Tuesday, December 31, 2013

Market Update: Happy New Year!

by Bill McBride on 12/31/2013 09:38:00 PM

S&P 500
Click on graph for larger image.

By request - following the huge market rally in 2013 - here are a couple of stock market graphs. The first graph shows the S&P 500 since 1990 (this excludes dividends).

The dashed line is the closing price today. The market was up 29.6% in 2013 plus dividends.

S&P 500The second graph (click on graph for larger image) is from Doug Short and shows the S&P 500 since the 2007 high ...

Happy 2014 to all.

Fannie Mae: Mortgage Serious Delinquency rate declined in November, Lowest since December 2008

by Bill McBride on 12/31/2013 04:13:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in November to 2.44% from 2.48% in October. The serious delinquency rate is down from 3.30% in November 2012, and this is the lowest level since December 2008.

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

Last week, Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and is at the lowest level since March 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".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.86 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in less than 2 years. Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

Restaurant Performance Index increases in November

by Bill McBride on 12/31/2013 03:03:00 PM

From the National Restaurant Association: Restaurant Performance Index Hit a Five-Month High in November

Driven by improving same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) hit a five-month high in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.2 in November, up 0.3 percent from October and the strongest level since June. In addition, the RPI stood above 100 for the ninth consecutive month, which signifies expansion in the index of key industry indicators.

Recent growth in the RPI was fueled in large part by improving same-store sales and customer traffic levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the National Restaurant Association. “In addition, restaurant operators are somewhat more confident that sales levels will improve, and a majority plan to make a capital expenditure in the next six months.”
...
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 101.2 in November – up 0.3 percent from a level of 100.9 in October and the highest level in six months. ...

Fifty-seven percent of restaurant operators reported a same-store sales gain between November 2012 and November 2013, up from 54 percent in October and the highest level in six months.
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index increased to 101.2 in November, up from 100.9 in October. (above 100 indicates expansion).

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

Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?

by Bill McBride on 12/31/2013 12:58:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

5) Monetary Policy: It appears the Fed's current plan is to reduce their monthly asset purchases by about $10 billion at each FOMC meeting in 2014. That would put the monthly purchases at close to zero in December 2014. Will the Fed complete QE3 in 2014? Or will the Fed continue to buy assets in 2015?

Although the Fed is not on auto-pilot - the FOMC is still data dependent - I think it is very likely that QE3 will be completed by the end of 2014. There are 8 meetings during the year, and I expect the FOMC to reduce the pace of asset purchases at about $10 billion per meeting. In January, the Fed will purchase $75 billion in assets and I expect that to be reduced to $65 billion in February (following the meeting on January 28th and 29th). And a similar reduction at each meeting all year.

It appears they will only slow the taper if inflation declines sharply - or if the economy stalls (I think both are unlikely).

It also seems unlikely they will accelerate the pace of the taper significantly.

So even though the Fed is data-dependent, I currently expect the Fed to reduce their asset purchases by $10 billion per month (or so) at each meeting this year and conclude QE3 at the end of the 2014.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Case-Shiller: Press Release and Graphs

by Bill McBride on 12/31/2013 09:59:00 AM

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

This release includes prices for 20 individual cities, and 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 Stage Advance According to the S&P/Case-Shiller Home Price Indices

Data through October 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that the 10-City and 20-City Composites posted year-over-year gains of 13.6%. This is their highest gain since February 2006 and marks the seventeenth consecutive month that both Composites increased on an annual basis.

In October 2013, the two Composites showed a small gain of 0.2% for the month. Eighteen cities posted lower monthly rates in October than in September. After 19 months of gains, San Francisco showed a slightly negative return. Phoenix held onto its streak and posted its 25th consecutive increase.

“Home prices increased again in October,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Both Composites’ annual returns have been in double-digit territory since March 2013 and increasing; now up 13.6% in the year ending in October. However, monthly numbers show we are living on borrowed time and the boom is fading.

“The year-over-year figures increased slightly from last month. Thirteen cities and both Composites posted double-digit annual returns. Cities at the top of the range (Las Vegas, San Diego and San Francisco) saw smaller annual increases. On the other hand, cities that have been relatively underperforming (Cleveland, New York and Washington) saw their annual gains grow. Miami showed the most improvement. Chicago recorded its highest annual rate (+10.9%) since December 1988. Charlotte and Dallas posted annual increases of 8.8% and 9.7%, their highest since the inception of their indices in 1987 and 2000.

“The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates. Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices. However, other economic data point to somewhat faster growth in the new year. Most forecasts for home prices point to single digit growth in 2014.”

In October 2013, ten cities posted positive monthly returns. Las Vegas showed the largest gain with an increase of 1.2%, followed by Miami with a 1.1% monthly gain. Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, San Francisco, Seattle and Washington were the nine cities that declined month-over-month; two of them, Denver and Dallas, are slightly off their peak set last month. New York remained flat. Only Charlotte and Miami accelerated on a monthly basis.
Case-Shiller House Prices Indices 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 21.5% from the peak, and up 1.0% in October (SA). The Composite 10 is up 19.0% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 20.7% from the peak, and up 1.0% (SA) in October. The Composite 20 is up 19.7% from the post-bubble low set in Jan 2012 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 13.6% compared to October 2012.

