk on 7/28/2013 10:19:00 AM

The Federal Open Market Committee (FOMC) is meeting on Tuesday and Wednesday, with the FOMC statement expected to be released at 2:00 PM ET on Wednesday.

Expectations are the FOMC will take no action at this meeting (the FOMC will probably not adjust the size of their purchases of agency mortgage-backed securities and Treasury securities).

Jon Hilsenrath at the WSJ wrote on Thursday: Up for Debate at Fed: A Sharper Easy-Money Message

The Federal Reserve is on track to keep its $85 billion-a-month bond-buying program in place at its policy meeting next week, but officials will debate changes to the way the central bank describes its plans for the program and for short-term interest rates.

At their July 30-31 meeting, Fed officials are likely to discuss whether to refine or revise "forward guidance," the words they use to describe their intentions for the next few years.

Any discussion on forward guidance will probably show up in the FOMC minutes, and not in the statement. It is possible that they could lower the unemployment rate threshold, although my guess is the guidance in the statement will remain as follows (Statement from June 19):

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

A key question for the meeting this week is how the FOMC will recognize the weaker incoming data.  Q2 GDP will be released Wednesday morning before the FOMC statement is released, and expectations are for a weak reading (consensus is for 1.1% annualized growth rate in Q2).  For growth, there will probably be some change to the first sentence in the June statement:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.

Perhaps something like the following, maybe without the "considerably" (from the August 2011 statement):

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected.

A key will be to watch the comments on inflation. At the last meeting, James Bullard dissented because he "believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings".  From the June meeting:

Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Since then, it appears inflation has fallen even more.  The recent decline in inflation is probably a growing concern for some FOMC participants.

As a reminder, here are the quarterly projections from the June meeting. If Q2 is close to consensus, GDP would have to be in the 3.3% to 3.9% range in the 2nd half to reach the FOMC projections (a sharp pickup in activity):

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015
June 2013 Meeting Projections	2.3 to 2.6	3.0 to 3.5	2.9 to 3.6

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 7.6% in June, and the outlook for Q4 unemployment probably hasn't changed much (the July unemployment rate will be released on Friday).

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015
June 2013 Meeting Projections	7.2 to 7.3	6.5 to 6.8	5.8 to 6.2

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

For inflation, PCE inflation was up 1.0% year-over-year in May, and only increased at a 0.4% annualized rate during the first five months of 2013.  This is below the FOMC projected range.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015
June 2013 Meeting Projections	0.8 to 1.2	1.4 to 2.0	1.6 to 2.0

For core inflation, core PCE inflation was up 1.1% year-over-year in May, and only increased at a 1.1% annualized rate during the first five months of 2013.  To reach the FOMC projections, inflation will have to pickup in the 2nd half of 2013.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015
June 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.8	1.7 to 2.0

So a key for this statement is how the FOMC addresses the weaker incoming data.

by Calculated Risk on 7/27/2013 11:55:00 AM

This will be a very busy week for economic data.  The key reports this week are the Q2 advance GDP report on Wednesday, and the July employment report on Friday.

Other key reports include the ISM manufacturing index on Thursday, auto sales also on Tuesday, and Case-Shiller house prices for May on Tuesday.   The June Personal Income and Outlays report will be released on Friday.

Also there is an FOMC meeting on Tuesday and Wednesday.  Overseas, the ECB and BOE will hold monetary policy meetings, and China's PMI will be released.

----- Monday, July 29th -----
10:00 AM ET: Pending Home Sales Index for June. The consensus is for a 1.4% decrease in the index.

10:30 AM: Dallas Fed Manufacturing Survey for July. This is the last of the regional manufacturing surveys for July. The consensus is a reading of 6.4, mostly unchanged from the reading of 6.5 in June (above zero is expansion).

----- Tuesday, July 30th -----
9:00 AM: S&P/Case-Shiller House Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through April 2012 (the Composite 20 was started in January 2000).

The consensus is for a 12.3% year-over-year increase in the Composite 20 index (NSA) for May. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.3% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for July. The consensus is for the index to decrease to 81.0 from 81.4.

10:00 AM: Q2 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

----- Wednesday, July 31st -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for 179,000 payroll jobs added in July, down from 188,000 in June.  

8:30 AM: Q2 GDP (advance estimate). This is the advance estimate of Q2 GDP from the BEA. The consensus is that real GDP increased 1.1% annualized in Q2.  This report will includes a Comprehensive Revision from 1929 through 1st quarter 2013.