The Composite 20 SA is up 13.6% compared to October 2012. This was the seventeenth consecutive month with a year-over-year gain.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in October seasonally adjusted.  Prices in Las Vegas are off 46.6% from the peak, and prices in Denver and Dallas are at new highs.

This was slightly below the consensus forecast for a 13.7% YoY increase. I'll have more on prices later.

Case-Shiller: Comp 20 House Prices increased 13.6% year-over-year in October

by Bill McBride on 12/31/2013 09:24:00 AM

Note: I'm having difficulties with the S&P website. I'll some graphs soon ...

From Reuters: US home prices notch big annual gain: S&P/Case-Shiller

The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.2 percent in October on a non-seasonally adjusted basis ... On a seasonally-adjusted basis, prices were up 1 percent.

Compared to a year earlier, prices were up 13.6 percent ...

the more subdued monthly gains "show we are living on borrowed time and the boom is fading," David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.
This was close to the consensus forecast of a 13.7% year-over-year increase.

Monday, December 30, 2013

Tuesday: Case-Shiller House Prices, Chicago PMI

by Bill McBride on 12/30/2013 08:50:00 PM

I've posted some thoughts (and a few predictions) on half of my ten questions for 2014. There will be more to come (I've also received some thoughtful disagreements - I don't have a crystal ball, I just try to outline my current views):
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Tuesday:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October. The consensus is for a 13.7% year-over-year increase in the Composite 20 index (NSA) for October.

• At 9:45 AM, the Chicago Purchasing Managers Index for December. The consensus is for a decrease to 61.3, down from 63.0 in November.

• At 10:00 AM, the Conference Board's consumer confidence index for December. The consensus is for the index to increase to 76.8 from 70.4.

Question #6 for 2014: How much will Residential Investment increase?

by Bill McBride on 12/30/2013 05:46:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

6) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  Even with the recent increases, RI is still at a historical low level. How much will RI increase in 2014?

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2013.

Residential Investment as Percent of GDPClick on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish so far. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2014.

Total Housing Starts and Single Family Housing StartsThe second graph shows total and single family housing starts through November 2013.

Housing starts are on pace to increase about 20% in 2013. And even after the sharp increase over the last two years, the approximately 938 thousand housing starts in 2013 will still be the 6th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the five lowest years were 2008 through 2012).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 60% over the next few years from the 2013 level.

Housing Starts (000s)
TotalChangeSingle FamilyChange
20052,068.3--- 1,715.8---
20061,800.9-12.9%1,465.4-14.6%
20071,355.0-24.8%1,046.0-28.6%
2008905.5-33.2%622.0-40.5%
2009554.0-38.8%445.1-28.4%
2010586.95.9%471.25.9%
2011608.83.7%430.6-8.6%
2012780.628.2%535.324.3%
20131938.020%625.017%
12013 estimated

New Home SalesThe third graph shows New Home Sales since 1963 through November 2013. The dashed line is the current sales rate.

Just like for RI as a percent of GDP, and housing starts, new home sales were up in 2013, but are still near the low historically.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2014.   However, unlike last year when I reported that some builders were land constrained (not enough finished lots in the pipeline), land should be less of an issue this year.  Even with the foreclosures, I expect another solid year of growth for new home sales. 

Here are some recent forecasts for housing in 2014. I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013. That would still make 2014 the tenth weakest year on record for housing starts (behind 2008 through 2012 and few other recession lows). So I expect further growth in 2015 too.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Question #7 for 2014: What will happen with house prices in 2014?

by Bill McBride on 12/30/2013 11:45:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

7) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up about 12% or so in 2013. What will happen with house prices in 2014?

Calling the bottom for house prices in 2012 was correct, but I underestimated how quickly prices would increase in 2013.

Case-Shiller House Prices IndicesClick on graph for larger image.

This graph shows the year-over-year change in the Case-Shiller Composite 10 and Composite 20 indexes.

The Composite 10 SA was up 13.2% YoY in September, and the Composite 20 SA was also up 13.2% year-over-year. Other house price indexes have indicated lower gains (see table below).

Note: the year-over-year gain in 2010 was related to the homebuyer tax credit.  However, in 2010, prices were still too high based on fundamentals.   However, when prices started increasing in 2012, prices were more in line with fundamentals based on price-to-income, price-to-rent and real house prices.

Although I use Case-Shiller, I do think the index overstates national prices due to the inclusion of foreclosures and the weighting of certain coastal areas. The following table shows the year-over-year change for several house prices indexes.  Clearly prices were up in 2013, but there was a pretty significant difference between the various measures of prices:

Year-over-year Change for Various House Price Indexes
IndexThrough Increase
Case-Shiller Comp 20Sep-1313.2%
Case-Shiller NationalQ311.2%
CoreLogicOct-1312.5%
ZillowOct-135.2%
LPSOct-138.8%
FNCOct-136.5%
FHFA Purchase OnlyOct-138.8%

Some of the key factors in 2012 and 2013 were limited inventory, fewer foreclosures, investor buying in certain areas, and a change in psychology as buyers and sellers started believing house prices had bottomed.

In some areas, like Phoenix, there appeared to be a bounce off the bottom - but that bounce appears to be slowing. CoreLogic economist Sam Khater wrote today: Low-End Home Price Correction Over, Portends a Substantial Slowdown in Prices
Analyzing low-end versus high-end price trends reveals two stylized facts. First, low-end price changes and levels lead high-end prices and levels by six months to a year. The low-end price trough in March 2011 was clearly foreshadowing that the market was set to recover. Second, low-end prices are much more volatile than high end prices, which sometimes makes turning points easier to catch.

While there are some caveats, clearly lower-end home prices are decelerating, especially in the former boom/bust markets of the Southwest. More importantly, the magnitude of the declines presages lower growth for prices overall.
In 2014, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. This suggests more house price increases in 2014, but probably at a slow pace.

As Khater noted, some of the "bounce back" in certain areas is probably over, also suggesting slower price increases going forward.  And investor buying appears to have slowed.  A positive for the market will probably be a little looser mortgage credit.

All of these factors suggest further prices increases in 2014, but at a slower rate than in 2013.   There tends to be some momentum for house prices, and I expect we will see prices up mid-to-high single digits (percentage) in 2014 as measured by Case-Shiller.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Pending Home Sales Index increased 0.2% in November

by Bill McBride on 12/30/2013 10:00:00 AM

From the NAR: Pending Home Sales Edge Up in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched up 0.2 percent to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6 percent below November 2012 when it was 103.3. The data reflect contracts but not closings
...
The PHSI in the Northeast declined 2.7 percent to 82.6 in November, but is 1.9 percent above a year ago. In the Midwest the index fell 3.1 percent to 100.6 in November, but is 0.4 percent higher than November 2012. Pending home sales in the South rose 2.3 percent to an index of 116.1 in November, and are 0.1 percent above a year ago. The index in the West increased 1.8 percent in November to 95.0, but is 8.7 percent below November 2012, in part from inventory constraints.
emphasis added
Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

LPS: House Price Index increased 0.1% in October, Up 8.8% year-over-year

by Bill McBride on 12/30/2013 08:47:00 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 the current month 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: October Transactions, U.S. Home Prices Up 0.1 Percent for the Month; Up 8.8 Percent Year-Over-Year

Lender Processing Services ... based on October 2013 residential real estate transactions. 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 more than 18,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
The year-over-year increase was slightly less in October than in September. The LPS HPI is off 14.1% from the peak in June 2006.

Note: The press release has data for the 20 largest states, and 40 MSAs. Prices declined slightly in eight of the 20 largest states in October, and 18 of the 40 largest MSAs. LPS shows prices off 44.6% from the peak in Las Vegas, off 37.4% in Orlando, and 35.4% off from the peak in Riverside-San Bernardino, CA (Inland Empire). "After months of setting new highs, Texas - and the major metropolitan areas of Austin and Dallas - saw a slight pullback in October."

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

Sunday, December 29, 2013

Monday: Pending Home Sales, Dallas Fed Mfg Survey

by Bill McBride on 12/29/2013 08:28:00 PM

From Nick Timiraos at the WSJ: Home Prices Back at Peaks in Some Areas

The 10 metro areas enjoying a full-scale rebound are based on figures for the entire region. The Wall Street Journal also analyzed Zillow price data individually in more than 4,400 cities and towns in the country's largest metro areas. Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. Nationally, values fell 23.8% between 2007 and 2011 before rebounding 9.9% after hitting bottom in late 2011; they are now 16.3% below the high of the last decade, according to Zillow.
The story has this example:
At the top of the housing bubble in 2006, Mr. Long paid $667,500 for a five-bedroom home in Lafayette, Colo., which is about 20 miles northwest of Denver. Prices then fell 12% through 2011. This summer, he sold the home for $710,000.
That is a price increase of about 6% over 7 years. Inflation was up 15% over the same period, so in real terms, Mr. Long sold at a loss (he probably also had significant transaction fees). But people think in nominal terms ... and prices are at new nominal highs in a few areas.

Monday:
• At 10:00 AM ET, the Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for December. The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

Weekend:
Schedule for Week of December 29th, Happy New Year!

Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

The Nikkei is up about 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 8 (fair value).

Oil prices have been moving up with WTI futures at $100.23 per barrel and Brent at $112.22 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.29 per gallon.  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.



Orange County Historical Gas Price Charts Provided by GasBuddy.com

Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

by Bill McBride on 12/29/2013 11:35:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

8) Housing Credit: Will we see easier mortgage lending in 2014? Will we see positive mortgage equity withdrawal (MEW) after six years of negative MEW?