9:45 AM: Chicago Purchasing Managers Index for July. The consensus is for an increase to 54.0, up from 51.6 in June.

2:00 PM: FOMC Meeting Announcement.  No change to interest rates or QE purchases is expected at this meeting.

----- Thursday, Aug 1st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 345 thousand from 343 thousand last week.

All day: Light vehicle sales for July. The consensus is for light vehicle sales to decrease to 15.8 million SAAR in July (Seasonally Adjusted Annual Rate) from 15.9 million SAAR in June.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the June sales rate.

9:00 AM: The Markit US PMI Manufacturing Index for July. The consensus is for the index to increase to 53.1 from 51.9 in June.

10:00 AM ET: ISM Manufacturing Index for July. The consensus is for an increase to 53.1 from 50.9 in June.  Based on the regional surveys, an increase in July seems likely.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion in June at 50.9%. The employment index was at 48.7%, and the new orders index was at 51.9%.

10:00 AM: Construction Spending for June. The consensus is for a 0.4% increase in construction spending.

----- Friday, Aug 2nd -----
8:30 AM: Employment Report for July. The consensus is for an increase of 175,000 non-farm payroll jobs in July; the economy added 195,000 non-farm payroll jobs in June.

The consensus is for the unemployment rate to decrease to 7.5% in July from 7.6% in June.

The following graph shows the percentage of payroll jobs lost during post WWII recessions through June.

The economy has added 7.2 million private sector jobs since employment bottomed in February 2010 (6.6 million total jobs added including all the public sector layoffs).

There are still 1.6 million fewer private sector jobs now than when the recession started in 2007.

8:30 AM ET: Personal Income and Outlays for June. The consensus is for a 0.4% increase in personal income in June, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for June. The consensus is for a 2.3% increase in orders.

by Calculated Risk on 7/27/2013 09:50:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 26, 2013.

Changes and comments from surferdude808:

The FDIC released its enforcement actions through June 2013 on Friday. This release led to many changes to the Unofficial Problem Bank List. For the week, there were eight removals and three additions that leave the list holding 729 institutions with assets of $260.9 billion. A year ago, the list held 900 institutions with assets of $349.5 billion. For the month, the list declined by 20 institutions after 19 action terminations, seven unassisted mergers, and six additions. The monthly net decline of 20 institutions is the highest since publication of the list.

Actions were terminated against Amalgamated Bank, New York, NY ($3.6 billion); Parkway Bank and Trust Company, Harwood Heights, IL ($2.0 billion); Alliance Bank, Lake City, MN ($579 million); ISB Community Bank, Ixonia, WI ($285 million); First Trust and Savings Bank, Oneida, TN ($149 million); First Pryority Bank, Pryor, OK ($116 million); The Citizens Bank, Enterprise, AL ($95 million); and Bancroft State Bank, Bancroft, WI ($70 million).

The three additions this week were The Bank of Union, El Reno, OK ($388 million); First Security Trust Bank, Inc., Florence, KY ($93 million); and The Citizens State Bank and Trust Company, Woodbine, KS ($16 million). Also, the FDIC issued a Prompt Corrective Action order against Securant Bank & Trust, Menomonee Falls, WI ($202 million), which has been under a formal enforcement action since 2010.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining since then.

by Calculated Risk on 7/26/2013 05:39:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.79% from 2.85% in May. Freddie's rate is down from 3.45% in June 2012, and this is the lowest level since May 2009. 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". 

Earlier this week, LPS reported that total delinquencies increased in June - but that was mostly due to an increase in short term delinquencies (seasonally delinquencies increase every June). Freddie Mac is reporting serious delinquencies only.

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for June next week.

Click on graph for larger image

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

At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2016 or so.

by Calculated Risk on 7/26/2013 02:04:00 PM

From housing economist Tom Lawler:

Several large, publicly-traded home builders have released earnings for the quarter ended June 30th, 2013, and the operating results varied wildly.  Below are some stats for net orders, settlements, and average sales prices on settlements.

All results in the table below include “discontinued operations,” and Standard Pacific’s results exclude JVs.

Ryland’s results included 177 net orders and 17 settlements associated with its June acquisitions of the Dallas operation of LionsGate homes. Standard Pacific completed its acquisitions of “select homebuilding assets” from Centerline Homes and affiliates in June, which included about 30 current and future communities, five of which are active with 119 homes under contract.