There is no exact measure of the tightness of mortgage lending, and any change in lending may be hard to detect. During the bubble, there were essentially no standards ("fog a mirror, get a loan", "NINJA Loans: No income, jobs or assets", Alt-A, etc.). In recent years, lending has been very tight with only a few exceptions - and for the most part only the most credit worthy borrowers could get loans - and it was very difficult to do a cash out loan.  No one wants a return of NINJA and Alt-A loans, but a little looser mortgage credit would give the economy a boost.

Mortgage broker Lou Barnes wrote on Friday:

Credit: Next to incomes the most important thing to watch. We cannot accelerate, or even get off Fed life support without it. My very smart friend, Paul Kasriel, has detected an acceleration in bank credit, one strong enough to offset the gradual end of QE. I can't find it. I will look, early and often.
...
Mortgages. Under the heading, Everybody Gets Lucky, the White House has at last succeeded in replacing the Fannie-Freddie regulator. ... Now they've got their guy, Mel Watt [and] he may be just the man to lift the dead hand choking mortgage credit. At the top of the we'll-see list.
Even before taking over at the FHFA, Mel Watt has announced he will delay the recently announced fee hikes at Fannie and Freddie:
"I intend to announce that the FHFA will delay implementation" of the loan-fee increases "until such time as I have had the opportunity to evaluate fully the rationale for the plan,"
I suspect Watt will work to loosen lending standards a little at Fannie and Freddie.

Looser standards (combined with more confidence) might show up as positive mortgage equity withdrawal (MEW).   For Q3 2013, the Net Equity Extraction was minus $24 billion, or a negative 0.8% of Disposable Personal Income (DPI).   MEW has been negative for 22 consecutive quarters.

Mortgage Equity Withdrawal Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $10.0 billion in Q3. This was the first increase in mortgage debt since Q1 2008. Since some mortgage debt is related to new home purchases, net negative equity extraction was still slightly negative in Q3.

This is an indirect measurement of mortgage standards (and other factors impact MEW), but if standards are loosened a little - and debt cancellation via foreclosures and short sales, and modifications decline - it is very possible MEW will turn positive in 2014.  

Bottom line: I expect lending standards to loosen a bit in 2014 from the tight level of the last few years.   It will be difficult to measure, but I'll be watching what Mel Watt says, what private lenders say, comments from mortgage brokers, and MEW.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Saturday, December 28, 2013

Schedule for Week of December 29th, Happy New Year!

by Bill McBride on 12/28/2013 02:58:00 PM

The key reports this week are October Case-Shiller house price index and December vehicle sales.

For manufacturing, the December ISM Manufacturing index, and the Dallas Fed December survey will be released this week.

Happy New Year to All!

----- Monday, December 30th -----

10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for December.  The consensus is a reading of 4.0, up from 1.9 in November (above zero is expansion).

----- Tuesday, December 31st -----

Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October.

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

The consensus is for a 13.7% year-over-year increase in the Composite 20 index (NSA) for October. The Zillow forecast is for the Composite 20 to increase 13.9% year-over-year, and for prices to increase 1.0% month-to-month seasonally adjusted.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a decrease to 61.3, down from 63.0 in November.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 76.8 from 70.4.

Fixed income market will close early.

----- Wednesday, January 1st -----

All US markets will be closed in observance of the New Year's Day Holiday.

----- Thursday, January 2nd -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 338 thousand.

9:00 AM ET: The Markit US PMI Manufacturing Index for December.  The consensus is for an decrease to 54.5 from 54.7 in November.

ISM PMI10:00 AM ET: ISM Manufacturing Index for December. The consensus is for a decrease to 57.0 from 57.3 in November.

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

The ISM manufacturing index indicated expansion in November at 57.3%. The employment index was at 56.5%, and the new orders index was at 63.6%.

10:00 AM: Construction Spending for November. The consensus is for a 1.0% increase in November construction spending.

----- Friday, January 3rd -----

Vehicle Sales All day: Light vehicle sales for November.

The consensus is for light vehicle sales to decrease to 16.0 million SAAR in December (Seasonally Adjusted Annual Rate) from  16.3 million SAAR in November.

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

Unofficial Problem Bank list declines to 619 Institutions, Q4 Transition Matrix

by Bill McBride on 12/28/2013 11:16:00 AM

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

Here is the unofficial problem bank list for December 27, 2013.

Changes and comments from surferdude808:

As expected, the FDIC released its enforcement action activity through November 2013 this week. That release coupled with a periodic list review led to many changes to the Unofficial Problem Bank List. This week, there were 15 removals and one addition that leave the list at 619 institutions with assets of $205.7 billion. A year ago, the list held 838 institutions with assets of $313.1 billion. During December 2013, the list declined by a net 26 institutions and $7.7 billion in assets after 20 action terminations, six mergers, one failure, and one addition.

Removals included 14 action terminations; however, half of the total should have been removed earlier. Actions have been terminated against Cadence Bank, N.A., Birmingham, AL ($6.2 billion); Spirit of Texas Bank, SSB, College Station, TX ($542 million); Community Bank of Broward, Dania Beach, FL ($483 million); CoastalStates Bank, Hilton Head Island, SC ($378 million); Vantage Bank Texas, San Antonio, TX ($309 million); Terrabank, National Association, Miami, FL ($273 million); Lake Area Bank, Lindstrom, MN ($272 million); Southport Bank, Kenosha, WI ($257 million); The First National Bank & Trust Company of Rochelle, Rochelle, IL ($247 million); First State Bank and Trust, Tonganoxie, KS ($223 million); Synergy Bank, S.S.B., McKinney, TX ($119 million); University Bank, Pittsburg, KS ($111 million); First National Bank, Chisholm, MN ($82 million); and Peoples Bank, Lyons, GA ($49 million). Roma Bank, Robbinsville, NJ ($1.5 billion) found its way of the list through an unassisted merger.

The addition this week was Liberty Bell Bank, Marlton, NJ ($170 million Ticker: LBBB). Also, the FDIC issued a Prompt Corrective Action order against AztecAmerica Bank, Berwyn, IL ($79 million).

Several banks have undergone a name change including Independence Federal Savings Bank, Washington, DC now known as Colombo Bank, Rockville, MD; The Citizens Bank of East Tennessee, Rogersville, TN now known as Civis Bank; The Patterson Bank, Patterson, GA now known as First Southern Bank; White Rock Bank, Cannon Falls, MN now known as First Farmers & Merchants Bank; BNB Bank, National Association, Fort Lee, NJ now known as BNB Hana Bank, National Association; and First Carolina State Bank, Rocky Mount, NC now known as First Carolina Bank. Several banks have changed their headquarter city within their respective state but Frontier Bank, FSB, Park City, UT moved out of state to Palm Desert, CA.

With the close of the fourth quarter of 2013, we have updated the Unofficial Problem Bank List transition matrix. Full details may be found in the accompanying table and a visual of the trends may be found in accompanying chart.

FDIC Unofficial List Click on graph for larger image.

Since its inception, 1,662 institutions have made an appearance on the list. To date, about 63 percent or 1,043 of the banks that have appeared on the list have been removed. Action termination is the now the primary way banks are exiting the list as 495 banks have had their enforcement action terminated. During the fourth quarter of 2013, action terminations slowed a bit from the torrid pace last quarter, but there were the second highest quarterly amount at 54. At the start of the fourth quarter, the list had 685 banks, which means the terminations represented 7.9 percent of the starting balance.

While terminations have increased, the sum of the other ways to exit -- failure, voluntary liquidation, or merger, still exceed those leaving through action termination. At 370 institutions and $294.1 billion in assets, failures are not to be ignored as failed assets still greatly overshadow the $211.5 billion removed through action terminations. At 22.3 percent, the failure rate for the Unofficial Problem Bank List is still well above the low double digit failure rate cited by the media for banks that appear on the official list. Voluntary closings and mergers sum to nearly 11 percent of banks that have appeared on the list. The list was first published in August 2009 with 389 banks, so after more than four years, 81 still remain, indicating that its taking many banks a long time to rehabilitate themselves after experiencing difficulties during the Great Recession.
Unofficial Problem Bank List
Change Summary
 Number of InstitutionsAssets ($Thousands)
Start (8/7/2009) 389276,313,429
 
Subtractions   
 Action Terminated123(40,710,021)
 Unassisted Merger30(6,470,016)
 Voluntary Liquidation4(10,584,114)
 Failures151(183,816,648)
 Asset Change (11,818,692)
 
Still on List at 12/31/2013 8122,913,938
 
Additions after
8/7/2009
 538182,843,876
 
End (12/31/2013) 619205,757,814
 
Intraperiod Deletions1   
 Action Terminated372170,802,027
 Unassisted Merger13763,392,166
 Voluntary Liquidation71,760,816
 Failures219110,286,710
 Total735346,241,719
1Institution not on 8/7/2009 or 12/31/2013 list but appeared on a weekly list.

Friday, December 27, 2013

Goldman Sachs: 10 Questions for 2014

by Bill McBride on 12/27/2013 07:37:00 PM

Goldman Sachs chief economist Jan Hatzius writes: 10 Questions for 2014 (Here are the 10 questions at Business Insider: Goldman's Top Economists Just Answered The Most Important Questions For 2014 — And Boy Are His Answers Bullish)

A few excerpts from the research note:

We expect the US economy to accelerate to an above-trend growth pace in 2014, as the fiscal drag diminishes sharply but the private sector impulse remains positive. The acceleration is likely to be led by faster growth in personal consumption and business capital spending, with continued support from housing.

The unemployment rate is likely to fall about as fast as in 2013, with faster job growth offset by a flattening in labor force participation. But we expect the slack in the labor market to remain large enough in 2014 to keep wage growth subdued, profit margins high, and inflation well below the Fed’s 2% target.