Of the results released so far, “most surprising” was the weakness in net order growth at the two largest US home builders, D.R. Horton (up just 12.2% YOY) and PulteGroup (DOWN 12.4% YOY). D.R. Horton’s sales cancellation rate was 24%, up from 19% in the previous quarter and 23% a year ago. An official cited rising mortgage rates as contributing to the rise in cancellations. Last quarter’s sales cancellation rate was down from a year ago, however, at Meritage, M/I, NVR, and Ryland. D.R. Horton, of course, relies more on the first-time home buyer market than these other builders. Pulte does not report its sales cancellation rate in its press release, though an official said that cancellation rates were “little changed.” In Pulte’s press release the company said that “the recent rise in interest rates has had little effect on overall activity,” despite its incredibly disappointing orders. Pulte attributed the slowdown in net home orders to a 16% reduction in community count, as well as “the company’s decision to purposely slow sales in a number of communities,” particularly in Arizona, Nevada, and Southern California, where an official said Pulte had sold homes “too quickly” (presumably meaning at “too low” a price) in 2012. Stated another way, Pulte increased prices in a fashion that slowed sales.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	3/31/13	3/31/12	% Chg	3/31/13	3/31/12	% Chg	3/31/13	3/31/12	% Chg
D.R. Horton	6,822	6,079	12.2%	6,464	4,957	30.4%	$252,290	$224,975	12.1%
Pulte Group	4,885	5,578	-12.4%	4,152	3,816	8.8%	$294,000	$268,000	9.7%
NVR	3,278	2,614	25.4%	2,878	2,475	16.3%	$344,700	$305,100	13.0%
The Ryland Group	2,191	1,415	54.8%	1,659	1,149	44.4%	$287,000	$253,000	13.4%
Standard Pacific	1,516	1,108	36.8%	1,095	815	34.4%	$397,000	$337,000	17.8%
Meritage Homes	1,637	1,353	21.0%	1,321	1,042	26.8%	$330,000	$270,000	22.2%
M/I Homes	1,078	826	30.5%	788	625	26.1%	$281,000	$259,000	8.5%
Total	21,407	18,973	12.8%	18,357	14,879	23.4%	$294,805	$262,220	12.4%

On the pricing front, all builders reported significant increases in average sales prices, with the increases generally attributed both to overall price increases and a shift in mix, with several builders saying there were focused more on the “move-up” market. Demand from first-time home buyers was perceived at many builders as being “weak.”

While overall results varied a lot, net home orders for the above seven home builders combined were up just 12.8% from a year ago – and a bit less after adjusting for acquisitions – which combined was SUBSTANTIALLY below consensus. In the quarter ended March 31, 2013, net orders for these seven builders combined were up 24.0% from the comparable quarter of 2012.

Given the net home orders reported so far by publicly-traded builders, the Census estimates for new SF home sales for Q2/2013 seem surprisingly strong – 134,000 on an unadjusted basis, up over 30% from the second quarter of 2012. The estimated YOY gain in sales Q1/2013 was about 25% .

Of course, comparing home builder reports with Census SF home sales estimates is “challenging.” First, Census does not treat sales cancellations the same as do home builders. Second, historical data suggest that the timing of the recognition of a “sale” by Census lags that of home builders. Third, there can be substantial quarterly swings in market share. And fourth, preliminary Census estimates are subject to substantial revisions, partly because preliminary estimates include “imputed” data, because the survey data used to estimate sales are based on a permit being issued. Many homes may have a sales contract signed prior to a permit being issued, and Census must “guesstimate” such sales using some “historical trends” model (that has often been changed).

Nevertheless, I have found builder reports to be somewhat useful in projecting revisions in Census’ estimates of new SF home sales. Based on the builder reports so far, there is a better than even chance that Census’ new SF home sales estimates for last quarter will be revised downward, and I’d guess that the bulk of the downward revision will be in June sales. It’s worth noting that while Census’ estimated new SF home sales last quarter were up by over 30% YOY (on an unadjusted basis), estimated sales of homes not yet started were up 53%, compared to 24% for sales of homes under construction, and 20% for sales of completed homes. For June Census estimated that there were 18,000 sales of new SF homes not yet started, up from 11,000 last June, and the highest level since June 2007.