The Federal Reserve is likely to conclude its QE3 program in late 2014. But we still see no hikes in short-term interest rates until early 2016 ...
Goldman is projecting around 3% GDP growth in 2014. A similar drop in the unemployment rate next year as in 2013 would put the rate in the low 6% range.

And on housing:
Barring another sharp increase in mortgage rates, we think that the upward trend should continue in 2014 because the longer-term fundamentals for housing activity remain very favorable. ... We are a bit less optimistic about house prices. ... we would expect somewhat slower growth of 5%-6% in 2014—still decent but no longer nearly as rapid as the double-digit rates seen over the past 12-18 months.

Freddie Mac: Mortgage Serious Delinquency rate declined in November, Lowest since March 2009

by Bill McBride on 12/27/2013 02:55:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and this is the lowest level since March 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". 

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

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

The serious delinquency rate has fallen from 0.82 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015. 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2+ years (mostly in judicial states).

Preliminary: 2014 Housing Forecasts

by Bill McBride on 12/27/2013 11:23:00 AM

Towards the end of each year I collect some housing forecasts for the following year.

Here was a summary of forecasts for 2013. Right now it looks like new home sales will be around 433 thousand this year, and total starts around 935 thousand or so.  David Crowe (NAHB) was very close on New Home sales for 2013.  Fannie Mae was the closest on housing starts.

The table below shows a few forecasts for 2014.

From Fannie Mae: Housing Forecast: December 2013

From NAHB: Housing and Interest Rate Forecast, 12/7/2013 (excel)

I haven't worked up a forecast yet for 2014.

Housing Forecasts for 2014
New Home Sales (000s)Single Family Starts (000s)Total Starts (000s)House Prices1
NAHB6078251,147 
Fannie Mae5187681,1065.9%2
Merrill Lynch517 1,1006.3%
Wells Fargo5358001,1402.7%
Zillow    4.6%3
1Case-Shiller unless indicated otherwise
2FHFA Purchase-Only Index
3Zillow Home Value Index

Unemployment and Profits: A dirty little secret

by Bill McBride on 12/27/2013 09:55:00 AM

I'd like to repeat something I wrote 2 1/2 years ago:

[I]t really isn't much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is "dirty" in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings - and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don't want to see Depression era unemployment - but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK.
Not much has changed (the unemployment rate is still high at 7%).  And I still think unemployment should be the #1 political issue.

For more, see Paul Krugman's The Plight of the Employed and Why Corporations Might Not Mind Moderate Depression and The Fear Economy
[M]ay I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy. I don’t think I’d go so far as to say that there’s a deliberate effort to keep the economy weak; but corporate America certainly isn’t feeling much pain, and the plight of workers is actually a plus from their point of view.
A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor.   This is not an ideal economic situation for most Americans (but ideal for a few).   Enough rant - and I hope I don't repeat this again in another 2 years.

best to all
 

Thursday, December 26, 2013

DOT: Vehicle Miles Driven increased 2.3% in October

by Bill McBride on 12/26/2013 07:32:00 PM

The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 2.3% (5.8 billion vehicle miles) for October 2013 as compared with October 2012.

◦ Travel for the month is estimated to be 258.7 billion vehicle miles.

◦ ◦Cumulative Travel for 2013 changed by 0.6% (15.6 billion vehicle miles).
The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.


Vehicle Miles Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 71 months - almost 6 years - and still counting.  Currently miles driven (rolling 12 months) are about 2.3% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven YoY In October 2013, gasoline averaged of $3.42 per gallon according to the EIA.  that was down sharply from 2012 when prices in October averaged $3.81 per gallon.

Gasoline prices were down sharply year-over-year in November too, so I expect miles driven to be up in November too.  

As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven - but it appears miles driven are increasing again.

Vehicle Sales Forecasts: Solid Sales Expected in December and in 2014

by Bill McBride on 12/26/2013 02:14:00 PM

Note: The automakers will report December vehicle sales on January 3rd.

Here are two forecasts:

From Edmunds.com: Strong December Car Deals Give Car Shoppers More Reason to Celebrate this Holiday Season, Says Edmunds.com

Edmunds.com forecasts shoppers will snatch up 1,425,818 new cars and trucks in the U.S. in December for an estimated Seasonally Adjusted Annual Rate (SAAR) of 16.1 million. This will be ... about a five percent increase from December 2012. Edmunds projects that 2013 will see 15.66 million total new car sales, which would be a strong eight percent increase over 2012.
From Kelley Blue Book: New-Car Sales To Improve Nearly 5 Percent From Last Year; Kelley Blue Book Projects 16.3 Million New Car Sales In 2014
New-vehicle sales are expected to improve 4.7 percent year-over-year in December to a total of 1.42 million units, and an estimated 16 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ...

Looking forward to 2014, sales will continue to improve and Kelley Blue Book anticipates the industry to surpass 16 million SAAR for the first year since 2007. Growth will slow from recent years; however, the initial estimate from Kelley Blue Book for 2014 is 16.3 million units, up 4.3 percent from 2013.
It appears sales in December will be solid.

Most forecasts were for auto sales growth to slow in 2013 to around 4% growth or 15.0 million units.  However it now appears sales growth was closer to 8% - and expectations are for another 4% growth in 2014. 

Light Vehicle Sales
Sales (millions)Annual Change
200017.42.7%
200117.1-1.3%
200216.8-1.8%
200316.6-1.1%
200416.91.4%
200516.90.5%
200616.5-2.6%
200716.1-2.5%
200813.2-18.0%
200910.4-21.2%
201011.611.1%
201112.710.2%
201214.413.4%
2013115.78.4%
1Edmunds Forecast (based on actual through November)

Question #9 for 2014: How much will housing inventory increase in 2014?

by Bill McBride on 12/26/2013 11:38:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

9) Housing Inventory: It appears housing inventory bottomed in early 2013.  Will inventory increase in 2014, and, if so, by how much?

Tracking housing inventory is very helpful.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

Now an increase in inventory would probably mean smaller price increases in 2014.

This graph shows nationwide inventory for existing homes through November 2013.

Existing Home InventoryClick on graph for larger image.

According to the NAR, inventory declined to 2.09 million in November from 2.11 million in October.   Inventory is up year-over-year from 1.99 million in November 2012.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory and this shows that inventory bottomed in January, and is now up about 8.4% from the bottom on a seasonally adjusted basis.

Year-over-year Inventory The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 5.0% year-over-year in November from November 2012 (blue line).

Months of supply increased to 5.1 months in November, up from 4.9 months in October, and up from 4.8 months in November 2012.   Even with the increase, the current supply is still very low.

Whenever I talk with real estate agents, I ask why they think inventory is so low. Last year, a common answer was that people didn't want to sell at the bottom. In a market with falling prices, sellers rush to list their homes, and inventory increases. But if sellers think prices have bottomed, then they believe they can be patient, and inventory declines.  

Now - a more common reason for low inventory - is that potential sellers can't find homes to buy (because inventory is so low).   In this case, a little more inventory will lead to more inventory.

Another reason for low inventory is that many homeowners are still "underwater" on their mortgage and can't sell.  This is less of a problem now than a year ago.

With the recent price increases, some potential sellers will probably come off the fence, and more of these formerly underwater homeowners will be able to sell.

Right now my guess is active inventory will increase 10% to 15% in 2014 (inventory will decline seasonally in December and January, but I expect to see inventory up 10% to 15% year-over-year toward the end of 2014).  This will put active inventory close to 6 months supply this summer.   If correct, this will slow house price increases in 2014.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Weekly Initial Unemployment Claims decline to 338,000

by Bill McBride on 12/26/2013 08:39:00 AM

The DOL reports:

In the week ending December 21, the advance figure for seasonally adjusted initial claims was 338,000, a decrease of 42,000 from the previous week's revised figure of 380,000. The 4-week moving average was 348,000, an increase of 4,250 from the previous week's revised average of 343,750.
The previous week was revised up from 379,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 348,000.

Weekly claims are frequently volatile during the holidays because of the seasonal adjustment.

Wednesday, December 25, 2013

Question #10 for 2014: Downside Risks

by Bill McBride on 12/25/2013 06:49:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question (this one will be short).

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk with growth slowing and significant uncertainty around the large number of poor performing loans. That might be the #1 downside risk for 2014, although China remains opaque to outside observers - and the downside risks to the U.S. are probably small.

Europe appears to be growing again (although they haven't resolved the core issues with the Euro), and U.S. fiscal policy is settled with the recent budget agreement. Some politicians are making noises again about not paying the bills (aka the "debt ceiling"), but I'm confident they will fold their losing hand again.  Since 2014 is an election year, I don't think Congress will do anything really stupid (like in 2011 and 2013).

There are always potential geopolitical risks (war with Iran, North Korea, or turmoil in some oil producing country).  Right now those risks appear small, although it is always hard to tell.  And there are always the risks of natural disasters (hurricanes, tsunamis, major meteor strikes, super volcanoes, etc).  But those are low probability events and impossible to predict.

When I look around, I see few obvious downside risks for the U.S. economy in 2014.   No need to borrow trouble - diminished downside risks are a reason for cheer. 

Note: I'll discuss the possibility of inflation as a risk in question #4.

Here are the ten questions for 2014 and a few predictions:
Question #1 for 2014: How much will the economy grow in 2014?
Question #2 for 2014: How many payroll jobs will be added in 2014?
Question #3 for 2014: What will the unemployment rate be in December 2014?
Question #4 for 2014: Will too much inflation be a concern in 2014?
Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
Question #6 for 2014: How much will Residential Investment increase?
Question #7 for 2014: What will happen with house prices in 2014?
Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
Question #9 for 2014: How much will housing inventory increase in 2014?
Question #10 for 2014: Downside Risks

Q4 GDP: Here come the Upgrades

by Bill McBride on 12/25/2013 10:53:00 AM

A little Christmas cheer ...

Via the WSJ:

Macroeconomic Advisers ... [raised] its estimate for fourth-quarter growth. It now forecasts gross domestic product to expand at an annualized rate of 2.6% in the final three months of the year, up three-tenths of a percentage point from an earlier estimate.
And Goldman Sachs has increased their Q4 GDP tracking to 2.4% annualized growth.

And based on the November Personal Income and Outlays report:
Using the two-month method to estimate Q4 PCE growth (first two months of the quarter), PCE was increasing at a 4.1% annual rate in Q4 2013. This suggests solid PCE growth in Q4.
Of course the contribution from private inventories will probably be negative in Q4, but final demand should be solid.

Happy Holidays and Merry Christmas to All!

Tuesday, December 24, 2013

Philly Fed: State Coincident Indexes increased in 46 states in November

by Bill McBride on 12/24/2013 02:48:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2013. In the past month, the indexes increased in 46 states, decreased in two states (Alaska and Ohio), and remained stable in two (New Hampshire and Washington), for a one-month diffusion index of 88. Over the past three months, the indexes increased in 46 states, decreased in three, and remained stable in one for a three-month diffusion index of 86.
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In November, 48 states had increasing activity(including minor increases). This measure has been and up down over the last few years ...


Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all green at times during the recovery.

There are a few states with three month declining activity, but most of the map is green - and I expect the map to be all green soon.

Comments on New Home Sales

by Bill McBride on 12/24/2013 11:53:00 AM

Earlier: New Home Sales at 464,000 Annual Rate in November

Looking at the first eleven months of 2013, there has been a significant increase in new home sales this year.  The Census Bureau reported that there were 401 new homes sold during the first eleven months of 2013, up 17.6% from the 341 thousand sold during the same period in 2012.  That follows an annual increase of 20% in 2012.

This puts new home sales on pace for about 433 thousand in 2013.  But even though there has been a large increase in the sales rate, sales are close to the lows for previous recessions.  Right now it looks like 2013 will be the sixth worst year for new home sales since 1963.

The sales rate was only lower than 2013 in the worst housing bust years of 2009 through 2012, and the worst year of early '80s recession (1982).

Worst Years for New Home Sales since 1963
RankYearNew Home Sales (000s)
12011306
22010323
32012368
42009375
51982412
62013***433
71981436
81969448
91966461
101970485
112008485
*** Estimate for 2013

This suggests significant upside over the next several years. Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current 464 thousand sales rate.  So I expect the recovery to continue.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2013. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some (distressed sales will slowly decline and be partially offset by more conventional sales).  And I expect this gap to continue to close - mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

New Home Sales at 464,000 Annual Rate in November

by Bill McBride on 12/24/2013 10:00:00 AM

The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 464 thousand.

October sales were revised up from 444 thousand to 474 thousand, and September sales were revised up from 354 thousand to 403 thousand.   August sales were revised up from 379 thousand to 388 thousand.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

"Sales of new single-family houses in November 2013 were at a seasonally adjusted annual rate of 464,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.1 percent below the revised October rate of 474,000, but is 16.6 percent above the November 2012 estimate of 398,000."
New Home SalesClick on graph for larger image in graph gallery.

This was reported as a decrease in the sales rate, but that was because sales in October were revised up.  Sales in October and November were at the highest rate since 2008.

Even with this increase, new home sales are still near the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply decreased in November to 4.3 months from 4.5 months in October.

The all time record was 12.1 months of supply in January 2009.

New Home Sales, Months of Supply This is now in the normal range (less than 6 months supply is normal).
"The seasonally adjusted estimate of new houses for sale at the end of November was 167,000. This represents a supply of 4.3 months at the current sales rate."
On inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

New Home Sales, InventoryThis graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is near the record low. The combined total of completed and under construction is still very low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In November 2013 (red column), 33 thousand new homes were sold (NSA). Last year 29 thousand homes were sold in November. The high for November was 86 thousand in 2005, and the low for November was 20 thousand in 2010.

New Home Sales, NSA

This was above expectations of 450,000 sales in November, and there were significant upward revisions to prior months.

I'll have more later today - but this was a solid report and the housing recovery will continue.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Refinance Activity Lowest since Nov 2008

by Bill McBride on 12/24/2013 09:01:00 AM

From the MBA: Mortgage Applications Fall During Holiday-Shortened Week

Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 20, 2013. ...

The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier....
...
"Purchase volume was weak too, continuing to run more than ten percent below last year's pace." [said Mike Fratantoni, MBA’s Vice President of Research and Economics].

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.63 percent, the highest level since September 2013, from 4.61 percent, with points unchanged at 0.24 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Purchase Index Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down sharply - and down 72% from the levels in early May - and at the lowest level since November 2008


Mortgage Refinance Index The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 11% from a year ago.